You’re excited to finally have your business up and running. Your dream is now a reality, and you can’t believe how far you’ve come. New customers are becoming regulars and everything is looking good. But what’s a boss to do when cash flow starts slowing down? Business and finance expert Tarra Jackson, author of 10 Traits to Avoid to Be a Successful Business Owner, is here with some valuable tips on how to create a buffer that will protect your business during the tough times.
How You Can Prepare for a Slow Business Season
Start by creating a seasonal demand calendar. One of the best ways to prepare financially for a slow business season is to understand your business or industry’s seasonality. It is critical for a business owner to be aware of their peak and slow seasons. Creating a seasonal demand calendar, also known as a marketing calendar, will help to maximize the peak season so an appropriate seasonal business budget can be created.
Next, create a business budget based on your seasonality. A business budget for a seasonal business is extremely essential for its success and sustainability. During the peak season, focus on allocating funds to a reserve account to be used during the slow season. During the slow season, focus on allocating funds for planning and marketing campaigns so that you are prepared to promote your business for the upcoming peak season.
Finally, create a subscription-based product or service. Offering a special service or membership that requires an annual subscription broken up into monthly payments is a great way to generate monthly cash flow year round, especially during your slow season.
Have Adequate Savings for Cash-Flow Emergencies
A reserve fund is insurance against slow season cash-flow gaps or unexpected emergencies. Although it is recommended to have three to six months of operating expenses in a reserve account, it may not be realistic for most new business owners to make that lump-sum deposit. Budget at least 10% of sales to build up the reserve account over time.
Do's and Don'ts When It Comes to Preparing Business Finances for a Slow Season
• Do be like the ant. The ant is the best example of a seasonal business owner. During the peak season, the ants work tirelessly to gather as much food as they can. However, instead of eating everything they gather, they store up food for their hibernation season. During your peak season while sales are high, be sure to set money aside in a reserve savings account that you can use for operational expenses or fill in income gaps as necessary.
• Do be disciplined. Most businesses fail because they are not disciplined. Being disciplined with cash flow management during peak season is crucial to its sustainability during the slow season. It may not be easy at first, but when you have a corporate cash stash, known as a reserve, during the slow season, you will thank me and yourself!
• Do minimize or eliminate nonessential expenses during the slow season. For example, consider re-examining your cell phone usage during the slow season.
• Don’t confuse cash flow with profits. Just because there are loads of sales coming in doesn’t mean there is money in the bank. Cash flow and profit are not the same.
• Don’t go into debt. In some cases, having a line of credit accessible may seem like a great idea. However, if your business is new and not making a significant profit, it may eat up your cash flow as an additional business expense. Limit your debt early in your business development.
• Don’t spend all of your cash flow. As mentioned above, set some funds aside in a reserve savings account for slow season cash-flow gaps.
Financial planning for seasonal businesses can be overwhelming, so consider hiring a professional accountant, CPA, or bookkeeper to assist with managing your business cash flow. If you are not knowledgeable about basic accounting principles or do not have the time to tend to this important task, a professional will be one of you best business assets.
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