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Maximising expenses to take advantage of seasonality

9 June 2016

Keeping on top of cash flow in a seasonal business can be difficult, especially when you have year-round expenses. However, knowing how to manage your bank balance will help ensure that you have money in the bank when you need it most.

Know that profit isn’t money in the bank

Assuming that having profit automatically means cash in the bank is one of the biggest mistakes seasonal businesses make. While having revenue left over after your expenses are paid is great on paper, it’s still just that – on paper. Your net income is calculated through a method called accrual accounting. The number calculated through this method, while important, does not directly relate to the cash in your bank account.

The reason these figures don’t align is usually one thing: timing. This is especially true in a seasonal business. While you record revenue in the same period as you do the work (an accounting process called revenue recognition), this isn’t necessarily the same time as you get paid. It’s not unusual for customers to pay later than you would like, leading to a disparity between your profit margin and your cash on hand.

To improve your cash flow during these periods, make it as easy as possible for your clients to pay you. Follow them up with reminder emails or phone calls, and provide an option for credit-card payment.

Set aside money for a rainy day

While putting savings aside during the peak season may seem like an easy way to remain in the black year-round, the reality is a lot more difficult. Subcontractors demand to be paid, and you just can’t put expenses on hold.

Map out your bank balance every few months at least. Unless you’re an accountant, it’s best to do this with a professional. Mapping out and understanding your cash flow is a worthy investment.

Scrutinising your cash flow is also an opportunity to run a scenario analysis, which can help you develop a contingency bank balance. Look at your projected cash flow and scale back your revenue predictions by 25%. Figuring out how you will cope with a delay in payment could help you be better prepared for potential dry spells later down the track.

Improve your financial knowledge

Having the right fiscal know-how is the best way to stay in the black year-round. Studying a Master of Business Administration, specialising in Accounting can help you gain the skills you need. 

Speak to our enrolment officers at SCU Online on 1300 589 882 to find out how online study could fit in with your future.