Cash flow is a never-ending problem in small businesses. Achieving consistent positive cash flow is an even bigger challenge if you make most of your sales during a single season. A U.S. bank study showed that 82% of businesses fail due to poor cash management—so if you have trouble putting money in the right places, you’re not alone.
Cash flow can slow to a trickle during slumps in industries like retail, construction, landscaping and hospitality. The result? Business owners scramble to meet expenses.
Strategic planning and saving helps, of course, but what if the cash you set aside isn’t enough? How can you be sure you always have enough funds to keep your business going until sales pick up again? Here’s what you need to know.
Start by taking a look at past sales records and cash flow statements. If you don’t have a cash flow statement, now is a good time to make one.
This gives you a window into your ongoing financial situation. It helps you see where your business’s money comes from, where it goes, and whether or not you’re bringing in more over time.
Seasonal sales trends offer more insights.
You can’t always know when a lull will occur, but most seasonal businesses will have one or more predictable downward trends during the year. For example, construction companies do most of their business in the summer. Retail stores often see a huge increase in customer spending around the holidays.
As you review your financial documents, take note of:
Use this information to create an overview of a typical year. With this as a baseline, you can anticipate how much extra cash you’ll need to cover expenses when cash flow drops.
To have an accurate idea of future cash requirements, you need to create an expense forecast. This should include all known expenses, such as:
In addition to these fixed costs, you need to consider seasonal expenses. Ironically, it’s normal for seasonal businesses to spend a good deal of money right before sales pick up again. This is because it helps them to generate the highest revenue—even though it’s when they have the toughest time laying out cash.
What do these costs look like in an expense forecast? Depending on your industry, you may need to budget for:
Again, going through financial statements can give you a clearer picture of how much you’ve spent in previous years and where the majority of the money went.
Look for patterns. Note where you allocated too much or too little cash. If you find cash flow is negative during slow seasons more often than not, you may benefit from business financing.
A line of credit provides reliable funding for seasonal gaps.
Unlike a loan, which gives you a finite amount of cash and locks you into a repayment schedule, a business credit line makes a given amount of money available as needed and only requires payments when a draw is made. Revolving credit lines replenish every time you make a payment, so that you always have credit available.
How does this help your business during seasonal slumps?
Imagine you put aside money in anticipation of a slow period. You’re doing fine until a key piece of equipment breaks. Repair costs could easily wipe out a huge chunk of what you saved, leaving you with next to nothing for the rest of the season. If you use a line of credit to cover repairs instead, the cost is spread out across payments on the amount you draw.
To minimize the impact financing has on cash flow, look for a credit line with no inactivity fees and low or no draw fees. If you’d also prefer to avoid risking business or personal assets as collateral, an unsecured line is the best option.
As useful as a line of credit may be, remember it should only function as a support system. To keep your business cash flow positive, you also need to:
Learning how to find operating cash flow – the cash left over from primary business activities after expenses are subtracted – can help you make better spending and saving decisions.
If your business could benefit from a true revolving line of credit, get in touch with National Business Capital & Services.
You may be eligible for financing to cover seasonal cash flow gaps with no restrictions on how often you draw on the line. To qualify, your business must be established for two years with $120K in annual sales. There are programs available for all credit profiles!
National’s business line of credit doesn’t require collateral or a minimum FICO score, making it accessible to companies across the financial spectrum. All you need is three months of operational history and $120,000 or more in annual sales to get funding.
Complete the 60-second application to get started and learn your options right away!
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Matt Carrigan is the Content Writer at National Business Capital & Services. He loves spending every day creating content to educate business owners across every industry about business growth strategies, and how they can access the funding they need!