Q: We are a very seasonal business, and summer is our peak time. What is the best way to spread our cash flow throughout the year, when we earn more than 50 per cent of it within three months?
A: Spreading cash throughout the year is tough, especially if you're making half your money over one quarter of the year. There are ways to do it, but you have to be incredibly disciplined - or you need to find another way to generate revenue during the slower months. Understandably, not every farmer wants to build an ice skating rink in his fruit orchard, so here are some savings strategies that might help you.
Build a monthly plan that includes all your incomings and outgoings for the year. I assume that your most profitable time of year is also your most expensive and that when business slows down, your costs do too. Understanding the seasonal fluctuations will help you protect yourself against them, so make forecasting your first step. If you aren't great at the numbers, find an accountant who is.
Don't have lazy cash. To maximise net interest income, look for high interest savings accounts that will give you a good rate of return. Having cash ''at call'' in a bank account often attracts low interest, so look for a cash management account that delivers maximum returns.
Don't spend because you're slow. Don't use the low season as an opportunity to pour thousands of dollars into marketing. Spending unnecessarily is dangerous at the best of times and it's a killer when you're not making money. So stick to your plan and don't panic when business starts to die down.
Know your financing options. If you find yourself in a tight spot, establishing a line of credit is one way to buy some flexibility over the year. Line-of-credit borrowing requires discipline and should be used for necessary expenses only.
Use the off-season wisely. It's often when you have a clearer head and can look back on how your business performed and focus on what you want to achieve. Taking time out to plan is crucial in a seasonal business and it's your best defence against erratic cash flow.
Mark Bouris is executive chairman of Australia's Yellow Brick Road, a wealth management company and small business adviser. His advice here is intended as guidance only.
- Sydney Morning Herald
Do you feel better off than at this time last year?