Article Summary: There is a lot of advice about things seasonal small businesses can do to keep their businesses going during the off season, but maximizing cash flow during the busy season is something most successful businesses do to keep profitable all year long. Here are a handful of things I learned during my 30+ years in small business, along with what I've observed other successful businesses do:
- Draft a financial strategy every year: Map our your anticipated revenues and expenses by month to make sure there's enough cash flow for the entire year.
- Save for a rainy day: Get in the habit of setting aside some of the profits when times are good to smooth out your cash flow.
- Don't trust in "hopium": Small business owners are an optimistic bunch, but don't allow that optimism to overshadow the realities of meeting your cash flow needs throughout the entire year.
- Invest in the off season: Look for products or services that would be a good investment in your off season. What can your business do to stretch the busy season even if it's only by a month or two?
Maximizing your cash flow when business is booming is an important part of building a profitable business. Keep reading to learn more.
Most of my career in small business was spent in what I would call fairly seasonal small businesses. Maximizing cash flow throughout the year was an important part of not only keeping the doors open, but being able to keep staff employed, meet financial goals, and ensure that we could serve our customers.
I think most business owners that operate seasonal businesses of one kind or another understand that it’s important to manage expenses during the off season (or when businesses ebb and flow), but I’m convinced that maximizing cash flow during the busy season is critically important. When things are busy and the business feels flush with cash, it’s easy to leave the leaner seasons in the back of your mind. Because of this, I’m a big fan of looking at the business cycle throughout the entire year to make sure the business is maximizing cash flow during the busy seasons as well as the off seasons.
Here are four things I’d suggest you consider to maximize cash flow if you operate a seasonal business:
- Draft a financial strategy every year: In my experience, for every three or four months when business was busy, we would have a month or two of slack time, making it difficult to reduce operations, and more importantly, keep staff busy during the slow periods. Every seasonal business is a little different, so you’ll have to look at your individual circumstances to make an annual strategic assessment. Budgeting for this can be difficult if you haven’t got a full year under your belt (making year-over-year comparisons difficult in this situation), but that doesn’t mean in those first few years you can’t make assumptions about the seasonality of your business. For example, a professional photographer can anticipate that April through June will be busy wedding months and the months before the Christmas holiday will be busy taking family portraits. As your business matures and has a history, it will be easier for you to anticipate your cash flow needs throughout the year and devise a strategy to capture profits when it’s busy that can be utilized when it isn’t.
- Save for a rainy day: My grandmother taught me that setting aside a little bit of cash on a regular basis was a good idea. I wish I had been more diligent about following her advice, but that’s another story. The same advice holds true for every small business. Maintaining 12 months of operating expenses in a cash reserve is a good idea. Nevertheless, 12 months of capital can be a daunting goal for a new business, so start with a smaller goal. Maybe it’s a month, a quarter, or six months, but regularly setting aside capital when business is good to cover expenses, initiate projects, or otherwise keep employees busy and engaged is a good practice. Not only does this mean you’ll have cash in the bank in case of an emergency, you’ll feel the satisfaction of knowing that you’re being responsible and maximizing the value of the revenue you’re capturing when business is good.
- Avoid temptation; and don’t trust “hopium”: For me, at least, it in the middle of the rush, it was hard to think much about the slack time just around the corner. I was measuring our success on a regular basis and wanted to believe that, “This year we will maintain momentum though the off season.” The business cycle from year to year got more and more predictable, making it easier to budget, but as the business grew, the temptation to trust in hopium (the unwavering belief that my business would always grow) got stronger too. Unless you are doing something different to draw business in during the off season, at least in my experience, the business cycle continued to ebb and flow as expected.
- Invest in the off season: Like most business owners, I was always looking for ways I could expand my business during the off seasons and would invest resources there. Sometimes those ideas worked and sometimes they failed, but I would have never found the winners if I had failed to invest. Maximizing cash flow during the busy season will give you the resource flexibility you’ll need to invest in the off season.
During those years I spent in small seasonal businesses, I learned to live by the mantra, “Make hay while the sun shines.” In other words, capture as many profits as you can during the busy season. I also believed that pushing the edges of the busy season, even if it’s just a week or so earlier or a week or so longer, would add additional profits to my business. Sometimes it was an early bird promotion and other times we promoted the end of the season.
I also got used to putting aside a little capital for when times were lean and spent a lot of time considering investments to help business remain profitable all year round.