We very rarely get a chance to fully switch off as business owners. Even during the ‘quieter months’, pressures around revenue and cash flow only get louder. We’re sure some of you can relate during this summer period! But while there’s no magic wand to ramp up business during tough times, there are plenty of ways you can plan ahead and better handle those natural peaks and troughs that occur throughout the year.
Here, we highlight the importance of forecasting your cash flow ahead of time and provide useful tips to proactively manage your finances when under pressure.
Mapping cash flow
Cash flow can be heavily affected by seasonal dips in revenue, but other factors such as large tax payments, annual renewals, or payroll increases can add pressure too. Not everything is predictable, of course, but by mapping your expected low-cash-flow periods throughout the year, you can see the dips coming and take mitigating steps.
For example, if you know that a tax increase is coming with the next Budget or your industry goes quiet during set months of the year, you can map these as low-cash-flow periods and prepare. Use historical data from previous years to help with mapping, or seek insights from similar types of businesses to get a more accurate picture.
Remember, profit on paper is essentially useless if your business can’t meet its short-term financial requirements. Here are some tips for better managing those tight spots.
1. Build cash buffers ahead of time
When the money is coming in and things are going well, your first thought might not be to take a step back and reserve cash for a rainy day. But to ensure you can keep moving forward when things do get tougher, building a cash buffer ahead of time can be your saving grace.
So, instead of committing all your profit to operational expansion or growth, be sure to hold some back so you can keep moving forward when the revenue slows down.
2. Plan staffing around demand
An expanding payroll is one of the biggest financial challenges for any business to manage. When there’s enough work on to justify those new employees you brought in, that’s great. But when there’s less work on and too many staff, you’re effectively burning money.
Expand your team wisely to grow sustainably. For example, instead of hiring three permanent employees to prepare for winter, consider hiring one permanent employee, one freelancer/temporary worker, and upskill an existing member of staff. This will stand you in better stead when things get quieter.
3. Consider alternative lending options
Alternative lending is essentially finance, loans or non-traditional lending types provided by non-traditional banks. It’s an increasingly popular option for small businesses that need to keep moving quickly but are at risk of being slowed down during periods of low cash flow or high expenses.
Many agencies use invoice factoring to bridge the gaps caused by unpaid invoices, too. Revenue-based financing is another popular option, where repayment is tied to your future revenue.
Make the right decisions with Nabarro Poole
Bridging cash flow gaps and navigating seasonal demand is essential for the long-term growth of any small business, and there are many more proactive methods than those we’ve discussed here to manage your finances through ups and downs. To choose the most effective routes for you, clarity is needed on your specific position and financial requirements as a business, and Nabarro Poole can help provide this.
As well as providing everyday accounting services, we take the time to learn where your unique business is at and where it’s going. From here, our team can help you plan, forecast, and manage your finances with business advice on how to grow sustainably.
For a friendly chat about how we can help, get in touch today.
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