The sun setting earlier each day is just one sign that the seasons are changing. As a business owner, you might be noticing a change in your customers’ habits, as well as swings in how much money is flowing into your business account. Your phone’s probably ringing less if you run a pool service. If you’re in retail, you can’t keep boxes on the shelf. 

Revenue ups and downs can be stressful when you don’t see them coming. But luckily, there are ways to spot and plan for them, and we’re here to show you how. 

Knowing the difference between seasonal and cyclical cash 

Your cash flow is money physically moving in and out of your business each month. If you are a seasonal or a cyclical business, your cash flow can have big swings. 

A seasonal business makes money during specific, predictable times of the year. A landscaper will work a lot in the summer and fall when grass needs mowing. But come winter, they won’t be pulling in as much cash. 

On the other hand, a cyclical business’s earnings are less predictable because they’re tied to the broader economy and sway with factors like interest rates and employment. For example, if you run a construction company, your business could be hit hard when interest rates climb and people are building fewer new houses. 

Find your pattern and you’ll be prepared

So why does it matter when you make your money as long as you're making some? Because rent, payroll, loan payments, and insurance all bill on a flat monthly schedule, regardless of how much revenue you rake in.

In order to avoid panicking about how to pay bills during a slow season, you need to find a pattern that you can count on. Start by pulling at least two to three years of business monthly bank statements. Then, go through month-by-month and note the highs and lows, then compare them to the other years. 

If you see a pattern across all three years, you can begin to anticipate slower seasons. You might also notice that some months have a high revenue but low cash balance. This happens for companies that have to invoice and wait for payment. Mark these trends as well when you’re looking for patterns. 

With this data in mind, you can then turn back to those fixed bills, or the monthly payments we talked about. Mapping out exactly how much you owe monthly in fixed payments helps you understand how much cash you need to have on hand before the slow months hit. This is called a cash reserve, or money that a business sets aside to pay for known expenses and potential emergencies. 

Planning for the slow stretch

If setting up a cash reserve sounds stressful, have no fear. By tracking your business’s patterns, you’ll know when you have extra money to put into the reserve, and how much you will need compiled for slow seasons. Your goal is to build a cash reserve that covers the full downtime, whether that’s two or six months long. 

For example, if you owe $1,500 a month in fixed bills, and your slow season is February through April, during the other nine months of the year, you need to build your cash reserve to have a minimum of $4,500 by the time the slow season hits, so you know your bills are covered. 

These patterns also help you know when to time big purchases, make staffing decisions, or consider getting a loan. You can plan to make big purchases early or midway into your peak season, after you’ve built up your reserve. If you need extra staff during busy months but not your slow season, you can consider contractors instead of full-time workers. And, you can explore financing to help your finances feel more comfortable when things slow down. 

Three things to do this week 

Knowledge is just the first step. Next comes action. Here are three things you can do this week to clean up your finances: 

1. Gather the last two years of bank statements. For both years, circle the two or three months where the balance is the lowest. 
2. Make a list of every fixed monthly bill, including the dollar amount. Add up what a comfortable cushion for your slow stretch would be, even if right now the honest answer is zero. This is just a starting point to grow from. 
3. Call a lender early. Having that conversation before you’re in the thick of your slow season gives you more options than if you’re actively struggling through it. 

If you’re curious about whether your business has enough cushion, you shouldn’t be afraid to ask for help. Call 609-587-1133 or email info@rbacloan.com and set an appointment to have a helping hand look at your numbers with you. 

Those cyclical or seasonal swings you’re experiencing only feel like a roller coaster until they’re written down on a calendar. With knowledge of a pattern and a set date to prepare for, you can be more confident that your business can ride these ups and downs.