how to plan cash flow ahead for the off-season

8 actions to fix off-season cash flow woes in a seasonal business

Don’t you just hate uncertainty? 

That uncomfortable feeling when you aren’t quite sure if everything will turn out ok. You’ll be no stranger to this running a seasonal business.

The moment the off-season kicks in, you anxiously watch your cash reserves dwindle, is it going to be enough to pay the bills this year?

The ebb and flow of seasonal cash flow can be difficult to manage and stressful to think about.

If this feeling of uncertainty is all too familiar, you’ll be happy to know there are actions you can take to mitigate cash flow problems in the dreaded off-season. 

Cash flow forecast chart of a season businessHow to improve cash flow in a seasonal business

The best way to avoid cash flow issues is to plan ahead and proactively take steps to shore up your business.

  1. Forecast at least 12 months ahead
  2. Build a strong cash reserve 
  3. Add new ways to generate income all year-round 
  4. Reduce unnecessary expenses in the off-season
  5. Plan your stock purchases with due care and attention 
  6. Take full advantage of the off-season
  7. Make the right decisions by exploring scenarios

Alright, let’s unfold these actions in detail.

Forecast at least 12 months ahead

If you’re truly serious about reducing uncertainty and improving your cash flow then the first step is to create a base forecast.

You simply can’t judge the potential impact of your actions without one.

With seasonal sales, you’ll only be bringing in cash during certain months but you’ll likely have costs every month of the year.

Your cash flow forecast will visualise this disparity for you:

Cash flow forecast chart of a season business 2If you’ve never created a cash flow forecast before read our complete beginner’s guide: How to forecast your startup or business’s cash flow

Our main goal in this article is to tackle the impact of negative cash flow during your off-season.

Your base forecast will help you understand the extent of the problem. 

Start by mapping out the costs you expect to cover each month. If you clearly know when your off-season starts and ends, you can work out the total costs you’ll need to cover when sales aren’t coming in:

Cash flow forecast chart of a season business off-season costsThis will help you work out how much cash you need to build up in reserve when you leave peak season.

Then, using historical data, add in your base sales forecast. It should be your best estimate of what might happen. Not too optimistic, not too pessimistic.   

If you have little or no historical data, don’t let this hold you back! There are other methods you can use to form a sensible sales projection.

Read our in-depth guide: How to create an effective financial forecast with no historical data

The key here is that you need to forecast at least 12 months into the future. This ensures you cover where your peak and off-seasons fall throughout the year. 

However, a forecast that spans over 2 years is even more effective:

Cash flow chart of a seasonal business two year financial forecastWith the extra reach, you’ll be able to see how this year’s results could affect the following year’s season.

The further out you go, the more strategic you can be about your business decisions.

The best way to avoid cash flow issues is to plan ahead and proactively take steps to shore up your business.Click To Tweet

 

As our guide shows, it’s also important to break down your business activities into categories. It will help you identify what is contributing the most (or the least!) to your business’s performance.

This will be key as we dig into some of the other actions later on.

ACTIONS

Create a 2+ year cash flow forecast. Get started either with our free cash flow spreadsheet template or a dedicated piece of software like Brixx.

Look at your past bills and invoices to inform your estimates for the periods ahead. Make sure you break them down into sensible categories. If you don’t have much historical data yet, head over to this handy guide here.

Creating simple charts can help you visualise your seasons more clearly. 

With your base forecast in place, you can start modelling the impact of other actions in this article.

 

Build a strong cash reserve

With your cash flow forecast in hand, your first step is to work out how large a cash reserve to maintain. 

You need enough cash in the bank to both survive off-season costs and to use as a buffer for unexpected events.

So, begin by estimating the costs you will incur in the off-season when you are taking less (or zero) sales. The period where your cash flow is negative and there is more cash going out of the business than coming in. 

Cash flow chart showing end of peak season cash reserve requirementsThe total cash flowing out of the business in your off-season is the minimum you’ll need in reserve at the end of your peak season.

