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Navigating Seasonality To Keep Cash Flow Healthy

Some businesses have such sharp downturns that seasonality is marked and becomes a financial threat to the business. How you manage those threats can determine not just whether your business makes it through down seasons but also whether you can hit the ground running when sales pick up again. Many business owners in this position rely on accounts receivable loans to keep businesses afloat. With seasonal businesses, it’s essential to leverage your off-seasons to better strategies and turn profit around.

Identifying Down Seasons

Putting in the work to find out exactly when troubled seasons begin and end provides a headstart in preparations. There are several ways to determine a business’s slow season:

  • Review financial records of the past two years to determine when sales dip.
  • Focus on net profit, cash flow, and profit margins.
  • Review inventory records to determine when sales are higher than normal.
  • Determine when customer service reps receive fewer calls about the product or service.
  • Review key performance metrics.

Determining slow seasons may also differ based on industry and services. For instance, measuring inventory in the service industry may prove especially difficult. Note that it is also possible to have more than one down season, so review the data carefully.

Identifying Peak Seasons

Knowing when sales increase is of equal importance. However, many business owners do not plan for this period because of a belief that it pays for itself. Preparation can make even the most lucrative season earn more money. The good news is that you can use similar steps when identifying slow seasons to determine how to make more money during busy seasons.

Depending on your business, you may want to differentiate between when more people pay for your goods or services versus when they use it. For instance, tech companies may see sales skyrocket for Black Friday and Cyber Monday. However, it is often the weeks after Christmas that people use their holiday gifts –  people begin to activate subscriptions, register their gifts online, and flood customer reps with support calls.

Maintain Adequate Inventory Levels

At first glance, selling out all your inventory may seem like the best financial plan. You cover all your costs, and you don’t need to make space to store the unsold items. This is a great short-term plan, but it’s bad for business in the long haul. Amazon learned this the hard way during the pandemic.

When customers cannot get the products or services they need, they may consider your competitors. Once they make the switch, it might be difficult to get those customers back. This may come back to haunt you when demand is low.

So, what can you do to ensure you maintain adequate levels of inventory? These steps may help:

  • Pay for more business expenses during periods when cash flow volume is high.
  • Save some of the capital from peak seasons to help cover unplanned expenses during slow periods.
  • Adjust pricing to help regulate when people make purchases and encourage them to buy during slow seasons.
  • Plan for staffing and operational changes during peak versus slow seasons.
  • Use software to automate inventory management.

Use Loans To Inject Capital

Large amounts of debt can sink a business, especially when payments come around during slow periods. Even so, securing capital debt at fair terms can make all the difference in whether a business makes it through the slow periods. This method may become especially necessary if a business’s peak season is thwarted.

For instance, RV parks in Southern California receive the most visitors during the colder months when snowbirds head south. However, natural disasters, epidemics, or other catastrophes may occur that make travel impossible or difficult for the winter. If this happens, businesses lose the opportunity to make preliminary plans for the upcoming slow season and may need to rely on loans.

Even with a booming season, unexpected expenses or growth opportunities may arise that eat through business capital. Business owners can rely on accounts receivable financing, short-term loans, and factoring loan options to fill the gaps. Ideally, this capital is best used for overhead costs.

The Bottom Line

There is no foolproof plan that guarantees a business’s success when fluctuating sales are a natural or even unexpected part of doing business— because of this, covering all your bases with a multi-faceted approach is your best bet. Unfortunately, preparations do not always go as planned or business owners may have no forewarning that a slow period awaits the industry. In these instances, injecting capital via accounts receivable loans and other options is worth considering.

At LQD Business Finance, we take a transformative approach to lending. We focus less on being your lender and more on being your financial ally. Does this sound like the financing experience your business could benefit from? Apply for a Capital Loan with LQD Finance.

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