Many businesses experience seasonal peaks and troughs in demand. These types of organisations face multiple challenges. Not only do they need to survive during slow seasons, but they must also find ways to thrive during periods of increased demand by capitalising on revenue opportunities without putting cash flow or long-term success at risk.
Do you own or manage a seasonal business? How do you make hay while the sun shines and batten down the hatches when the cold weather creeps in (or vice versa)?
Here are some recommendations.
1. Human capital
You don’t want to lose the skills and expertise that make your products and solutions such a success. This would mean a mad scramble to hire and train staff in time for each busy period. So, how do you make sure that you have enough people to drive peak productivity during high seasons, as well as hold onto your valued talent during low seasons?
Firstly, be transparent and keep your valued staff informed about your seasonal business cycles. Encourage them to take leave during the quieter months (rather than everyone going on holiday over the festive season, for example, if this is your busiest time of year).
Secondly, consider maintaining a core team of highly-experienced staff and then hiring seasonal employees as and when these are needed. Several recruitment agencies offer managed staffing options that build more flexibility into your workforce. Or you could hire students over the summer, or highly-skilled retirees who are happy to work more flexibly.
Whatever route you choose, take care not to hire too many people, as you don’t want your labour expenses to eat into your profits during high seasons.
2. Working capital
Smart cash flow management is critical for seasonal businesses. In an ideal world, you would be able to time your cash inflows and outflows perfectly to match your sales cycles. While you can anticipate the periods in which you will earn the most revenue (based on the nature of your products, your customers’ needs and past sales), you can’t always control when your customers will pay.
Also, while revenues fluctuate, you’ll still have your fixed expenses such as rent, electricity and more. Your cash flow therefore needs to be reliable enough to weather fluctuations in demand, and meet your daily running costs.
Having access to the right working capital finance can be extremely helpful in addressing these challenges. If you sell to your customers on credit terms of between 30 and 120 days, you should consider factoring to keep cash flowing into your business. Factoring is a finance solution that involves selling your accounts receivable to a factoring company. This firm then provides you with the working capital you need to keep your business running efficiently and successfully.
If you choose to partner with Merchant Factors , its expert team of professionals will also handle your debtor administration and credit control functions. This means that you can delegate a wide range of tasks to the Merchant Factors team, which saves you from having to hire this expertise in-house.
Services include sending monthly statements, phoning debtors for payments due, sending reminders and final demands, and handling receipting and reconciliations.
3. Capitalising on sales opportunities
Keeping the optimum level of stock in your business to meet demand yet keep costs under control is a typical challenge for seasonal businesses. Too much stock in your warehouse can put a strain on your cash flow, but you also don’t want to be caught without enough stock to capitalise on seasonal spikes in demand.
With a stock finance facility in place, you’ll have working capital available to pay your suppliers early to ensure you have your stock in time. You’ll also be in a better position to negotiate early payment discounts, which keeps more cash in your business.
Stock (or trade) finance is a funding mechanism that is specially designed to assist in the purchase of stock. This is an asset-backed facility that funds the operational cycle – from when you pay suppliers until you receive funds from customers.
A stock finance facility from Merchant Factors is carefully tailored to match your company’s cash flow cycle, to prevent your organisation from overtrading. And repayment dates are based on the working capital cycle, allowing the business enough time to produce the goods, sell them, and collect the cash from the sale (or through the debtor created as a result of the sale).
This enables you to increase sales and profits during peak seasons, or develop new product lines to diversify your revenue streams. As mentioned, you’ll also be able to access purchase discounts through the early or prompt payment of suppliers, as well as purchasing advantages by being able to buy in larger quantities.
Ready to survive and thrive as a seasonal business? contact Merchant Factors today for more advice and information on agile factoring and stock finance solutions.
Finance beyond the Numbers.