A business’ cash flow is its lifeline. Businesses that don't exercise good cash management may not be able to make the investments needed to compete, or they may have to pay more to borrow money to function. Do you have a good handle on your cash flow? Here are some thoughts from the Small Business Administration on how to keep things running smoothly:
Make a Budget that Includes Cash Flow Projection
Every business operates off a set budget, but if you operate a seasonal business it’s important to include a cash flow projection template as part of your financial planning process. This will help alleviate the guesswork involved in predicting your income and outgoings over the year, and inform you of the best ways to conserve cash flow throughout the year. If you can, plan your cash flow over a year. Now that you have a view of your revenues and outgoings you can develop strategies to manage cash flow throughout the year.
Steam Roll Your Invoicing
One way of expediting the flow of cash as you head into your quiet season is to modify your invoicing policies. If you can, try to secure a percentage payment up front. This will also help you deal with slow paying customers. Another idea is to offer your customers discounts if they pay early. While this practice may impact your profit margin, it may help your management of cash flow by incenting customers to make payments earlier than billing cycles typically require.
Negotiate Flexible Payment Terms from Your Suppliers
Just as you want to expedite the flow of cash in, you should also consider negotiating extended payment terms from your suppliers. This is especially useful as you head into your busy season and you incur most of your variable expenses (inventory, marketing, etc.). The trouble is you won’t see any immediate returns on those investments until your revenues kick in, so an extended payment plan can help ease the pain of these pre-season costs.
Track Your Cash Flow and Make Smart Adjustments Based On Data
Use historical reports from previous years to forecast your revenue, your busiest months, and your estimated sales for each month. You’ll also need to consider your fixed expenses (rent, utilities, etc.) and your variable expenses (salaries, inventory, taxes, etc.) as well as when these variable expenses will hit.
Texas Gulf Bank offers a suite of Cash Management Banking resources that can help you track this data to efficiently build and manage your business while optimizing liquidity. You can access the system 24/7 from any Internet connection. You can also grant access to designated employees, and assign them appropriate permissions.
Use Your Downtime for Planning
Use your off-season wisely. Regroup, review, and plan ahead to ensure a profitable busy season. How did your business perform against its plans? Did your marketing campaigns pan out as well as you’d hoped? What new products and services can you introduce in the new season? What’s the competition up to? How can you position yourself against them?