Tip: cash flow planning in a seasonally fluctuating business

Whether you run a food service like our customer Basenbox or book live bands for boat trips – you know that managing a seasonal business can be very difficult. How many orders can you expect for and after the holidays? How big will the rush be this summer? And how does that affect liquidity? Are the financial resources sufficient? Projections, or forecasts, as part of cash flow planning – an estimate of the future based on historical data – are an outstanding planning tool with which you can master these challenges.

Here are five points to think about if you want to produce forecasts for your seasonal business:

1. Remember that forecasting is a process

The aim is to learn from progress, not to achieve perfection. Do not expect your forecast to be right at the first attempt. If you replace the past months with actual figures step by step and use what you learn to refine your approach, you will see that your forecasts become more precise. The most important thing is to start! You should question and adjust your forecasts continuously, regardless of whether you are thinking short, medium or long term.

2. Make use of your team

When creating a forecast it is important to take account of different perspectives from every part of your company, from sales through to operations. That way you can not only test your own planning assumptions, you also create an understanding of your company’s priorities. Ultimately, this process can help you to produce a good forecast.

3. Do not assume that the past will repeat itself

Just because your business follows the seasons does not mean it follows the same pattern year after year. Perhaps you had lots of sales, and therefore incoming payments, last December. But that does not necessarily mean it will repeat itself in exactly the same way. Watch what actually happens and adjust your cash flow planning where necessary. Also check whether your financial resources are sufficient to absorb any delays.

4. The main thing is to choose an approach and get started

Forecasting can be a statistical science. There are many, many different forecasting models. From a financial point of view, the aim is to avoid falling into false precision. Make a choice about the level of detail at which you want to plan. Our experience shows us that a coarser plan is often more accurate than a complex statistical framework of figures.

Remember that every forecast always contains an element of error, regardless of whether your business is stable, cyclical or seasonal. The key is to accept this and to keep improving your forecasts in order to minimise that error.

5. Look for the small improvements

Small, incremental changes are better than not starting at all. By refining your forecast over time and applying what you learn to your company, you improve your financial decisions and your resources.

Many entrepreneurs are overwhelmed by the apparent complexity of a plan, let alone a forecast. And in the course of a forecast you may of course be confronted with a possibly insurmountable financial squeeze – in other words, with your own failure. But that is exactly the point. Recognising early where action is needed so that you can take the appropriate steps. Real entrepreneurship, in other words.

If you do not plan, you may be accepting failure.

Credits: Photo by Matt Duncan on Unsplash