As a small business owner, you know just how critical steady cash flow is for the success of your business. In fact, cash flow is often cited as one of small business owners' top five challenges. It's no wonder, since up to 60% of failed businesses have reported that most of their downfall was due to cash flow problems.
If your organization experiences seasonal fluctuations in sales, keeping it afloat with sufficient cash on hand can prove challenging. By employing a few strategies that focus on collaboration, communication, and improving processes, you can improve cash flow during slower periods.
Here are a few ways how:
Work Out a Variable Terms Agreement With Vendors
Negotiate with vendors for a more flexible agreement that changes depending on the time of year. For instance, perhaps you can pay a net 30-day during the busier season, but a net 45-day when things are slower. You could also leverage credit cards—as opposed to paying with checks or wire transfers—to increase your days payable outstanding (DPO).
The key here is reciprocity. If certain vendors have their own requests, such as shorter net periods during their slower times of year, consider accommodating them if you can. In turn, being flexible when possible can boost the odds of your vendors being more open to terms that help with your cash flow. It's a win-win for both parties.
Save During Busier Periods
Saving for a cushion of cash during higher periods of revenue will help you keep your business afloat during slower periods. How much you should have socked away varies; covering three to six months' operating costs is a good rule of thumb. Of course, the larger the cushion, the better.
Look at your cash-flow statement to gauge how much your small company needs. If you typically experience a lull during the summer months, then aim to have at least three months in expenses saved.
Make Larger Inventory Purchases During Peak Seasons
Plan to purchase more inventory during the busier times. That way you'll spend when you have greater cash flow and save by netting a discount on larger orders. Plus, you'll save on shipping and freight charges. Talk to vendors, manufacturers, and shippers about your anticipated needs to see when you'll be able to secure the best deal.
You can also utilize your credit card's points system when you make these purchases. Cash-back rewards earned from these bulk spends can provide an additional source of revenue that could make a considerable difference during slower periods. However, you should first make sure you can afford purchasing additional inventory, and that you have sufficient space to store it.
Offer Employees a Flexible Schedule
During your slower periods, offer employees a flex schedule or comp time. For instance, this may include flexibility as to when they start and end their workday, or give them the option of taking paid time off during the slower season. This would be with the understanding that they'll put in more hours during your busier time of year without getting paid overtime.
Another possibility is to stagger the times employees come in during the peak season to ensure maximum coverage. Not only will implementing an employee schedule ROWE (Results Only Work Environment) benefit your bottom line, it could also boost productivity and show that you trust your employees.
Streamline Processes to Improve Efficiencies
Look for ways to be more efficient. Streamlining and simplifying processes will save you time and money in the long run. This may include removing redundant software, finding a better way to do something, such as streamlining your process with virtual payments, or finding better ways to do things so you can save on labor resources.
Not sure where to start? Tap into the knowledge and insights of your employees. Ask your pool of talent to chime in with their ideas on how to increase efficiency. You'll want to do this during your slower periods, when there's time to explore solutions and to test new processes and software before the peak season.
By employing a few tactics, you'll be able to maintain a steady cash flow despite seasonal fluctuations. In turn, you'll continue to operate a stronger business, and propel its growth and success.
This article is intended for general informational purposes only and does not constitute legal advice or an opinion on any issue. It should not be regarded as comprehensive or a substitute for professional advice.