Five top seasonal cash-flow tips

Originally featured on NatWest Content Live

Whether it’s the post-Christmas blues or the summer lull, most industries have a seasonal slowdown. So how best to keep your cash flow flowing?

If your business is subject to yearly spikes in trade, you’re probably aware of the impending financial doldrums: that period when the orders slow down significantly, and you start questioning when the financial sails will fill once more. The knock-on effect is likely to be a drain on your reserves and you may even delay making the investments that your business needs in order to grow. So how best to maintain cash flow, and the life of your business?

Make forecasts and prepare

John Buchanan, performance senior manager at accountant HW Fisher, says that forecasting is especially important for companies with seasonal income variations.

“It’s vital to forecast your financing requirements in order to ascertain your likely needs and how your business model might be tweaked in order to maximise the available cash,” he says.

Simple accounting software such as Sage, or even spreadsheets showing previous years’ cash-flow data, can help you do this. And in the smartphone age, there are also dedicated apps that can help small business owners stay on track of their cash flow and help prepare for when the revenue starts to dry up.

While knowing about your likely cash flow needs isn’t itself a remedy, it does allow you to speak to your bank intelligently about your likely needs – and plan for an overdraft extension without incurring penalties.

Use the time wisely

Like many small business owners, it’s likely that you spend more time in the business than you do on the business. The burden of day-to-day operations and necessary admin means that you may not have time to monitor its direction, and analyse the opportunities and risks in front of you.

For seasonal firms, this is not the case, says Dominic Shaw, director of accountant Aston Shaw.

“If you’re in an off-peak period, try to plan ahead for those peak periods,” he explains. “That might be looking at the resources you are using and how they might best be best utilised.”

If you employ staff, the seasonal lull is also ideal for an awayday and, of course, encouraging staff to take their holidays.

Make the most of invoice finance

If the lull that your business experiences is industry-wide, it’s possible that your customers may seek to delay payments owed to you.

According to payment process business BACS, small companies were owed £26.3bn as of the beginning of 2017. Aside from being a source of worry, late payments may cost you time as you have to chase payments and even seek redress through the courts. And research suggests many companies won’t chase bad debts because they fear it will negatively impact customer relationships.

If that sounds like you, then invoice finance may be a means of help. In principle, it involves trusting a company to manage collection of payments on your behalf. While rates change, some invoice finance providers can advance up to 85% of your outstanding invoices and chase payments for you. The remainder is paid – less fees – once the invoice is settled.

Aside from outside help, there are practical steps you can take to stay in control. To begin with, clarify your payment terms; if they’re ambiguous, they will likely to lead to delays. Then emphasise, politely but firmly, legal requirements to meet terms. According to the Federation of Small Businesses (FSB) only 20% of members believe that the voluntary Prompt Payment Code, (30-day standard, with a 60-day maximum limit) is sufficient.

Free up cash reserves

As well as standard cash loans, there are other options that might suit your business. Asset finance, for instance, helps you spread the cost of an investment in new machinery and equipment, and means you don’t have to save up for a big, outright expenditure. In effect, you will be making smaller, more manageable payments on a monthly basis – meaning the new investment may even start to pay itself off following just a few weeks of having first acquired it.

If timed correctly, you can use the seasonal lull to not only acquire the new equipment, but also take the time to learn how to use it properly and iron out any teething problems before the orders come flooding back in.

Think outside the moneybox

If none of the above seems realistic, and your business simply needs cash, it might be worth thinking about alternative sources of income, or even new markets. That might involve becoming part of a larger business’ supply chain, exporting for the first time, or broadening the scope of your service so that you can maintain revenue.

Or you might want to opt for a more unorthodox approach. Business-to-business bartering, for example, can be a useful way of allowing trade without impacting cash flow. Because it involves crediting and debiting actual services or products, it leaves your finances intact. The upside is that you can offer and claim services during quiet periods. But as with cash transactions, bartered and traded services should be treated as cash transactions for tax purposes.

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