Cash flow can be a huge stress to many business owners. If your business is a seasonal business keeping an eye on cash flow can be the only thing that keeps your business alive.
Make Sure You Have Cash to Pay Your Bills
Your business will never survive if you don’t have enough money to pay your bills. Most businesses have seasonal highs and lows in their businesses. Construction companies usually see a downturn in the winter, as do retail businesses and restaurants in tourist towns. On the other hand many types of businesses like craft stores and book stores see more revenue in the winter than in the summer. These businesses need to make sure their are saving enough in their high seasons to get through their low months.
Let’s say you are a retail store in a tourist town and make most of your money from mid-May to mid-October. That leaves 7 months of slow times that you may not make enough to even cover your basic expenses. You keep a close eye on your financial statements and know that you need at least $5,000 a month to cover your basic expenses such as rent, utilities, etc. In the winter months you usually have a net loss of anywhere from $500-$2,000. In the high season you see a net profit of $10,000-$15,000 per month. So if you set aside half of your profits, or at least $5,000, per month for the 5 months you see high traffic that is $25,000 to help get you through the slow times. That spread over 7 months is over $3,000 per month which will help you cover your expenses. If you set aside $7,000 per month in the high season than you save enough to cover your basic expenses during the slow season. If you are not looking at your financial statements on a month to month basis, how do you know how much to save? How do you know how much you have available in the busy months to put aside?
Many companies like Shopify and Square offer loans to help businesses during slow times, for a fee. There are also lots of banks and companies that will give loans quickly at a high interest rate. Like I’ve mentioned in other blog posts, having to get money quickly because you didn’t plan ahead can mean you will pay a lot in fees and interest. With some basic analysis and planning you can avoid having to get high interest loans, and avoid getting in a cycle of needing to borrow money every year.