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Dealing With Seasonal Cash Flow Problems
by Wendy Priesnitz
Q: Last summer was my first in business, having launched my home business in the fall of the previous year. It was much slower than I had predicted and we had severe cash flow problems. How can I manage things better this year?
A: First of all, you should try and determine the reason for last summer's cash flow crisis. Was it a cyclical component of your particular industry? Or did you just start off slower than you had thought due to poor or insufficient marketing or some other factor?
The flow of money through a business is rarely smooth, whether it's a home-based micro business or a much larger one. Each industry has its own constantly fluctuating cycle of income and expenses. Now that you have a year of experience behind you, you can use that history to smooth out the peaks and valleys in your particular business.
If you've not already done so, do a formal cash flow analysis. Create a spreadsheet (either on a computer or manually, using ledger paper) and list all your sources of income and expenses down the left hand column, and the 12 months of your business year along the top. Fill in your income and expenses for each month of the past year. Then create a projection for the coming 12 months, using the pattern of last year's numbers as the basis, but adjusting for new revenue streams, better marketing, and so on.
This will help you plan ways to even out the hills and valleys of your company's cash flow. You may want to hold an off-season sale, save up for the slow months, set up a line of credit to tide you over possible shortfalls, or reduce expenses during the lean months.
Brainstorm ways to increase revenue during the summer months. Would an advertising campaign - targeted to either established or new markets - generate sales? If your customers all move to their cottages for the summer, could you take your service (or some form of it) to cottage country? Do your customers have different needs during the summer season, for which you could create a new product or service?
Cash flow problems plague most small businesses at one time or another; genuinely successful businesses plan to avoid them the next time around.
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