By Rohit Arora, CEO of Biz2Credit
Many seasonal businesses -- such as construction, landscaping, amusement park operators and more -- thrive in the summer months and struggle during the colder months. Better than anyone else, these types of businesses understand that cash flow can make or break you. Unfortunately, many entrepreneurs do not plan ahead for the lean times, and learn this lesson once they are in dire straits.
Even companies that generate millions of dollars in annual revenue can run into cash flow difficulties. Here are suggestions for the owners of seasonal businesses to avoid cash flow crunches:
No. 1: Manage Receivables Well
You cannot count on your accounts receivables as revenue unless people actually pay you. Otherwise, you won't have cash to meet payroll and your other business obligations. An efficient collection process is essential. Some tips:
• Invoice Immediately -- If you take your time sending the invoices needed to process payment, your creditors in turn will take their time paying you. Make prompt invoicing a priority.
• Reward Fast Payment -- Offer discounts to quick paying customers.
• Encourage Down Payments -- This tactic helps ensure that at least a percentage of your invoices will be paid. Many small business owners require it.
• Factor -- If receivables are a desperate cash flow situation, consider selling them to give yourself some breathing room. There are many alternative lending companies now involved with this type of financing.
No. 2: Negotiate Better Terms with Vendors
The cost of doing business is the opposite side of cash flow. Negotiate with vendors to whatever extent possible in order to get more favorable terms. Try to make sure that you have enough time to complete jobs for your own customers, invoice them, and get paid before you have to fulfill obligations to your own vendors.
No. 3: Pay Bills Only When Due
Delinquency in paying bills is a no-no, because it results in late fees and can hurt credit scores. However, there is no reason to pay bills in advance -- unless there is some financial incentive, such as a cash discount, for doing so. Get into the habit of making online payments and transfer the funds in just enough time to stay current. This enables you to have cash on hand for much longer periods of time. Technology makes everything quicker and easier.