The first step to improve your cash flow management is to forecast your cash flow for the year. This means estimating your sales, expenses, and cash balance for each month, based on historical data, market trends, and your business goals. A cash flow forecast will help you identify when you will have surplus or shortfall of cash, and how much you will need to cover your costs and grow your business. You can use a spreadsheet or a software tool to create and update your cash flow forecast regularly.
1. Monitoring - get a dedicated person to monitor cashflows regularly, preferably daily. In particular, budgetary deviations should be flagged and properly explained. 2. Reconciliations - these will help you establish correct positions so ensure they are done timely. 3. Standby facilities - arrange with the banks for cost effective facilities. 4. Risk Management- avoid exposures due to excess idle cash, exchange rate fluctuations, uninsured cash balances etc. 5. Ensure petty cash floats are accounted for and reconciled weekly.
Also, build good credit and pay your bills on time. Many credit companies will offer VERY low interest promotions. In times of low cash flow, take advantage of low interest rates to invest for times of surplus. That's how I scaled my eBay business.
You should know what you can expect based on prior years if nothing has changed. Then adjust with realistic figures once they come in and make changes from there so that you are updating from projections to reality.
I think in a seasonal business reality of estimations for your budget become more important. Budget with too much of a positive lens and you will expend to much too early with little chance to correct in the quiet or low-income season. Budget to conservatively and you will miss opportunities on pricing during the peak season and potentially (if you decide to go that route) oversize facilities or mitigation plans which have their own cost. Being accurate in the plan is key.
In my experience owning a bed and breakfast, it was important to save as much as possible in the high season, plan for the low season, have a line of credit handy. Stay lean with staffing in low season.
The second step to improve your cash flow management is to build a cash reserve during your peak season. A cash reserve is a buffer of money that you can use to cover your expenses and emergencies during your low season. To build a cash reserve, you need to save as much as possible from your peak season sales, and avoid unnecessary spending. You can also look for ways to increase your revenue, such as offering discounts, upselling, or expanding your product range. You should aim to have at least three to six months of operating expenses in your cash reserve.
There are better alternate like funding seasonal business before the peak period through Credit Limit from Bank/FI's or even negotiate with vendors to provide better credit terms and once sales are crystallized, then this can be paid off. Calculate & Optimise Cash / Liquid Ratio. Create Cash Flow budget and tightening non-essential expenses, think & evaluate whether to go for Capex or take on lease - this could be game changer. Even, I have seen founders raising their fund just at nick of time when they need funds.
One thing to add here is WHERE to store that cash reserve, or opportunities or emergency. Generally speaking, cash at a bank or HYSA has the most amount of liquidity and easy of access, but is going to yield the lowest amount of interest. Here are some other places to consider where to store capital (can't explain them all and is there no specific order...) - short-term bond funds - bank CDs - Unit Invest Trusts - Cash Value Whole Life Insurance (dividend paying) - Muni Bonds Not enough characters to explain all these but there are a handful of places to reserve funds outside of a checking account.
Cash reserve will always be a best practice in seasonal businesses, donot forget to cover possible shortfalls in your forecast, estimating amount of cash reserve or complementary credit lines
For informational purposes only, managing a cash reserve is crucial for financial stability. It acts as a buffer against unforeseen expenses, emergencies, or investment opportunities. The size of the reserve varies depending on individual circumstances, risk tolerance, and financial goals. Striking a balance between liquidity and returns is key; excessive cash can erode potential gains, while too little can pose risks. Assessing your needs, maintaining discipline, and periodically reassessing your cash reserve are prudent practices.
Expectations regarding cash flows depend on several factors, including 1- The size of the activity in which you deal, whether it is small, medium, large or huge. 2- The nature of the commercial activity as an agent or manufacturer of a product or agricultural activity. 3- Government monetary policies in the country in which you manage the activity 4 -Available bank financing 5-Other basic factors such as political, internal and regional tensions. All of these factors give rise to a set of alternatives for selection. By making tables and relying on historical records of sales, seasonal fluctuations in imports and needs, and targeted expansion plans,
The third step to improve your cash flow management is to reduce your expenses during your low season. You can do this by cutting down on variable costs, such as inventory, marketing, and utilities. You can also negotiate with your suppliers, vendors, and landlords for better terms, such as lower prices, longer payment terms, or flexible contracts. You can also reduce your fixed costs, such as rent, salaries, and insurance, by downsizing, outsourcing, or sharing resources with other businesses.
I don't agree for such measures to reduce expenses as this will eventually end with closing the company as there will be no one to manage the company operation.
Not always this will be possible, a good way to deal in your low season will be reducing inventory, increase as possible DPO and reduce DSO.