There is another aspect to this though. It’s crucial that your business is running as efficiently as possible during the high season with no interruptions. 

Let me explain what I mean: 

It’s the height of summer and people are flocking to the beach. People are queuing around the block to get a scoop of your famous ice cream. But wait! Disaster strikes! 

There’s a catastrophic fault in your ice cream van that threatens to disrupt this crucial period. 

Do you have the cash reserves to deal with this emergency?

If the answer’s yes, then you would be able to reduce the impact the emergency has on business.

If not, you might be scrabbling around trying to solve this cash issue at the worst possible time! 

ACTIONS

Set a reasonable minimum cash reserve to maintain based on your cash flow forecast. This is all about keeping your business safe and applying sensible spending limits.

Understand the level of cash you need to leave your peak-season with to survive the off-season.

Calculate both the continuing operating costs you have to pay during the off-season plus a buffer for unexpected equipment replacements or other emergencies. 

Ensure your spending plan for the year doesn’t cause you to go below this level. 

 

Add new ways to generate income all year-round

Obviously, I could tell you to “just sell more”. That’ll clearly give you an easier time with your cash flow!

However, I’ll assume you are already working hard to grow your sales.

Instead, another way of tackling the off-season dip is to find new sources of income that perform all year-round.

The goal isn’t necessarily to completely counter the negative cash flow periods but at least to smooth out the more extreme drops. 

Off-season cash flow with supplimentary incomeSpend some time coming up with new income ideas that could complement what you are doing already.

Here are some suggestions to get you started:

Sell branded merchandise like t-shirts, bags, mugs etc

If you’ve built a brand people love, you’ve got an opportunity to make the most of that passion and loyalty in your customers.

Offering attractive looking secondary products with your logo, colours and designs can not only give you a boost in income but help to spread your brand further too! 

Sell to other countries – one region’s off-season is another region’s peak

Depending on what you sell this may or may not be an easy option. Regardless, it’s still worth investigating.

The sun might be hiding in the UK but it’ll be beaming in other parts of the world! 

If you are selling online already, it might not take too much time to set up methods for receiving payment from and delivering to other countries.

Just ensure that starting down this route doesn’t sacrifice your capacity to sell to your primary market.

Sell a subscription version of your product

You might think your product isn’t suitable to be packaged up in an on-going subscription. 

However, a surprising variety of products can be ‘subscribed to’ these days. From fashion items to household goods, there doesn’t really seem to be a limit anymore. 

Getting people to sign up to a subscription during your peak season will keep the cash flowing in all year round.

ACTIONS

Spend some time generating alternative income ideas appropriate for your business. 

Keep in mind they might take additional costs, time and resources to implement. You need to plan the launch on your cash flow forecast in order to see if the positive impact is worth the trouble! 

 

Reduce unnecessary spending in the off-season

During the quieter periods, you’ll likely still need to maintain the core of your operating costs to keep your business running.

However, with the help of your categorised cash flow forecast, you should put some time into identifying costs that can be pruned or reduced.  

Cash flow forecast statement of cash paid on goods and servicesHere are some suggestions:

  • Close down your premises in the off-season to reduce utility bills
  • Employ part-time staff or contractors during the peak season to reduce wage bills in the off-season
  • Offer your core staff optional additional unpaid leave during quieter periods
  • Cancel subscriptions to software you don’t use (as long as you can start them up again later!)
  • Turn off marketing campaigns (like Adwords) that might convert inefficiently in the off-season

Related: 7 things to remember when employing staff for the first time

This isn’t just about off-season costs though!

Receiving a large volume of sales in a concentrated period might make you feel like you can spend more at the same time.

Overspending in this period can be dangerous. 

This is where your cash flow forecast serves as a critical reality check.

By having one eye on the future and the upcoming dry season, it’ll help you reign in extra spending that might break the bank further into the future.

This is why working out your cash reserve minimum was the first thing we went through. 

When you know your limits, it’ll be easier to set your budgets.

ACTIONS

Go through your expenses with a fine-tooth comb. Leave no stone unturned!

