6 ways to improve your cash flow in a seasonal business | Novuna Business Finance (2024)

How do you improve seasonal cash flow? Some things seem obvious – like saving money while sales are up – but this guide gives you six other ways to improve your cash flow in a seasonal business, some of which you might not have considered before.

Get the basics right

Some businesses make enough profit in peak periods to easily see them through the lean times. If you run a small business with revenue that goes up and down on a seasonal basis, then you probably have sensible plans in place already – things like keeping a keen eye on your cash flow. These are the basics for any small business:

  • Getting to know your fixed and variable costs inside out
  • Knowing what you can cut back on, in terms of costs that vary greatly
  • Making sure you’ve got all the details you need to forecast accurately
  • Budgeting accordingly, and make regular savings to cover your expenses

If you’re not involved in hands-on accounting for your business, and you’re not sure what’s involved in cash flow projections, then you may find ourGuide to Cash Flow Forecastingis a helpful tool.

For a seasonal business, it’s a good idea to make cash projections that work over 18 months ahead. Track sales in busy periods, monitor expenses on an ongoing basis. Draw comparisons, season by season, to get a year-on-year snapshot of your cash flow situation. Then, when you’ve covered all the bases in terms of basic business operations, you can look at other ways to help improve your cash flow:

1. Encourage the cash to flow faster

Many small business owners believe there’s a benefit to building relationships through their invoicing. It’s all too easy to develop bad habits like not sending invoices out on time, in the misplaced belief that this helps to maintain a good working relationship in tough commercial conditions. The other temptation is to not chase payments from key customers when your invoices are due to be paid. What you’re really doing is providing a better cash flow for someone else’s business than you’re delivering for your own. This is bad practice.

Typically, you want to be paid as early as possible after you’ve provided a service or made a sale. Get into the habit of turnkey invoicing – sending out invoices as soon as possible in the purchase cycle – and think about offering more than one payment option.

  • Could you offer a discount for early settlement?
  • Could you set up discounts on purchases for part-payment upfront?
  • Would some customers be attracted by seasonal offers in exchange for early payment?

In all cases, be firm and clear in your expectations for settlement. Unfortunately, some small businesses struggle to follow this through if they have large, enterprise-sized clients. Don’t hesitate to follow through on customers that do not pay their invoices on time, and remember that you’re in business to make money (not to bankroll other people’s businesses).

2. Build better relationships with your suppliers

While you’re encouraging your own customers to pay on time, or even to settle their debts early, it may pay dividends to look at the way you’re paying your own bills. Not with the intention of defaulting on invoices of course, but with an eye to reviewing who you’re making purchases from on a regular basis, why, and how you pay those bills.

Find suppliers with whom you work well. Build on your relationships during the busy times, pay your bills punctually, and talk about securing discounts for buying in bulk or making a commitment to service provision over a longer period of time. By developing these relationships, you may be able to negotiate payment terms more favourably – in advance – for periods of time in which you know you’ll have less cash to play with.

3. Use your time wisely to increase your income

It may sound obvious, but many small businesses don’t take advantage of having free time to think laterally about their sales or operations strategy.

Motivate your teamto find new sources of revenue. For most small firms, this means developing complementary sales channels such as new or improved product lines, or similar services being offered to the same customer base. Diversification and action-plans come in all shapes and sizes.

Could your team hold the key to a new source of income? Have they had novel ideas during the busy times which you haven’t been able to test or trial yet? Is there some time-intensive marketing activity you could undertake in one season to boost your sales in the next? Are there pieces of equipment that *you* don’t use in a particular season which you could lease to a similar business?

A wedding planner might explore offering corporate entertainment packages, for example, during the winter months. Any health, fitness, or lifestyle-focused small business could focus on marketing a ‘commitment’ deal to individuals who wouldn’t invest in the run up to Christmas but would probably be happy to make personal New Year's resolutions.

By taking the business in a new direction, seasonally, you could even out the peaks and troughs of seasonal cash flow. By investing time in marketing at the right time, you could bring in better, more stable streams of income over the longer term.

4. Take stock of your stock, regularly

The more time you spend running your business, the better your instincts should be for how much stock you need to keep on the shelf. Money invested in stock cannot be used to pay your bills.

