How to Manage Seasonal Fluctuations With a Business Loan

Certain types of businesses are highly susceptible to seasonal fluctuations. For example, snow removal companies and beach retailers may be busy for only a few months each year. While seasonal businesses can look to diversify their offerings to serve customers during different seasons, the key to sustaining a seasonal business is keeping cash flow consistent all year long.

In this article, we’ll explore three ways to manage cash flow in a seasonal business, including leveraging loans like a working capital or business debt consolidation loan to help bridge the gap.

Get granular with cash flow

While year-round businesses may only need to estimate cash flow on a quarterly basis, seasonal businesses generally need to get more granular, calculating cash flow on a monthly and even weekly basis.

Calculate cash flow by forecasting money you’ll receive from customer purchases and investments, then subtract estimates for money you’ll pay out for loans, taxes, and operating expenses like rent, insurance, and payroll. If it’s your first year owning the business, look to historical numbers to inform your forecast.

When you look at your 12-month cash flow forecast, it may expose gaps where cash flow dips into negative territory. These are the specific times when you’ll want to look for ways to limit expenses or renegotiate vendor payments. For example, if your business has a physical space that sits empty for a few months a year, you might consider sub-leasing it to another small business that needs space only temporarily. Similarly, you could approach suppliers with a consolidated or extended payment plan that lets you cover the bulk of your annual costs during peak times.

Set aside savings when times are good

It’s possible for your seasonal business to make an entire year’s worth of revenue in the few months you’re operating. But it’s imperative that you’re smart about how you choose to save and invest during this time.

Thinking ahead, you might choose to keep more money in cash instead of investing in inventory, which could be harder to move in lean times. This extra cash fund can help cover unexpected expenses or simply bridge the gap when times are especially lean in the off-season.

Consider a business loan

While careful budgeting and planning upfront can help, there are times when companies need to rely on a loan to help bridge the gap for one or several months until sales pick back up. There are several types of business loans that provide stability during lower cash flow times and help regulate cash flow, including:

Invoice financing

If customers pay you on net 30, 60, or 90 terms, you may be able to use unpaid invoices as collateral to access a loan. An invoice financing loan is intended to be used for short-term needs. You’ll borrow against the unpaid invoices, then repay the lender once the customer settles their account.

Equipment financing

If your business operates machinery or other equipment, you might be able to use it as collateral to qualify for a loan. Keep in mind that any loan where you turn over collateral means the lender has the right to repossess the item or items if you fail to repay the loan according to agreed-upon terms.

Working capital loans

A working capital loan can help you meet everyday operating expenses in a pinch. These loans can provide a fast reprieve for your business, but they also have a generally shorter repayment period and sometimes higher interest rates.

Debt consolidation loans

If your business has used various types of debt to cover payroll and other necessities in the off-season, you might struggle to manage loan payments, ultimately affecting your cash flow forecast. A debt consolidation loan is a financial tool that can help your business reduce debt to a single, manageable monthly payment. And since debt consolidation loans offer a fixed interest rate, you can lock in an agreeable rate and benefit from fixed payments for the life of the loan.

Navigating the change of seasons

It’s possible to run a seasonal business and keep the company operating all year round. Doing so requires you to keep a watchful eye on cash flow and your budget during the high times as well as the down months. Financial tools like business loans can help bridge the gap if you find yourself unable to meet everyday expenses during a slower season. A financial professional or business coach is the best resource to help you create a cash flow forecast that allows your business to remain open year-round with seasonal highs and lows.

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