Produce an accurate cash flow forecast for your seasonal business

It is vital to look back over historical data to analyse your business’ income and expenditure, ideally over a number of years. Many business owners feel they instinctively have a good sense of their business’ rhythms, especially where this is dictated by seasonal patterns.

However, the data tells a much more precise story, and this is the narrative you need. Look back and chart sales month by month and week by week; and develop a detailed analysis of your weekly, monthly, yearly costs – all of your costs. If your business is new and doesn’t have the data available, look at your competitors’ data: view the accounts filed at companies house, look at published industry data to build a clear picture of exactly when your sales should increase and decline, and what costs your business is going to incur, and when.

This analysis is an absolute and unavoidable necessity. From this data, you’ll be able to draw up a realistic and accurate sales forecast, and from there, a realistic budget to manage expenditure and cash flow.

Manage your seasonal business costs and expenditure

For many seasonal businesses, sales will decline during certain periods of the year, but costs will remain. The key is to manage your business’ costs and thereby cash flow, rather than have costs dictate cash flow.

Once you’ve produced a comprehensive and detailed analysis of all of your business’ costs, find out where or which ones you can manage strategically to your advantage. For example:

  • If you pay business rent, can you organise the payments so that you pay more during the peak months and less during the quieter periods?
  • Are there any other payments that you can move from quieter periods into busier periods?
  • Look at the terms of your agreements with suppliers, for those suppliers who require shorter payment terms, can you find alternative suppliers with more favourable terms?
  • Can you extend the terms of your existing relationships during the quieter periods, perhaps on the back of good payment relationships?
  • Are there any suppliers that you pay too early according to the payment terms?
  • Are there any areas of the business that can be streamlined during the off-season without harming the business in the long-term?
  • Are there any areas of your business holding too much stock at certain times of the year, i.e. going into quieter periods, which stagnate cash flow?

You should be able to identify exactly when your costs will increase, when they will decrease, and plan your cash flow accordingly. Remember that coming out of your off-season, you will need enough cash reserves available to increase stock/work-in-progress and staffing as you move into the busier periods; try to build a little something extra into your reserves to accommodate this.

Try also to build a little extra in to cover any unexpected costs e.g. maintenance costs that may occur during the off-season. Finally, be strict about how you spend your reserves.

Maximise your sources of income

It goes without saying that in a seasonal business, when the sun shines, you make hay but are there any other sources of income generation that you can maximise or take advantage of year-round?

Keep on top of your customer relationships. For many seasonal businesses, their customers don’t fade away entirely during the off-season. Whilst we don’t advocate risky diversifications, it may be possible to offer additional, tailor-made seasonal services for your clients at no extra cost to the business.

A local bike shop for example, which traditionally generates most of its income during the summer months, also benefits from special end of season clothing sales, and end of season / early season bike-service offers that leave clients’ bikes in the best possible condition coming out of the winter months. It also keeps those relationships ticking over.

Alternatively, are there any staff or building resources that you can use to generate income during the off-season without increased financial cost or risk to the business? Venue hire for example? Know where your customers spend their money in the off-season and see if you can assist in any way.

Obtaining funding or credit for seasonal businesses

For many businesses, accessing funding is much more difficult when you most need help. Developing good relationships with possible or future lines of credit is therefore absolutely key. If you suspect that you are going to need financial support during the off-season, try and plan for it as far in advance as possible.

Don’t leave asking for funding to the last minute if you can avoid it, otherwise you are likely to find it more expensive to put in place.

If you have kept your budgets and forecasts up to date, you’ll be able to provide comprehensive information quickly and easily when you need it. It’ll also help you monitor your business’ progress and look out for any warning signals. If, for example, a pattern of regular credit requirements during certain periods is developing and not easily paid off in the peak months, you’ll be much better placed to examine the issue and address it if you are on top of your budgets and record keeping.

If you even begin to suspect that any cash flow issues might be symptomatic of a larger, or more fundamental problem in the business, seek advice at the earliest opportunity.

If you are struggling to get access to additional funding from the bank, have a look at our article here on alternative funding sources for businesses.

Final thoughts

If you are worried about your business cash flow, coming out of, or heading into the off-season, feel free to contact one of our BusinessRescueExperts for a confidential and informal chat.

Whether you have done your analysis and planning and you’re concerned about what you see, or you’re not sure how to approach your analysis or budgeting, we’ll be very pleased to talk through your options with you.