Tips for Managing Small Business Cash Flow This Summer

As the calendar turns the page to June, many seasonal businesses will soon find themselves flush with cash. Managing small business cash flow in peak earning season can help your company get through the leaner months. Summer is high time for landscapers, ice cream shops, amusement parks, boardwalk t-shirt shops and restaurants with outdoor dining.

Businesses in cities, such as New York, Boston, Chicago, and San Francisco will see significant increases in their revenues as Americans begin family vacations after the end of the school year and as foreign tourists flock to the U.S. this summer.

Small business owners must look at their operations from an overall 12-month perspective, even if they are seasonal in nature.

1.)    Prepare a Cash Flow Statement

A small business cash flow statement details revenue and expenses over the past year. Your accountant can do this for you, or you can purchase any number of accounting software packages that will guide you through the process. Knowing the ebbs and flows of your cash intake is a critical step in building a successful business.

2.)    Anticipate Upcoming Expenses

After you figure out your revenues, the logical progression is to estimate upcoming expenses. Staffing for will drop dramatically in the off-season, but fixed costs will remain. Heating bills must be paid, insurance policies must be maintained, and rent checks have to be written. Small business owners should also be ready for the ramp-up before next year’s busy season. Before your company starts making money again, you’ll have to purchase inventory and hire and train staff. Knowing the costs incurred this year will provide a benchmark for expenses of the future.

However, every business must be prepared for unexpected expenses: basement flooding that ruins inventory, replacing a poorly functioning piece of equipment, cleaning up damage from a storm. It is impossible to anticipate every future expense. Having cash reserves will help weather such instances.

Squirrel Away Money Made During Peak Periods

It is important for seasonal businesses is to stockpile cash for slow periods. Be careful not to over-hire when times are flush. After all, if you are unable to manage cash flow when times are good, things will be worse when times are bad.

For instance, Rita’s Italian Ice franchises generally open on the first day of spring and close sometime in the late fall. Stockpile enough money during the high times to cover the rent and other fixed costs, including insurance, during months when revenues drop.

Secure a Line of Credit

A company that generally has good cash flow but occasionally runs into financial woes might consider opening up a business line of credit. Usually carrying a lower interest rate than a business credit card, a business line of credit is a lump sum of money in an account from which a company can draw upon when needed. The money can be used to make purchases or to cover bills when times are tight. With lines of credit, interest is charged only on the amount of money being used, not on the entire lump sum.

Companies that have been in operation for more than two years are often able to obtain unsecured lines of credit. A younger firm that does not have an established track record of paying bills might have to provide collateral in order to get the line of credit. Firms that have not paid bills on time might have difficulty securing a line of credit. In such cases, consider another type of funding.

For those that do qualify, a smart move is to open a line of credit when times are good and tap into it only when necessary. Many lenders will waive the first year’s fee, so there is little risk involved.

Diversify in the Off-Season

Devise new revenue streams during slow periods. Landscapers typically move directly into autumn leaf pickup and snow plowing when the cold weather hits. Ice cream shops can add warm desserts and coffee to become a fall and winter destination. Bar restaurants that are jammed during warm weather can entice diners with live music or special menus once the leaves start to change colors.

If you cannot create new revenue streams during the fall slowdown, then use the down time to update your business plan and look for cost savings – such as finding cheaper suppliers – that can help your company become more profitable.