Your small business may encounter peaks and valleys throughout the year. These seasonal shifts in increases or decreases in sales may cause a cash shortage in different times of the year. You have to prepare and implement a budget for such cases. Adjusting cash flow activities allow you to allocate resources effectively.
These are cash flow tips you can implement to manage seasonal sales fluctuations.
Make a Yearly Cash Flow Projection
Even if your small business is new, making a cash flow projection is important. Base your projections on previous sales and cash flow. Compare this with the months before and after the fluctuations. This enables you to balance your cash flow activities, manage your finances, and allocate resources effectively. Always compare your cash projections with the cash you already have after every month.
Create a Budget Based on Down Months
Seasonal sales fluctuations get some small business owners excited. The sudden increase in cash leads them to pay off debt, make investments, or buy more inventory than they should. They then experience a drop in sales and are dealing with cash flow problems. This makes maintaining operations difficult. This is why you should create a budget using slow months as your base. This provides you with a realistic look at your cash flow. You can then determine how much money you can allocate to different aspects of your small business.
It helps to overestimate your monthly costs compared to underestimating. This approach allows you to have more cash (or just enough) by month’s end. This provides you with the financial flexibility to purchase additional inventory, invest in your small business, or pay suppliers early. When you make estimates, add an extra 10% or 15% on the same month from last year.
Hire Temporary Employees
Some small business owners make the mistake of hiring too many employees. This reduces their budget and shrinks their monthly cash flow. Seasonal increases in sales make them think they can sustain hiring new employees. Your approach should be different. Only hire temporary employees whenever your business’ peak season starts. This provides you with support during high customer demand and allows you to save money when the slow months start. Identify upswings in sales and plan around it.
Renegotiate with Suppliers
You’ll never know when supply chain disruptions may happen. This may cause an inventory shortage or delays in delivery and affect the way you manage seasonal fluctuations. You might not have enough products during high demand because of the disruption. To alleviate the risk and negative effect of disruptions, renegotiate with suppliers. Try to get better and longer payment terms for purchases and determine lead times for deliveries. The right lead time gets your inventory on shelves once your business’ peak season starts.
Consider Getting a Loan
Slow months may strap your cash flow activities. In such cases, your small business may need extra financing. Consider getting either a short or long-term loan to keep your cash flow going. Determine which type of loan you need and identify its requirements.
Seasonal fluctuations may be deceiving. You might think your small business has reached a higher sales level, but the months after say otherwise. It’s important to manage your cash flow so that you have enough resources for regular operations throughout the year. We at Robookkeeper can provide you with affordable outsourced bookkeeping services. Let us do your bookkeeping so that you can focus on growing your small business.