However, in a seasonal business you’re having to deal with stronger, longer trends in buyer behaviour. External influences – the things you can’t change in life – are far more likely to be at a macro level over the long term (changes in the economy having an impact on your supply chain or customers’ purchase patterns) than on a micro level (changes in weather in the short term).

With this in mind, it pays dividends to be proactive in managing stock that can help you to increase your income during the slower trading periods. Selling less popular items at a discount, for example, when your season comes to an end.

The income you gain by managing your stock proactively might even pay the costs of storing the inventory during a low period of sales. Could you promote an ‘end of season’ cut-off point to your current customer basis? This would help you to reduce the amount of unsold stock you’re insuring and storing. Some suppliers might allow you to return certain types of stock for a credit against the next season’s orders – but it’s better practice to think ahead and work out your own cut-off points for bringing inventory in.

5. Review your year-round expenses, regularly

Keeping a healthy cash flow is a challenge for every small business owner. Even if you’re on track to deliver long-term profitability, it’s hard to trade if you don’t have cash at bank to purchase more stock or pay the bills – but are there some bills you don’t need to pay all year round?

As a seasonal business owner, you may be accustomed to having employees come and go on a seasonal basis. It may be clear there’s a cut-off point at which the costs of having staff could come down, significantly. However, you might also be in the habit of paying for things like software subscriptions all year round.

Take a close look at the small, regular payments you’re making every month. Do you need to use those creative software tools every month, or have access to libraries of creative stock during the leaner periods of trading? Are you paying for utilities on a monthly basis – could you find other tariffs that let you manage your payments more effectively, every quarter for example? Are your leasing costs covering periods of time when equipment or vehicles aren’t being used? In a tough commercial environment, many suppliers might welcome a renegotiated (lower) contract that helps to keep you in business for the long term.

6. Look at business financing, in advance

Ideally, you should build up a cushion of cash that can take you through the periods of lower sales activity with comfort every year. But there are other ways of getting through the lean times. Business financing is a valuable, practical tool for managing your small business’s cash flow in seasonal trading patterns. As someone who’s used to independence, seasonal financing –working capitalfor the lean times – might not appeal to you in the first instance. However, any form of financing you can afford is better than letting a business fail due to seasonal cash flow that’s beyond your control.

  • Get to know a finance house now - a high street name with the resources to offer helpful advice and hands-on support, long term.
  • Let a finance team get to know you and your business well, in case you need them later
  • Explore your options for a line of credit (money you could draw down as and when you need it). It won’t commit you to financing immediately - but it could give you peace of mind.

Many finance houses could offer to help you with seasonal cash flow challenges. It’s important to choose the right one as a partner for your business. Interim financing is available to suit almost any small business’s budget, trading model, and appetite for risk (because not knowing your future sales figures for certain always introduces a certain element of risk into an agreement).

Top takeaways

6 ways to improve your cash flow in a seasonal business | Novuna Business Finance (2024)


6 ways to improve your cash flow in a seasonal business | Novuna Business Finance? ›

What Are the 3 Types of Cash Flow? The three primary classifications of cash flow are cash flow from operating activities, cash flow from financing activities, and cash flow from investing activities. All will appear on the statement of cash flows on a company's financial statements.

How can you improve the cash flow of a business? ›

What you'll learn
  1. Tips for improving your cash flow.
  2. Encourage customers to pay early.
  3. Manage staffing and cash flow.
  4. Manage your stock and suppliers.
  5. Consider your other assets and investments.
  6. Refine your marketing strategy.
  7. Forecast your cash flow.
Dec 28, 2022

How can I improve my seasonal business? ›

14 Strategies To Help A Seasonal Business Avoid A 'Sales Slump'
  1. Ensure A Positive Operational Cash Flow. ...
  2. Carefully Manage The Cash Cycle. ...
  3. Continue Pursuing New Clients. ...
  4. Increase Marketing Efforts In The New Year. ...
  5. Work Closely With Vendors And Look For Cost Savings Through Technology. ...
  6. Diversify Your Products Or Services.
Jan 18, 2023

Which of the following are ways to improve cash flow? ›

9 ways to improve cash flow
  • Start with accurate cash flow forecasting.
  • Plan for different scenarios and understand the challenges of your industry.
  • Consider your one-day cash flow value.
  • Provide cash flow training for your team.
  • Communicate effectively within your business.
  • Make sure you get paid promptly.
Jun 2, 2023

What are 3 ways cash flows out of a business? ›

What Are the 3 Types of Cash Flow? The three primary classifications of cash flow are cash flow from operating activities, cash flow from financing activities, and cash flow from investing activities. All will appear on the statement of cash flows on a company's financial statements.