Planifier (plan de trésorerie): faire des placements au cours des périodes où nous sommes en excédant de trésorerie ( privilégier les placements où il est possible de sortir avant la maturité sans pénalité pour plus de flexibilité) pour améliorer le résultat financier. Suivre (plan vs réel) : mettre à jour le plan de trésorerie en expliquant les écarts observés et effectuer les ajustements nécessaires pour rester sur les rails.
Expense management is the same in both seasonal business and non-seasonal management- low-cost producers will always fair better than those who dont manage their costs. The timing of the expenses is the key in seasonal business. If you match your key expenses to the time of your revenue, then you will be able to manage the non-income periods better. Alsoh having a variable facility limit shaped to your cashflows will assist with more facility available to see you through the non- income period
For any business to become successful and profitable, one should always operate with optimum resources. Cost cutting should not be a done when business is low, it should be done every time to improve efficiency and profitability. salaries reduction should always be the last option to reduce cost.
The fourth step to improve your cash flow management is to diversify your income during your low season. You can do this by finding alternative sources of revenue, such as offering complementary products or services, targeting different markets, or creating passive income streams. For example, if you run a ski resort, you can offer summer activities, such as hiking, biking, or camping, or rent out your facilities for events, conferences, or weddings. You can also create online courses, ebooks, or podcasts related to your niche, and sell them on your website or social media platforms.
To manage the cash flow effectively when on seasonal business, one should be able to strike balancing between under-trading and over- trading.
Seasonal business is a very broad term, is it production or seasonal sales. Assuming it is seasonal production then one key would be ensuring you diversify your market so you are selling into someone's offseason not competing in everyone in the in season market. Exports can play a vital role in that.
Consider diversifying your product or service offerings to generate income during off-peak seasons. This can help smooth out cash flow and reduce the impact of seasonal downturns.
The fifth step to improve your cash flow management is to manage your debt wisely. Debt can be a useful tool to finance your growth, but it can also be a burden on your cash flow if you don't repay it on time or at a reasonable interest rate. You should avoid taking on too much debt, and only borrow what you need and can afford to pay back. You should also compare different financing options, such as loans, lines of credit, or invoice factoring, and choose the one that suits your cash flow needs and goals. You should also pay off your high-interest debt first, and consolidate your debt if possible.
You can also increase your payable period and reduce your receivable period. With these approach you will have enough cash for trading.
Try to manage debt structure by using debts for their intended purposes. Do not use a working capital line for long term fixed asset purchases and do not use long term debt for self liquidating assets like AR and Inventory. If you need to restructure your debt to meet repayment terms, talk with your banker.
The sixth and final step to improve your cash flow management is to monitor and adjust your cash flow regularly. You should track your cash inflows and outflows, and compare them with your cash flow forecast. You should also review your cash flow statements, which show your cash flow from operating, investing, and financing activities. By monitoring and adjusting your cash flow, you can spot any issues or opportunities, and take corrective or preventive actions accordingly. You can also use key performance indicators, such as cash flow ratio, cash conversion cycle, or working capital, to measure and improve your cash flow efficiency and profitability.
The Cash flow statements provide a snapshot of a company’s liquidity and financial health. Managing cash flow in a seasonal business can be challenging, but there are effective strategies to keep your finances in a better position. Direct Method: Lists actual cash transactions (e.g., customer payments, supplier expenses). Indirect Method: Separates operating, investing, and financing activities. Starts with net income and adjusts for non-cash items (e.g., depreciation, working capital changes). Draw weekly, monthly & quarterly cash flow statements. Historical data on seasonal variables can provide trends. Adopting a cash-preservation mindset is a must. Understand how much working capital your seasonal business needs and plan accordingly.
The Working Capital Team should look into Order to Cash process. Looking at the 2 factors: Cash in/ Cash out, Cash in is key. If a process is in place to ensure the cash inflow is not impacted, there won't be any pressure on the cash outflow (payment to suppliers). Invoicing client is key, but on the side, there are other areas to look into: Country regulations for invoicing and payments, documents required for clients to release payments, professional skills of employees and a process that helps to bring the cash in the door.
Seasonal businesses require meticulous cashflow planning to navigate peaks and troughs. To enhance cash expenditure management, a traditional approach involves categorizing expenses into fixed and variable, employing a MOSCOW framework prioritises items based on necessity. Resource utilisation involves a thoughtful approach to facilities or software, that may go unused during off-seasons. Repurpose or reducing costs during trough periods maintains flexibility. Without substantial reserves, the timing and predictability of cash inflows become paramount. The application of the 7Ps of marketing — covering product, price, place, promotion, people, processes, and physical evidence — is relevant for forecasting for financial resilience.
Work with your Lender to see if you can capitalize your interest during the down times and make larger payments or balloon payments during the periods of increased cash flow.
Understand your seasons and know what seasons and how seasons affect your cashflow. Stagger payments, reduce subscriptions as well to reduce cash outflows.
Sell your receivables so that your cash on hand goes up when you need more, and your cash and working capital costs go down when you need less.