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Protecting your cash flow from seasonality

With the ever-changing nature of seasonality, small business owners have to navigate fluid cash flows.

While this can be a great way to make the most of busy periods, it's important to be prepared for dips in activity too.

Incorrectly managing your finances during these times can create serious financial strain so we’ve combined forces with Be the Business, an independent charity inspiring greater business productivity, to offer tips on how to produce a seasonal budget to protect your cash flow.

Paying close attention to budgeting is always important for running a successful business, but when your company has to deal with long lead times or plan for the seasonal nature of an industry like tourism or agriculture, it's even more crucial.

To get a better understanding of your cash flow, we’ve produced a handy step-by-step guide to help you get on top of your finances and make the most of every business opportunity.

When it comes to your annual cash flow, relying on a hunch isn't enough - you need detailed data to get the full picture.

A good place to start is by looking your business’s sales, gross profit, net profit, total overheads, and breakdown of overheads by category every week, month, and year.

Even with just two years of information you will start to see patterns emerge, plus you can compare against your competitors' financials via Companies House if you're just starting out.

This allows you to pinpoint the months that are comfortable for you financially and which ones could become problematic.

Flag these times in your diary so you know when to plan ahead and purchase extra stock for busy seasons - it's only then that your cash flow can be properly managed.

Now that you have a handle on how your income levels change during the financial year, you can now begin to map your costs.

To get a clearer sense of when and how much you're spending, create a spreadsheet that outlines each type of cost every month.

This could include materials and stock, rent and property costs, staff, consultancy, and operational costs such as manufacturing and transport - the specifics depend on your industry.

You'll also want to differentiate between fixed costs that must be paid regardless of sales (e.g., rent) and variable costs (e.g., materials) that change depending on the volume of sales.

Knowing this information will help you budget better and thus manage your company cash flow more effectively.

Read our guide on ways to reduce your business costs.

When you break it down, a cash flow forecast is nothing more than an outline of when money flows in and out of your business.

Outlining this data on a monthly or weekly basis can help you make better financial decisions.

Track the opening balance, outgoings, income and closing balance for a clearer view of your finances.

Not only will it show you how much available money you have at any one time, it'll also allow you to predict future financial trends and identify gaps in revenue so that you can prepare quickly - all the while being proactive about peaks and troughs in cash flow.

That way, you can reinvest during busy months and delay payments during the quieter ones.

Learn more about how to create a cash flow forecast for your business.

Managing fluctuating costs

Seasonal businesses need to be prepared for fluctuations in costs, especially during busy periods where you may require additional staff and consume more resources.

Making sure that your resources are managed correctly will help ensure that you have enough staff and stock to meet demand comfortably.

When things do start winding down you could use this time to reflect on what went well and plan for the future.

 

What to do with extra stock

Keep an eye on your bank balance if you rely on stock for your business - particularly at the end of a season.

Holding onto leftover stock can mean accumulating more storage costs, so why not mix things up and run a special promotion to drive sales?

Or look for alternative outlets to offload any extra inventory and reduce your overheads.

With a little bit of creativity and forward-thinking, it's possible to make the most out of every season!

 

Saving on staffing during quiet periods

When it comes to staffing up for the busy season, getting your processes in order is key.

Streamlining your recruitment process during less busy periods and reviewing job descriptions, onboarding, and training could be a good use of time.

You could even get some valuable insights from a recruitment agency or an outside perspective.

When employing seasonal staff it’s worth considering reaching out to past employees who have indicated they'd be interested in coming back.

These employees will be experienced and efficient, saving your time and effort on staff training.

 

How to create new income streams for your business

Businesses who operate in seasonal industries often explore ways of mitigating their reliance on particular times of year, this can often be through introducing new products or services to expand their revenue streams.

When it's your busy season, it's important to be proactive and use the opportunity to work towards future profits.

It can be well worth taking the time to get to know your customers better when you’re interacting with them frequently and really build a relationship.

It could be a good idea to offer discounts on bulk products or longer retainers, along with exclusive access to new products and services for returning clients.

If you start focusing on these early in the peak season; you'll be able to manage staff and stock more easily as demand increases.

Activity like this could pave the way for more business during peak times and might also give you an idea of what other products or services your customers require, needs that you might be able to meet.

When your business is going through a slower season, it’s time to put that research into practice and explore new ways to generate income for your business.

How about launching a product or service during the off-season? Can you hire out your assets or equipment? Sublet premises in quieter months either to pop-up businesses or events companies? Or even develop a training or consultancy offering as a side-line over the quieter months.

Exploring these opportunities can help you make your business more resilient to fluctuations in cash flow.

 

How to cope with cash flow changes

Now that you have the basics of cash flow and budgeting covered, you can use the available cash to your advantage.

Try restructuring payments so they come out during your highest earning months and look into negotiating longer terms for payment.

These changes can help make money management simpler when there's less coming in.

With some smart decision-making, you’ll be able to maximize your finances and open up new possibilities for your business!

If you need a bit of financial help to make it through off-peak seasons, working capital finance could be an option for you to consider.

The most important thing is to plan ahead - start getting to know the lenders and become familiar with their terms.

Even if you don't need funding now, exploring your options could give you a head start in the future.

Read our guide on using finance to boost business resilience.

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Finance Hub guidance and information

Reference to any organisation, business and event on this page does not constitute an endorsement or recommendation from the British Business Bank or its subsidiaries the UK Government. Whilst we make reasonable efforts to keep the information on this page up to date, we do not guarantee or warrant (implied or otherwise) that it is current, accurate or complete. The information is intended for general information purposes only and does not take into account your personal situation, nor does it constitute legal, financial, tax or other professional advice. You should always consider whether the information is applicable to your particular circumstances and, where appropriate, seek professional or specialist advice or support.

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