What makes a good cash flow? ›

If a business's cash acquired exceeds its cash spent, it has a positive cash flow. In other words, positive cash flow means more cash is coming in than going out, which is essential for a business to sustain long-term growth.

What is the most important cash flow for a business? ›

Positive cash flow indicates that a company's liquid assets are increasing. This enables it to settle debts, reinvest in its business, return money to shareholders, pay expenses, and provide a buffer against future financial challenges. Negative cash flow indicates that a company's liquid assets are decreasing.

How do you manage cash flow in a seasonal business? ›

6 ways to improve your cash flow in a seasonal business
  1. Get the basics right. ...
  2. Encourage the cash to flow faster. ...
  3. Build better relationships with your suppliers. ...
  4. Use your time wisely to increase your income. ...
  5. Take stock of your stock, regularly. ...
  6. Review your year-round expenses, regularly. ...
  7. Look at business financing, in advance.

What are seasonal strategies? ›

A seasonal campaign is a marketing strategy based on the time of year and the holidays. The main goal is to promote products or services relevant to what people are doing, such as buying gifts for friends or family members or spending more time outside in the summer.

How do you handle a seasonal business? ›

Here are their top tips on how to run a seasonal business:
  1. Research what's expected in your industry. ...
  2. Build what you've learned into your business model. ...
  3. Maximize your downtime. ...
  4. Save at busy times. ...
  5. Watch what your competitors are doing. ...
  6. Get creative. ...
  7. Diversify your income. ...
  8. Embrace the reality & manage your stress levels.
Sep 5, 2022

How can I improve my cash to cash cycle? ›

6 Ways to Improve Cash-to-Cash Cycle Time
  1. Don't Offer Extended Terms. ...
  2. Split Fees for Faster Collection. ...
  3. Optimize Inventory. ...
  4. Get Lean. ...
  5. Strike the Right Balance of Raw Materials. ...
  6. Break Down and Fix Your Order-to-Cash Process.
Jan 25, 2018

What affects cash flow the most? ›

Changes in Working Capital

The most significant uses of cash from operating activities are the changes in working capital, which includes current assets and current liabilities. Increases and decreases in current assets and liabilities are reflected in the cash flow statement.

Why is it hard to improve cash flow? ›

The main causes of cash flow problems are: Low profits or (worse) losses. Over-investment in capacity. Too much stock.

What are 5 examples of cash outflow? ›

Types of cash outflow
  • Payments made to suppliers.
  • Payments made to clear borrowing such as bank loans.
  • Money used to purchase any fixed assets.
  • Dividends paid out to any shareholders.
  • Salaries and wages paid to employees.
  • Any transport costs – such as vehicle leasing fees – related to business use.

What are 4 examples of cash inflows? ›

Some examples of cash inflow are:
  • Revenue from customer payments.
  • Cash receipts from sales.
  • Funding.
  • Taking out a loan.
  • Tax refunds.
  • Returns or dividend payments from investments.
  • Interest income.
Dec 1, 2022

What are the three 3 major types of cash flow? ›

There are three cash flow types that companies should track and analyze to determine the liquidity and solvency of the business: cash flow from operating activities, cash flow from investing activities and cash flow from financing activities. All three are included on a company's cash flow statement.

What are the 5 C's of cash flow? ›

The Five C's: Cash Flow, Capital, Collateral, Conditions & Character.

What is an example of a positive cash flow? ›

For instance, if a company brings in $17,000 in a given month, and its expenses are $14,500, it has a positive cash flow of $2,500. Or, if this same company makes $17,000 in a month but spends $23,000, it has a negative cash flow of -$6,000.

What is an example of a cash flow? ›

Examples of cash flow include: receiving payments from customers for goods or services, paying employees' wages, investing in new equipment or property, taking out a loan, and receiving dividends from investments.

