Winter Brings Seasonal Business Cash Flow Issues


The Ground Hog has told us that we can now expect six more weeks of winter in 2013. This is bad news for certain types of businesses.

Many small business owners experience seasonal cash flow issues at particular times during the year. Summer landscapers find cold weather work to do, such as driving snow plows, but the regularity of the work can be erratic. Retailers experience slowdowns after the holiday shopping season. Restaurants and hotels at shore towns experience a boom during the summertime but struggle with cash flow in the winter.

If you operate a seasonal business, it’s crucial to make cash flow projections as part of your financial planning for the year. This will enable you to predict your income and plan for lean times.  Look back at your records from prior years to see when cash flow issues are most prevalent. Consider fixed expenses, such as rent and utilities, and your variable costs, such as salaries, inventory, and taxes and the times during the year when variable expenses will be highest.

Once you have a handle on your annual revenues and expenses, you can start to develop strategies to manage cash flow all year long.

1) Modify Your Invoicing

One way of improving your cash flow as you approach your quiet season is to alter your invoicing policies. Bill clients in advance and offer discounts for doing so.  Try to secure as much upfront payment as you can. The money will flow in during busy periods. You must find a way to gain income during the slowdowns.

2) Negotiate Flexible Payment Terms from Vendors

Just as you want to modify your cash inflow, you should also attempt to negotiate favorable payment terms from your vendors. Perhaps you can space out payments during the year so that you do not get hit hard by variable expenses (inventory and marketing costs, for example) that occur just before your busy season hits. Some suppliers may be willing to knock down their prices in return for advance payments. If you can swing it, this can be helpful

3) Develop New Sources of Income

Diversifying your offerings can help keep cash flowing into your business during slow periods. If you have a house painting business that slows in the winter, consider using your truck as a snow plow service. You could also begin developing another skill set that can help provide revenue during slow months.

4) Search for Sources of Small Business Financing

Consider taking a short term loan or opening up a business line of credit.

So what types of lenders should small business owners approach for working capital? Lines of credit are popular among entrepreneurs who operate seasonal businesses. Increasingly, retailers are seeking to secure financing through merchant cash advances, which are so-called "alternative lenders" to traditional banks.  Merchant cash advance is on the rise as a method of financing for business owners who experience off-season cash flow problems. They specialize in providing swift access to cash that can help float a business until the flush times come again.

Even veteran business owners must plan carefully for slowdown periods. Manage the cash you receive during peak periods in order to sustain operations during the off-season.

Rohit Arora is co-founder and CEO of Biz2Credit, an online resource that connects 1.6 million small business owners with 1,100+ lenders, credit rating agencies and service providers such as CPAs and attorneys via its Internet platform.  Since 2007, Biz2Credit has secured $800 million in startup funding, small business loans and business lines of credit for entrepreneurs across the U.S.