Four Ways to Manage Seasonal Cashflow

If your firm does most of its business at specific times of the year, these tips will help balance cashflow

Four Ways to Manage Seasonal Cashflow

Revenue is vanity, profit is sanity, cash is king. One of the most important disciplines for any business owner is being able to balance a business’s net cashflow to a consistently positive position.

This becomes even more challenging for the many businesses with huge spikes in sales around particular times of the year. This is the case for my company, eCO2 Greetings, which sees 95% of its sales in the Christmas period. Dealing with thousands of companies, we also hear about their seasonal cashflow issues. The tips below can help prevent problems arising as a result of this situation.

Good forecasting

It is impossible for any guide on cashflow management not to emphasise the importance of a well thought through and regularly updated cash flow forecast. A forecast is intended to identify potential shortfalls in cash balances in advance – think of the cashflow forecast as an early warning system. Hence, any spikes in seasonal spend or drops in sales revenues can be identified well in advance and contingencies put in place to counter the effects or even better to avoid what is forecast and strive to overperform as a business.

Incentivise speedy debtor payment

If your cashflow forecasts highlight December, for example, as your most difficult time to navigate then you might wish to consider a small discount to people who pay early. It may be enough to have a really positive impact on your cashflow. However, proceed with caution if implementing this strategy. It is only viable when your net margin is high and you have good staff to control unauthorised deductions. If only bad payers are offered cash discounts, all your good payers will want the same offers.

Accrue for large seasonal outlays

My business has had to work around the fact that, at Christmas, outbound cashflow can spike with expenditures on items such as staff bonuses, Christmas parties, corporate gifts and hospitality to key clients. Outlays such as these should come as no surprise and be fully accrued so as not to harmful to the cash position of the business. However, a smart business could plan parties in November or January, so as to be cheaper – spending the money in a month more cash rich than (the often sparse) December.

Seasonal discounting

Most businesses experience some kind of seasonal sales drop as operations wind down and consumer spending too. Rather than accept that fate and let your cashflow positions suffer, you could try to experiment with seasonal pricing offers if your payment terms are short. Offering seasonal discounts to a level that you still retain acceptable profit margins can encourage a welcome boost in cash.

Chris Rowson is Managing Director of eCO2 Greetings and eCard Shack, the specialists in corporate holiday ecards

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