05 Dec Managing Finances in a Seasonal Industry
Overseeing your business finances is hard enough in any industry, but when it’s dependent on a cyclical pattern, it can seem insurmountable. For better or worse, many businesses deal with seasonality in their sales. Managing finances in a seasonal industry is a constant battle for many business owners. In the construction industry, even a little work just isn’t possible at certain times of the year depending on where the project is located. Manipulating the buying habits of your customers is about as easy as controlling the weather, but there are still a few ways to smooth out cash flow to account for busy months and slow seasons throughout the year.
Know your seasons, and your clients
One of the most important aspects of managing finances in a seasonal industry, is in your ability to fully understand cyclical pattern of your sales, or the industry in general. Depending on your line of work, this might be pretty easy, but don’t assume obvious answers are worth ignoring. A snow plow contractor, for example, will need to plan his or her business around when it usually snows. With this in mind, the company can plan its prices and finances to save more and spend less in preparation for the summer.
Going a step further, that snow plow contractor can use seasonal trends to their advantage. The New York Times spoke with an owner of a snow removal service who explained how he promises his clients a high level of service thanks to the seasonal, on-demand nature of the work: If a customer is unhappy with a job or suffers damage to their property as a result, they can withhold payment for a few days until it’s sorted out. The snow removal business owner is able to differentiate his business from competitors while still charging a premium for convenience and high-quality service, thanks in part to seasonal demand, as well as clever management.
Adjust accounting and forecasting
Managing finances in a seasonal industry requires that you have a firm handle on your company’s seasonal cash flow trends and take the necessary steps to stay ahead of the curve. For example, wholesale businesses, need to anticipate the increase in sales from retailers before the holiday season begins. Business cash flow management is a primary factor in many small-business failures, not necessarily a lack of funds. Organizations can take a number of proactive steps in their accounting process to counteract this:
• Forecast cash flow on an annual, quarterly and monthly basis with assumptions for the seasonal patterns of your business.
• Assess your billing practices and align them with your sales cycle. For example, you might consider offering customers a discount for invoices paid early or for cash payments.
• Examine how you could continue earning income or reducing costs during your off-season, perhaps by selling off inventory or diversifying into other services.
Even the most rigorous planning or a great quarter can’t always leave room for a surprise bill or emergency expense. For this reason, small-business owners still rely on short-term loans to make cash flow management a little easier during slow seasons or sudden problems. Talk to QuickBridge to learn more about how the right financing program can help your business through whatever the seasons have in store.