Seasonal retail and wholesale businesses can experience huge peaks and dips throughout the year – which often makes it more of a challenge to balance their cash flow needs.
Implementing an effective cash flow management plan can not only be pivotal in ensuring stability but also in creating a platform for sustainable growth.
Here are some simple suggestions that can give you more control over your cash flow throughout the year.
Analyze your historical sales data
Once you understand when the peak seasons for your business start and end, and how much income you generate during these periods, then you can plan accordingly.
Look back at the past couple of years of sales as a starting point and review things like:
- Sales figures (separated into product categories)
- Payment patterns
- When payments arrive
The last point is important as it can depend on who your customers are. Retailers will receive funds faster, usually within 2-3 business days for card transactions. This can also lead to higher post-season returns, which should also be factored in.
Wholesalers sell to other businesses, so it usually takes longer for payments to arrive. For example, a sale made in November might not arrive in your account for 30-90 days, depending on the terms.
Taking all of this into account should give you a clearer picture of how to manage your cash flow before, during and after any seasonal peaks.
Consider your financing options
From facilitating loans for warehouse expansions and equipment hire to providing a whole host of cash management options, you may find the support you need by accessing commercial bank services.
Seeking additional financing can allow you to optimize your cash flow. So, as you enter the busy period, you have more flexibility with your cash to cover things like supplier payments, payroll, marketing and other ongoing overheads.
Opening a line of credit can give you a much-needed option when preparing for the upcoming peak season. And if you’re worried about taking on too much debt, they can usually be customized with appropriate limits to suit your business needs.
Forecast for different outcomes
Forecasting is key to strong cash flow management. Ideally, you’ll want to consider all the possibilities, so you have a plan of action ready and are not caught short.
You can do this by considering the:
- Worst-case scenario: How will your cash flow be affected if there is an economic downturn (lower footfall/higher than expected inflation etc.) or if there is major disruption to your supply chain?
- Best-case scenario: In the event you experience higher sales than expected and there are no issues with receiving payments.
- Most-likely scenario: You can base this on your sales analysis and current market conditions, so it will sit somewhere in the middle of the two options above.
Other factors you may want to consider include changes to your competition (new and existing) and shifts in customer behavior. Fixed costs like rent, salaries and software subscriptions should remain constant.
Things can change quickly, so it’s always helpful to have multiple plans of action you can implement that will allow you to respond quickly and decisively.
Build up a cash reserve
It is generally advised that small business owners have access to enough cash to cover 3-6 months’ worth of operating expenses.
For retailers and wholesalers that rely heavily on seasonal peaks, a slightly different tactic should be employed. These types of businesses ramp up stock and staffing levels during these periods, which means your cash reserves need to be higher.
Two ways you can build up a cash reserve include:
- Small increments: Set up automated transfers into a savings or money market account, allowing funds to gradually build up over the course of the year.
- Lump sum payments: Store away any unexpected or surplus gains you have received by depositing larger sums into your savings account.
You may have concerns about carrying too much savings into the next tax year, so speak to your accountant about what works best for your business.
Final thoughts
Seasonal changes can be predicted and managed, so there is no need for them to hold your business back. Researching your sales data can offer useful insights into your cash flow management; while forecasting for different outcomes ensures you always have a plan in place. Seeking extra finance could provide a short-term solution, or if you can put money aside during the strong periods, this should allow you to restock your cash reserves.
