Does your cash flow feel as unpredictable as our changing seasons ?
The seasonality in our Canadian climate brings about many challenges for businesses as they are not immune to the weather and the corresponding changes to:
- Consumer demand.
- Product availability and the supply chain.
- Farming and natural resources.
- Economic forces.
As such, one of the most common concerns for business owners is cash flow management throughout the seasonal ebbs and flows.
Here are some recommendations:
1. Cost Down – At the end of each peak season management and ownership should begin a “cost down”. This will involve a cost reduction process by eliminating or reducing unnecessary variable expenses that are not vital to maintaining the business during the offseason.
2. Employees – Staffing levels should flow with the demands of the business. If retaining key personnel for the next peak season is critical to the business but cash is tight, a strong option is to enter into a work-sharing agreement which is available through Service Canada. The employers get to retain key personnel but can reduce costs by reduced employee hours. Employees, fortunately, are eligible for EI benefits due to their reduced schedules.
3. Financing Options – Seasonal start-up can strain cash flow as there are costs that are necessary to ramp up operations, but the revenues and collection of cash have not yet been realized. Consider a line of credit to access capital when needed for start-up operations or unexpected expenses occur.
4. Forecasting – Having a forecast of expected cash in and out is vital to any business but even more so when it comes to seasonality. A forecast should be continuously updated and monitored as it is a preventative maintenance tool that will allow a business to recognize cash problems before they occur.
5. Payment Terms – Both internal and external payment terms should be reviewed and optimized for cash purposes. A businesses billing process needs to be efficient, especially during slow periods. Efficiencies can be gained by reducing payment terms, charging interest on slow paying customers, and offering flexibility in method of payment. Vendors should be paid based on priority and the payment terms that were given. Being charged interest on overdue bills can often be avoided by proactively engaging the vendor and negotiating a payment arrangement.
6. Capital Assets – Operating cash should rarely be used for purchases of equipment and other operating assets. Alternatively, said equipment should be leased, financed, or simply rented as needed. This will avoid straining cash for assets that are not needed during slower periods.
