Handling The Summer Cash Flow Crunch

It’s Small Business Week—the beginning of May—and you know what that means: summer is around the corner

For many businesses, especially women-owned businesses, summer is either their busiest or slowest season. Businesses located in tourist locations, in hospitality industries, or in the wedding business, may seem the bulk of their income in the next few months. But many service businesses may experience the doldrums as their clients are off away or saving money for family vacations.

If you’re in a business like this, that means your income—and cash flow—is going to fluctuate wildly this time of year. What can you do to even out the seasonal cash flow roller coaster?  Here are a few suggestions.

Get Money Coming In Sooner

There are a few ways to pad your pocket in advance.  First, encourage pre-sales: Wouldn’t you like to have your hotel or salon fully booked and paid for well in advance? There’s a reason hotels offer a discount for pre-payment on reservations: it gets money in their bank accounts sooner. You can do the same. Offer discounts for pre-paid purchases early in the season—such as $100 worth of goods or services (nonrefundable) for $80 when paid before June 15. You may have lower profit margins, but you’ll have cash sooner.

Also, consider holding sales events early in the season.  Sponsor in-store events before the height of the seasonal rush. If customers buy from you early, you’ll turn over merchandise quickly, ease your busiest periods, and improve cash flow.   And heavy up the gift card push.

Gift cards are, in essence, pre-sales. By selling a gift card (or certificate) you get the money in your bank account long before a customer actually purchases the product or service.

Get Paid Faster

Lagging payments can cause trouble for businesses year round, it’s true, but the pain is more deeply felt during the lean months.  Deal with it by reducing billing.. If you bill your clients for goods or services, you typically don’t receive payment for 30-90 days. Instead, request pre-payment or require payment on delivery. You’ll have less paperwork during this busy season, too.  

Credit cards can provide another buffer. By accepting credit cards, you enable more customers to pay you immediately. You get the money in your bank fast—often within 48 hours. Yes, you pay a small transaction fee, but you don’t have to worry about unpaid invoices or checks bouncing.   And start taking mobile payments as well. Mobile credit card readers from Square, Intuit, PayPal and others enable you to accept credit cards even if you’ve never accepted them before. They’re also great if you’re on the go: selling at crafts, or street fairs, or running a food truck.  . https://squareup.com/ https://www.paypal.com/us/webapps/mpp/accept-payments-online https://payments.intuit.com/

Pay Later, Without Getting In Trouble

Just as you want money coming in more quickly, you want it leaving your coffers more slowly.  So, negotiate payment terms. Ask vendors to extend the amount of time you have to pay your bills, to at least to 60 or 90 days instead of the typical 30 days, ideally without incurring additional interest charges. No, it’s not standard practice, but they might be willing to work with you. It doesn’t hurt to ask.   

And, just as you’re going to accept credit cards, start using them to pay yourself.  This immediately provides you with longer payment terms, keeping more money in your bank account. If you take more than 30 days to pay, you’ll  pay some interest, but this gives you more flexibility during a critical period. Just be careful and monitor your credit cards carefully. Ask vendors to accept credit card payments and seek out vendors who do.  

For large invoices, ask vendors if you can pay in installments over three to six months instead of one lump sum. Once again, this isn’t necessarily standard practice, but a vendor might be open to installment payments rather than longer payment terms.   Finally, think about arranging for vendors to fulfill your customer orders. This is a great business model, especially if you run an ecommerce retail site. You do the marketing and customer service, but the manufacturer or vendor fulfills the order once placed. This way, you buy and hold little or no inventory. Yes, you’re likely to have a smaller profit margin on each sale —vendors may charge more for the product on top of the fulfillment service—but you tie up far less money and reduce risk.     

About Rhonda Abrams

Rhonda Abrams has helped millions launch and grow successful businesses. Her first book, Successful Business Plan: Secrets & Strategies, just published its seventh edition, and is the bestselling business plan guide of all time. Rhonda’s books have sold more than 2 million copies and been translated into 30 languages, including the popular Six-Week Startup, Business Plan in a Day, and Entrepreneurship: A Real-World Approach. Rhonda is the entrepreneurship/small business columnist for USA Today and, an entrepreneur herself, is the founder and President of PlanningShop.

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