Managing Your Finances as a Seasonal Business

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Article Summary:  Having spent over 20 years of my career either working in or running a seasonal small business, I’ve come to appreciate the unique challenges these business owners face. I’ve also come to appreciate the need to take a strategic approach to managing business finances, the need to occasionally borrow to bridge from one season to another, as well the importance of managing cash flow during the busy season as well as the off season. Keep reading to learn more.

Anticipating the Cyclical Nature of a Seasonal Business

Like most businesses, there is an ebb and flow of cash flow in and out of a seasonal business, it’s just more pronounced. As a result, it’s really important to have a handle on your cash flow needs and be able to anticipate when and how income will be impacted by a slower season.

Successful seasonal business owners are able to anticipate these cycles and avoid the temptation to spend more capital when it’s abundant so they have cash flow during the slack season. My grandmother on the farm would call this saving for a rainy day. With a few seasons under your belt, it’s easier to anticipate these periods, but even if this is your first year in business, you can research industry trends in your area to help you prepare.

Plan Ahead to Prepare for Potential Financing Needs

It’s important to plan ahead and prepare for those times when you may need some extra capital to bridge seasons. We used to spend the off seasons tackling maintenance issues, restocking inventory, and other business needs we didn’t have time to tackle in the middle of our busy seasons. This meant we needed the cash flow to make these things happen.

Although there were times when borrowing made sense to bridge the season, waiting until the need is upon you limits your options and makes it more difficult to find the right type of financing to meet the business need.

With that in mind, here are four things I’d suggest to help you plan ahead and put your best foot forward before you approach a lender and apply for a loan:

  1. Micromanage Expenses When Business is Good: The value of carefully managing expenses when business is good can’t be understated. This is especially important if you want to make sure you have the cash flow you’ll need to keep employees in the off season, have the cash to do repairs or fund other projects, restock inventory, or fuel marketing initiatives. It can be tempting to spend more when business is booming, but forecasting 12 months ahead will give you a good idea of what to expect, such as where there will likely be dips in revenue and when to make up for those dips.
  2. Think Strategically: The beginning of the year is a good time to look at the upcoming 12 months, forecast for those times when you could potentially need some extra capital, and plan accordingly (if you didn’t do that in January, it’s not too late—spend time this month looking forward for the second half of the year). For example, the time to borrow bridge capital is not when your business is in the middle of the slump. Make your application when you can demonstrate more cash flow than you’ll need to service the periodic payments. With that in mind, you’ll want to ensure that your business will be able to service the debt during the slack time.
  3. Differentiate Needs and Nice to Haves: I’m of the opinion that borrowing should benefit the business and contribute more than just “keeping the doors open” during the off season. As a result, I’m a fan of using borrowed capital to either increase profits, ROI, or improve the value of the business. For initiatives that wouldn’t do that, I’d rely on profits captured during the busy season to fund standard business operations, and would use borrowed capital to keep employees busy doing work that would make the business more valuable. This could include things like launching a new marketing initiative, exploring a new product geared toward the traditional slack season, or working on physical facilities improvement.
  4. Review Your Personal and Business Credit Profile and Take Appropriate Actions: If you have a less-than-perfect personal credit score or your business credit profile is weak, start taking actions now to improve your personal score or build a strong business credit profile. Although it won’t happen overnight, consistent effort will improve both over time. Doing nothing will not and waiting until you’re ready to borrow is too late.

Managing finances as a seasonal business is important both when you’re in the thick of your busy season (as many of our customers are right now), or working your way through a bridge season. Many small businesses rely on borrowed capital at these times, but it’s important to make sure you will have the cash flow you need to make each and every periodic payment—even during the slow season. If you can’t, borrowing might not be the best idea and could add unneeded and unwanted financial stress to you and your business.

What do you do to maintain the cash flow you need to bridge from one busy season to the next?