In Partnership with Simply Business
1st in a series of articles exploring how to make 2019 your business’s best year yet.
By Rieva Lesonsky
Getting your business in shape for a successful 2019 starts with cash flow. If your business is a seasonal one, such as a landscaping company, home remodeling or construction business where work slows down during the winter months, year-end cash flow planning is especially important.
Without positive cash flow, you won’t have the working capital you need to finance your operations, pay your vendors, or meet payroll during the slow season.
Getting a grip on your cash flow
A cash flow statement tracks money coming into your business (customer payments, interest, etc.) and going out of your business (payroll, payables, materials, etc.). When you’ve got more money going out than coming in your cash flow is negative—and that’s not a good thing. Your goal is to maintain positive cash flow throughout your slow season so you can meet your obligations.
Develop a cash flow forecast for the next 12 months. Review your financial statements from the prior year, as well as your sales forecasts for the next 12 months, to develop a projection of your cash flow going forward.
Using the cash flow forecast, look for potential problems. For instance, do you have a huge loan payment coming due the same month your business slows to a halt? Do you have a big construction job starting in April using materials that need to be ordered in February to arrive in time?
Figure out how to reduce expenses and accelerate your income so you’ll have a “cushion” for the slow season. Here are some ideas:
- Start now to set aside cash for the slow season.
- Go over your monthly expenses to see which can be cut or eliminated altogether. Are you paying for subscriptions or memberships you no longer use?
- Ask if your suppliers are willing to extend better credit terms during your slow season.
- Aggressively pursue outstanding invoices. Follow up as soon as payment is due.
- Be persistent in reaching out to late-paying or non-paying customers. See if you can work out a payment plan or get partial payment.
- Figure out ways to quickly generate cash from customers. Could you request partial payment or deposits upfront for future projects, for instance?
- Expand your services or your customer base to bring in more income. For example, your lawn-care customers don’t need your services in the dead of winter—but they do need snowplow or driveway-clearing services. Can you offer those? If you normally do landscaping for commercial properties, how about providing and maintaining indoor plants for offices?
- Offer off-season discounts. Generate cash flow by giving customers special deals on services such as pre-season inspections or end-of-season maintenance. If you own an HVAC company, offer a discount for customers who have their furnaces serviced before the cold weather hits.
Monitor your cash flow closely
If you use an online accounting software program such as QuickBooks, it’s easy to generate cash flow statements. Review your statements weekly (or even more often) as your slow season approaches. Compare your actual cash flow statement to your cash flow forecast, and adjust your plans accordingly. The sooner you spot a possible cash shortage, the sooner you can deal with it by tapping into your working capital sources.
Look at your cash flow forecast to pinpoint when additional working capital will be needed, and develop a backup plan for getting it. (Remember, the best time to apply for business financing is before you actually need it.)
You should always match the financing method to its purpose. In other words, if you need working capital to get you through a three-month slow season, don’t take out a long-term loan that you have to pay back over three years. Instead, look for short-term loans or alternative financing methods such as a business line of credit, invoice/accounts receivable financing, factoring, or business credit cards.
You may never need to use these financing options—but having them available will put you in a better position to weather the winter and deal with any financial ups and downs.