Sometimes it feels uncomfortable going through all your spending, you’ve got to push past that!

Take control of your spending and see how much better off the business will be when you plug these savings into your cash flow forecast.

 

Plan your inventory purchases with due care and attention

warehouse with shelves of inventory and stock suppliesInventory purchases have a strong influence on the cash flow of any business. Add in seasonality and its influence is even more extreme.

Individual stock orders can be huge cash commitments. Ordering too much stock puts an unnecessary strain on your cash reserves.

Not only do you have less cash available but unsold stock might need to be discarded, leading to an overall loss to the business too. 

Too little stock can make it difficult for you to fulfil demand, reducing the amount of cash you could take in your peak-season.

Even worse, late deliveries undermine trust in your company and, ultimately, customer retention.

To make matters worse, delivery of seasonal products are often highly time sensitive. People won’t wait for you to get items back in stock, they’ll go somewhere else.

They need those swimming trunks for their beach holiday next week not the week after. And those mince pies are no good to anyone in January!

As you can see, a big part of conquering seasonal cash flow is to establish a clear plan for your inventory orders.

It can be a challenge though, since forecasting demand is rarely easy

Looking back at your historical data (and using other methods if you don’t have any) is essential at this point.

Keep in mind it’s not just about how many sales you made last year.

You need more detail than that since you’ll need stock in place in advance and for the right products too!

You need to look at when sales occurred and how they are distributed amongst your product range.

It really helps to have a strong understanding of:

  • When the season starts and ends
  • Which of your products are top sellers (and which aren’t!)
  • The maximum orders you might receive in a given period
  • The lead time for ordering in new stock
  • Minimum purchase order size from your supplier
  • Bulk discounts that might influence your minimum purchase order decision

It’s critical for you to use this information to create a careful and well considered purchase plan for the year.

Your forecast will help to visualise these large cash impacts allowing you to gauge how much you should safely purchase. 

As always, remember to have your minimum safe cash reserve amount in mind.

ACTIONS

Forecast your sales in detail, breaking them down by product categories. Using past data, analyse when they are likely to happen.

Look ahead at changes in your business and the marketplace that could influence sales this year. How much is demand going to grow vs last year?

A clear sales forecast will indicate the volume you’ll need to purchase and when you’ll need the inventory in place.

Combine this information with the mechanics around purchasing your stock to create a clear plan for when you’ll make your stock purchases.

 

Make capital expenditure purchases at the right time

Capital expenditure is the money you spend on purchasing new assets for your business.

For the purposes of our seasonal cash flow improvements I’m going to group them into two categories:

  • Purchases made to grow the business
  • Purchases made in an emergency

Earlier we discussed the need to factor in the cost of replacing key assets should they fail. This was in the context of setting yourself a minimum safe cash reserve to maintain. 

However, if you have equipment that you suspect will need replacing soon, you’ll probably want to do that in advance of them failing. If they are crucial to making sales and fulfilling demand, then they are crucial to your continuous flow of cash

As we saw in our ice cream van example earlier, leaving it to chance could be highly disruptive if you are unlucky enough for it to happen at the wrong time.

Also, upgrading or expanding key equipment and machinery should ideally be done in advance of your peak season too. 

Both these requirements mean diving back into your cash flow forecast for some careful studying. 

As with inventory purchases, capital expenditure can hit your cash reserves hard. Getting the timing right is important.

Many seasonal businesses use the off-season as an opportunity to ‘upgrade’ their business. 

It’s the chance to renovate shop layouts, add new production capabilities, expand premises, build new website pages etc. Endeavours aimed at shoring up the business and maximising your next peak-season (and beyond).

The chances are, making these changes to your business will have a lasting positive effect on your cash flow. Sometimes It might be difficult to see these benefits though. It can just appear to be a huge negative impact on your cash flow in the short term. 

This is why it’s good to forecast over 2 years so that you make the right decisions for the long term health of your business.

