Whilst all businesses experience fluctuations in revenue across the year, seasonal businesses must be equipped to deal with the extremes. This can be a challenge for maintaining steady cashflow.
Making enough money during peak times to cover the off-season is part and parcel of setting up a seasonal business. However, the side less considered is how the highs themselves are financed.
Even if you have enough cash in the bank to stay afloat during the quieter months, do you have enough spare to kickstart your trade when peak season begins? This is where commercial finance comes in handy.
Using invoice finance for seasonal running costs
From raw materials and packaging, to deliveries and staff, there are temporary increases in running costs which must be factored into your seasonal business. We recommend invoice finance to support this.
For example, if you’re in need of extra hands over peak season, you will likely pay your temporary staff each week. But your customers are still paying you on 30 days or more, so how do you bridge the gap?
With invoice finance, the lender releases up to 85% of the customer’s invoice value, on the day you issue the invoice, rather than you having to wait 30, 60 or 120 days (by which point you could have been paying your extra staff for up to 3 months!). Ensuring you have the required bank balance to cover all operational costs is crucial to a successful season. Invoice finance takes the pressure off an already stressful period and makes room for growth.
Combining invoice and trade finance to fulfil large orders
Whether you’re a manufacturer or distributor, the excessive nature of a high season means a large number of orders placed at once. This in turn requires large orders to your own suppliers to meet your demand. But when you’re paid by invoice, the discrepancy between what you owe your suppliers and what your customers have already paid can create unnecessary roadblocks to success.
Two business finance solutions that go hand in hand for seasonal businesses are invoice and trade finance. To explain how these two facilities work together, here’s an example:
As a manufacturer of widgets, you have received your largest order ever and require a shipment of raw materials from your supplier to fulfil the order. You must pay your supplier in the next week, but your customer is on a 30-day invoice. With running costs to consider on top of this new order, there isn’t enough cash in the bank to safely pay your supplier. Luckily, you utilise trade finance and invoice finance to get round this problem.
Your trade finance facility pays the supplier for the materials to reach your factory, so the widgets can be made as ordered without denting your cashflow. Then, when the widgets are invoiced to your customer, your invoice finance facility pays the trade finance facility, directly.
For seasonal businesses, footing the bill for a large peak season order, when the reserves from last season are all but spent, is not the most appealing route. This strategy not only keeps cash in your bank, it can also mean you take advantage of early payment discounts if they’re available.
What’s more, these two finance options can be tailored to seasonal businesses. This ensures the money ‘kicks in’ at the most beneficial time, for the right amount, and that repayments are structured in time frames which are most viable for your business.
Seasonal business finance: our top tips
Whilst commercial finance can go a long way to supporting your seasonal business, there are some more general tips you can action:
Put money to one side during the good times: a core yet sometimes neglected aspect of owning a seasonal business.
Plan for the year as a whole to take into account all peaks and troughs. Don’t fall into the trap of planning for quarters.
Be realistic about your turnover for the high season to avoid issues later on.
Get to know your time frames so you’re confident the correct commercial finance facility will come into play at the right time, and provide the right amount.
Finance support for seasonal businesses
No matter the nature of your seasonal business, commercial finance options can make all the difference to your success.
Whether it’s simply removing stress or facilitating expansion, our business loans and specialised finance options offer a range of solutions to inject capital where needed and take away the bottlenecks to your business’ growth.
Talk to our friendly team today for a no-obligation chat. Contact Coria Commercial Finance.