Many business owners experience cash flow issues at different times of the year, since the nature of their work or location is seasonal. I’ve worked with many business owners in seasonal industries to help them handle their cash flow. Businesses like, landscaping, tax preparers, ice manufacturers, exterior painting contractors, construction contractors, building contractors, florists, and those businesses in seasonal tourist locations.
Seasonal tourist locations can hit every type of business. Beginning in October each year, the population of my city, Naples, Florida swells to 5 times what it is in the summer, with the majority of “snowbirds” arriving right after the holiday season. By the middle of May they have all gone back to their summer residences in other states and countries. Gone are the full restaurants with an hour long wait to get a table, the bumper to bumper traffic, long lines at the checkout counters of retail stores and the luck of the draw on getting tickets to cultural entertainment such as concerts and plays.
To avoid the roller coaster ride of sales that swoop up at certain times of the year and then plummet when the “season” is over, making good cash flow budget and sales projections and good cash flow management decisions need to be a part of your year-round cash flow planning. Cash flow budget calculations and an exact income planning target can help to determine when cash flow issues are most prevalent. After all, expenses like payroll, rent, utilities and variable costs, don’t stop in the slow periods.
A real time cash flow analysis of sales revenues and expenses helps build your cash flow plan. In coaching business owners who have seasonal sales, the goal is to develop a cash flow management strategy to manage cash flow all year long.
A few case study examples:
Ice Manufacturer – In the case of an ice manufacturer in the north, the sales skyrocket starting in April or May when the weather is hot and residents are doing more outdoor activities requiring coolers and freezers filled with ice. Events such as banquets and weddings create a nice bump in sales for huge blocks of ice for local artisans to create those beautiful ice sculptures. In October when the weather turns, sales of bagged ice plummet. There are a few upswings during the holiday entertaining periods, but winter sales are not anywhere near what they need to be to cover the winter expenses.
We did a cash flow analysis to determine exactly what the “winter’ expenses would be and calculated what additional cash flow would be needed to augment the winter sales projections. At the beginning of the summer selling season, April 1st, we put a “Bill” in the bills window of the Cash Flow management software program and the vendor name was “Winter.” We set the bill’s due date at October 15th and set the invoice amount at the amount of additional cash flow needed to pay for the operating expenses from October through March, without having to lay off any staff. We broke that down to a weekly number, and every week when the cash flow planning was done, that weekly amount was allocated to the bill and held in a savings account to cover the winter expenses.
When October arrived, the ice manufacturer has set aside enough cash to get him through the winter and instead of having to lay off good workers and taking a chance on them getting other jobs, they were put to work cleaning and maintaining all of the ice manufacturing equipment and the fleet of delivery trucks. This meant fewer equipment breakdowns the following summer which boosted sales revenues the following summer.
Chiropractic Clinic – In this case the clinic is in a town where, In August, 85% of the town’s residents leave to spend the month in the Hamptons. The entire town just empties out. The business owners are left with ongoing expenses which never stop, and plummeting cash flow like the first big downhill swoop of a roller coaster ride.
In this case we created a “game” for the staff and public to participate in during the month of August, and promoted the game well in advance of the exodus. And of course we used the same cash flow budget technique as the ice manufacturing plant.
In this case we calculated the amount of cash needed to cover all of August’s expenses. We entered the bill in the bills window of the cash flow software, named the vendor “August” and the due date was set at July 15th. We calculated the weekly amount the business owner needed to set aside in a savings account, and allocated that amount to the bill every week during the cash flow planning cycle. By the middle of July he had all the cash needed to cover the entire months of expenses for August, so he was sleeping really good at night instead of dreading the arrival of August. Not only that, because he was no longer worried about making ends meet in August, he went into action promoting the “game” and his services and got more new patients from the remaining townspeople that he usually did.
CPA Tax Preparer – The tax preparation business is definitely a roller coaster ride with 60% or more of the revenue being earned in the January – April “tax season” and a bump in September – October when the tax filing extensions expire. If the CPA does not do accounting work then sales revenue slows to the speed of a glacier in the summer and the winter.
In the case of this CPA, they only did tax preparation so revenues dropped like a rock in the summer and the winter. The CPA did not want to get into the accounting arena, nor did they want to begin selling insurance or investment instruments, but they were open to offering their business owner tax clients a new service to even out the income. What we decided to do was to offer cash flow management planning to their business owner clients using my cash flow management software. The cash flow management cycle takes about a half hour each week. And since the software is online, both the business owner and CPA can log in from their own offices and do the cash flow planning cycle while talking on the phone. In effect the CPA became a member of the business owner’s financial team every week instead of once a year.
The CPA set the hourly cash flow planning “consultation” rate at a level determined to be fair, but one that also would cover the slow month’s expenses. That determined how many business owners he needed to get on the service so that half hour, 4 or 5 times a month, would add up to the revenues needed. He selected a few business owners to pilot the program on to get it grooved in, learned what benefits the business owners were getting from the software and his involvement in the weekly cash flow meetings, and used that information to create a simple promotion that he presented to his other business owner clients. It was a unique selling proposition the CPA firm became known for which other tax preparers were not offering in his city.
The revenues from the monthly commissions on selling the use of my software and the consultation fees he was billing for the new service quickly grew to the point where it evened out the cash flow and he was able to breathe during the slow periods which were no longer slow.
So, you see the trend here. There are many strategies I use to help my business owner clients – promotion, new services, analysis of old services for profitability – but that all important cash flow management and planning is the bedrock of steady sales and cash flow. Managing the cash flow they receive during peak selling seasons to sustain their operations during off season becomes fast and easy using the Cash Flow Mojo® software, and quickly gets business owners off the seasonal business roller coaster ride when it comes to cash flow.