Short-term forecasts, whilst useful in many ways, encourage short-term thinking. You’ve got to have that longer, strategic view in order to make the best decisions in the present. 

If it’s the right decision for the long-term health of your business, it might be worth seeking funding to support these ‘upgrades’.

You’ll need to judge whether the cost attached to this funding is out-weighed by the benefits yielded from the investment into the business. Benefits that might only make sense when looking at their accumulation over a long period of time.

This capital expenditure section really demonstrates the value of your cash flow forecast! 

ACTIONS

For any capital expenditure you are planning, you’ve got two impacts to explore on your cash flow.

Firstly, simply look at the costs involved. Perhaps you have available cash to burn on purchases right now, but what is the knock on effect on your cash reserves in the future? 

Secondly, how do these capital expenditure purchases improve your revenue? Investments into the business of this type are normally designed to grow the business. You need to estimate the improvements they will have on your next season.

It should mean you’ll have more cash coming in. Is it going to have a large impact in the short term or are the benefits only going to be felt over several seasons? These are important scenarios to explore (and also why forecasting over 2 years or more is useful). 

It’s really important to have your base forecast ready before looking at capital expenditure. 

You need to know all your normal operating activities first, before you look at the impact of capital expenditure which generally happens less frequently. 

 

Make the right decisions by exploring scenarios

The topics so far should have prompted a few ideas for you to explore and implement into your business. 

As you start investigating them in-depth you’ll hopefully start thinking along these lines:

“What if I implement X change? At best it could mean Y for my cash flow and at worst, Z” 

If you are, then you understand that not only are there multiple actions you could implement, but each action has a range of potential outcomes.

Making the right decisions to secure and grow your business demands you understand this concept.

You can’t and shouldn’t do everything. It’s unlikely you’ll have the time or money, so you’ve got to work out which choices are the best ones. 

In financial forecasting & modelling, the process we use to aid decision making is called scenario analysis.

Your initial 2+ year cash flow forecast is your base scenario.

This base scenario will already provide an illuminating picture of your finances even before you start exploring other scenarios. 

You can gain further insights if you make a copy of this base scenario and explore other possibilities.

Use these copies to plan out the financial consequences of your actions, for example:

  • Analyse the size and timing of your inventory purchases 
  • Analyse the money saved through switching to part-time staff
  • Analyse if making equipment purchases will cause you to drop below safe cash reserves in the off season

The possibilities are endless!

Mocking up these consequences before they happen is essential for a seasonal business to conquer their cash flow. 

ACTIONS

Create copies of your base forecast. Either copy your Brixx plan or make a new sheet in your spreadsheet.

Begin modelling the financial effects of changes you could make. Get into the habit of backing up your decision making with hard numbers.

You’ll be able to grow your business faster when you make choices grounded in sound financials, not just a gut feeling.

When you are trying to convince yourself, investors or your team that your vision is the right path – being able to prove the numbers work can make all the difference.

 

Take full advantage of the off-season

So far we’ve been rather doom and gloom about running a seasonal business.

We’ve talked about how problems all businesses face can become even more exacerbated by seasonal demand. 

However, the off-season can be a blessing

I’m not exaggerating, businesses that take in sales all year round often find it difficult to escape the daily grind. It’s a real problem.

Just finding the time to sit down quietly and think can be impossible when there is always something going on. 

In a seasonal business, for once, you don’t have this problem!

You’ve got enforced periods of downtime perfect for planning your business and implementing changes to safeguard and expand.

Don’t squander this time.

It’s your opportunity to look at your strategy, analyse scenarios and prepare yourself for the next season.

You’ve got the time to consider all the actions outlined in this article, mockup their consequences in scenarios and make the right decisions.

Conclusion

All businesses should take a keen interest in planning their financial future but seasonal businesses need to take special care. Seasonal demand can be punishing for those not prepared for it.

If it comes to it, you can always use lines of credit or another source of borrowing to survive the off-season. 

However, if you implement some of the actions in this article and plan ahead with a cash flow forecast, you may never need to. 

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James Beer 14th January 2020 By
 

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