How to Keep Your Books in Order Year Around? | CoverWallet

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Bookkeeping is the organization and storage of financial and accounting documents such as income tax records, financial statements, purchase orders, and more for the purpose of keeping a complete record of all your financial transactions. Bookkeeping is necessary for businesses, as this gives you a clear picture of your business’ financial status, thus helping you with your business decisions.

In fact, problems with cash flow are one of the main reasons small businesses fail because no matter how successful your business seems on paper, the business won’t survive if you don’t have the money when the time comes to pay for the rent, payrolls, or to refill your inventory.

This is especially true when you’re running a seasonal business as these businesses earn income for just part of the year, but have expenses all year. Properly managing cash flow in a seasonal business is a challenge and if you don’t manage your cash flow, costs and other busy season accounting tasks can quickly dry up your funds.

To avoid this, there are various tips that you can follow to more efficiently manage your cash flow throughout the year. Once you master them, you’ll be one step ahead when it comes to building a financially stable business.

Tip 1: Know your peak season

This might seem obvious and trivial, but it is crucial for any seasonal business in order to make accurate predictions for the rest of the year. Not only it is important for you to know when high season starts and when it ends, but it’s also crucial to be able to accurately predict your revenue and expenses.

You can also “extend” the season and stretch your sales into slow seasons by offering complementary products or services. For example, your food truck business could offer catering services during slow months, or your lawn care business could offer snow removal during winter. Work on your marketing and let the people know that you offer such services.

For established businesses, a good place to start is at your historical data. Try to find potential patterns. For example, if there’s any year-on-year growth during your peak season. You should also remember that your customers’ wants and needs will change, so it’s very important that you know how to adapt to these changes.

For newer businesses or startups, start with a competitive analysis and try to look for similar businesses in your area to project sales. Learn proper cash management and build up cash reserve so you have cash on hand for the slow seasons. Since you’re just starting out, try to keep the number of employees low and just hire temporary employees during the busy season.

Tip 2: Plan year-round expenses

Now that you have an idea of how much you’re going to make during your busy season, it’s time to project cash flow during the slow times. Sort out your budget, taking into account all the different types of expenses that might occur during the year. List down a detailed cash flow forecast with all your fixed costs (rent, utilities etc.) and variable costs (such as quarterly tax payments or annual insurance premiums), as well as unexpected costs (in case of fire, flood, or robbery). These expenses are unavoidable, however, they can be mitigated through several means such as getting the proper insurance, setting aside an emergency fund, or setting up a line of credit for your business. Consider talking to your suppliers, too, and arrange a payment plan that would best fit your needs.

Tip 3: Set up a line of credit

Sometimes, even if you did everything you could to protect yourself from the unexpected, there’s still a chance that you’ll need to finance unexpected costs yourself. What if you don’t have the cash for that? A lot of times, most seasonal business owners go to loan companies for an emergency business loan, where interests are so high that it can take a long time and a small fortune before they can pay the entire loan back. While emergency loans can help pay for unexpected expenses, these could be a bad idea because you pay for the interest of the entire loan, not just the amount you used. In this case, you’d be better off setting up a line of credit to cover unexpected costs.

Line of credit (LOC) has a lot of similarity with a credit card. LOC is an arranged amount of money that a credit union or a bank has agreed to lend you. It’s similar to a loan, but unlike the traditional loan LOC lets you withdraw the amount that you need when you need it, as long as it does not exceed your credit limit. In other words, you don’t have to borrow a big amount all at once which is what traditional loans offer. Payment and interest are different, too, because with LOC you will only be paying for the interest of the amount you borrowed, not for the full credit limit. Additionally, the payment is flexible and you will be paying the credit in terms within a specified timeframe.

Take advantage of the slow months to look for a credit union or a bank that offers low interest LOC. Take the time to find the best fit for you, with the best possible terms at the start of your offseason. Although it’s still advisable to build an emergency fund, setting up a line of credit would still benefit you in the worst case scenario without having to have to pay anything until you actually need the money.

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Tip 4: Manage your receivables

Peak season can be challenging with its intensity. Make sure to stay on top of things by having a system that helps you collect your receivables and keep track of your invoices and your expenses. Make sure your customers pay you on time. For customers to pay you fast, they need to know the details of your customer bill payment policy. If you offer credit, clearly inform them about your terms. Also, send invoices that contain your policy and the information your customers need in order to pay you, such as your business’ name, the amount due, and the due date.

Tools such as Xero can be extremely handy during these times (and for the rest of the year as well). Xero is used as a cloud-based accounting platform for both small-and-medium-sized businesses, which you can also share with your bookkeeper. Nowadays it’s easier and more convenient to manage cash flow with online accounting software such as this.

Tip 5: Be productive during your offseason

Offseason does not have to mean no work at all. Even during the slow seasons, you can still keep yourself busy and productive. The following are a few things that you can do:

  • Get ready for the next peak by planning your next move or a possible new business strategy
  • Update your financial statements
  • Check your inventory
  • Try to find ways that may help reduce your business expenses during the slow months
  • Look for employees to hire for when things get hectic again
  • Be active on social media. This could be the best time to interact more with your current and potential customers, and the best time to do business marketing
  • Pay off debts

You can also use your available time to plan how you can diversify your business for the next offseason. Find out how you can make your business generate revenue even during the slow months by asking yourself: Is there a way to make use of my infrastructure offseason? Is there something that requires the skill set my team currently has?

Since your type of business is not the year-round business type, you have to think in a different way to come up with a viable new business idea using the resources you currently have. You might want to turn your ice cream shop into a cozy coffee shop during winter months, or double your tourist location property into a conference center. The possibilities are endless; you just have to be innovative and open-minded. Slow season does not have to slow you down, too.