What is the most popular cash flow method? ›

The indirect method is the most popular among companies. But it takes a lot of time to prepare (before recording), and it's not very accurate as many adjustments are used. On the other hand, the direct method doesn't need any preparation time other than segregating the cash transactions from the non-cash transactions.

How do you maintain a healthy cash flow? ›

Best Practices in Managing Healthy Cash Flow
  1. Monitor your cash flow closely. ...
  2. Make projections frequently. ...
  3. Identify issues early. ...
  4. Understand basic accounting. ...
  5. Have an emergency backup plan. ...
  6. Grow carefully. ...
  7. Invoice quickly. ...
  8. Use technology wisely and effectively.

How do seasonal factors affect cash flow? ›

Businesses seek to generate long-term positive cash flow. But, because seasonality reflects an imbalance in the timing of sales revenue, cash flow can be uneven, creating challenges for how to manage the financials of the firm.

How does seasonal demand affect cash flow? ›

High seasonal demand for goods

That leads to increased production, to satisfy the orders, and this, in turn, leads to increased expenditure on raw materials and staff costs e.g. for overtime. Those purchases need to be paid for, often before you see the inward cash flow of payments in respect of those orders.

What is an example of seasonal good? ›

Seasonal items are products that are available for a limited time only, usually during a certain period of the year. They may relate to a holiday, special event, or a change in the climate. Examples of seasonal items include winter jackets, swimsuits, holiday decorations, and pumpkin spice lattes.

What is an example of seasonal business? ›

Examples of seasonal businesses
  • Landscaping services. Landscapers are a prime example of a seasonal business. ...
  • Ski resorts. Ski resorts are dependent on snow and therefore largely operate during the winter season. ...
  • Hotels. Not all hotels are seasonal, but some are. ...
  • Restaurants. ...
  • Holiday retailers.
Aug 5, 2022

What are examples of seasonal? ›

Examples of Seasonality

There are many different instances where seasonality can be observed as it relates to the regular transition throughout times of the year. For example, if you live in a climate with cold winters and warm summers, your heating costs likely rise in the winter and fall in the summer.

How do seasonal businesses survive? ›

During the off-season, smart seasonal businesses use coupons to intentionally lower margins. It's better to have some profit than no profit at all. Before giving out discounts, businesses must know what their breakeven point is. They need to avoid selling products below this level if they want to make money.

What is a seasonal business cycle? ›

This pattern is called the seasonal cycle. Seasonality generally refers to fluctuations that recur with a frequency of less than a year. In the past, economic activity was highly seasonal because of the importance of farming. But even now, economies continue to exhibit significant seasonal fluctuations.

How do you budget for seasonal work? ›

Seasonal Job? Here's How to Budget Around It
  1. Step 1: Determine How Much You'll Earn in a Year. ...
  2. Step 2: Divide Your Annual Income by 12. ...
  3. Step 3: Create a Monthly Budget (Based on Your Monthly Income)

How do you increase monthly cash flow? ›

Improving cash flow comes down to one of three strategies: Smooth out cash flow by avoiding large periodic payment and making smaller payments throughout the month or year. Cut out spending. Increase income or other resources.

What are the three factors that influence cash flow? ›

Accounts receivable, average collection period, accounts receivable to sales ratio--while you might roll your eyes at all these terms, they're vital to your business.

What are the five main causes of cash flow problems? ›

5 Biggest Causes of Cash Flow Problems
  • Avoiding Emergency Funds. Businesses — like individuals — need to be prepared for the unexpected. ...
  • Not Creating a Budget. ...
  • Receiving Late Customer Payments. ...
  • Uncontrolled Growth. ...
  • Not Paying Yourself a Salary.
May 3, 2023

What are 3 problems caused by poor cash flow? ›

The effects of cash flow problems may include late or unpaid debts, an inability to pay suppliers or staff wages, and an inability to buy inventory.

What are some cash flow problems? ›

8 common causes of cash flow problems
  • Lacking cash reserves. ...
  • Expensive borrowing. ...
  • Decreasing sales or profit margins. ...
  • Outstanding receivables. ...
  • Uncontrolled business growth. ...
  • Too much inventory. ...
  • Seasonal changes in demand. ...
  • Inaccurate forecasting or bookkeeping practices.
Aug 16, 2020

Why is improved cash flow important? ›

When done well, it gives you a complete picture of cost versus revenue and ensures you have enough funds to pay your bills whilst also making a profit. By understanding your cash flow you'll be able to forecast company profits more accurately and identify opportunities for investment.

