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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