What is cash flow in business? ›

As the name suggests, cash flow is a term used to describe the money coming into and out of a business. Cash received – like money being paid to the business from its customers – would be inflow. Cash spent – like the funds being paid to vendor partners and other operational costs – would be outflow.

What is cash flow formula? ›

Summary. Net Cash Flow = Total Cash Inflows – Total Cash Outflows. Learn how to use this formula and others to improve your understanding of your cash flow.

What are 3 examples of inflows? ›

Examples of cash inflow include customer payments, return on investments, and interest you receive on loans you have given to another entity.

How do businesses solve cash flow problems? ›

Enforce late payment terms

Late payments affect the cash cycle and may cause companies to find themselves unable to pay their own bills from vendors and suppliers. To reduce cash flow problems, follow up with late customers on a timely basis, and enforce the late payment terms written into contracts.

How can a small business manage its cash flow? ›

How to Successfully Manage Your Cash Flow
  1. Send Invoices Quickly.
  2. Offer Different Payment Options.
  3. Keep Detailed Records.
  4. Schedule Your Payments Effectively.
  5. Make Sure There's an Emergency Fund.
  6. Cut Costs.
  7. Cash Flow is as Important as Profit.
  8. Use the Best Tools.

What affects cash flow in a business? ›

It derives much of its function from the income statement and the balance sheet statement, such as net income and working capital. A change in the factors that make up these line items, such as sales, costs, inventory, accounts receivable, and accounts payable, all affect the cash flow from operations.

What are two things a business can do to reduce cash flow problems? ›

Take These 7 Steps in the Event of a Cash Flow Crisis
  • Adjust Your Business Plan to Improve Profit Margins. ...
  • Accelerate Your Receivables. ...
  • Negotiate Your Payables. ...
  • Consider Borrowing Options. ...
  • Raise Investor Capital. ...
  • Slash Expenses. ...
  • Sell Non-Essential Assets.

What are the three cash flow problems? ›

There are many different causes of cash flow problems in small and medium-sized companies that can be broadly categorised into three areas: Poor sales. Ineffective cash flow management. Inadequate credit control and collections processes.

What are four 4 reasons why a business might have a cash flow problem? ›

The main causes of cash flow problems are: Low profits or (worse) losses. Over-investment in capacity. Too much stock.

How we can manage cash flow? ›

How to manage your cash flow effectively in 5 steps
  1. Create a cash flow forecast. Making regular and accurate cash flow projections is one of the most important things you can do to notify you of problems before they arise. ...
  2. Calculate revenue. ...
  3. Identify your expenses. ...
  4. Review your finances. ...
  5. Manage your reporting.
Feb 14, 2022

What is an example of a cash flow in a small business? ›

A basic example of cash flow could be a business that generates income from customer sales and pays employees their salaries and production expenses in order to produce the products being sold. The customer sales, or revenue, would be the cash inflow, while the production costs and salaries would be the cash outflow.

Why is it important to manage cash flow effectively? ›

Cash flow management helps businesses maintain working capital, liquidity, and funds for growth and expansion. Regular monitoring and analysis of cash flows allows businesses to ensure that future cash flows can be projected accurately.

What has the biggest impact on cash flow? ›

Five factors that affect your cash flow timing
  1. Collection of accounts receivable. An AR represents cash tied up that could have been used to run and grow the business. ...
  2. Credit terms and trade discounts. ...
  3. Enforcement of credit policy. ...
  4. Purchase and sale of inventory. ...
  5. Repayment of accounts payable.
Mar 19, 2019

What increases and decreases cash flow? ›

Transactions that show an increase in liabilities result in an increase in cash flow. Transactions that show a decrease in liabilities result in a decrease in cash flow.

What are four ways that cash flows out of a business? ›

Company cash can flow in two directions. It can flow into the company through sales revenue and investment income. It can also flow out of the company through salaries, vendor fees, lease payments, taxes, and interest payments.


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