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News - 30 May 2014

Managing Seasonal cashflow

 Cashflow is one of the largest problems for most businesses, so we asked our two resident experts to come up with a few ideas on how to manage seasonal variations based on their experience and know how. 

 
Tonmoy Kumar, Manager of the Accounts Department of ABDS comments:
“Quite a few business sectors suffer with seasonal variations in cashflow, it’s either feast or famine. One of the most important disciplines for any business owner is being able to balance a business’s net cashflow to a consistently positive position. 
 
Stuart Coleman, Manager of the Tax Department of ABDS comments:
“The old adage “Revenue is vanity, profit is sanity, and cash is king” is even more evident as we come out of (hopefully) this very bad period of recession. TK and I have come up with four ideas that should help.”
 
Good forecasting 
Without a well thought out, and updated cashflow forecast no business can survive. It is intended to act as an early warning system so that financial resources or the lack of them will not catch you unawares.
 
So spikes in seasonal spend or drops in sales revenues can be identified well in advance and contingencies put in place to counter the effects or, even better, to avoid what is forecast and strive to over perform as a business.
 
Seasonal discounting 
Most businesses experience some kind of seasonal sales drop as operations wind down and consumer spending too. Rather than accept this and allow your cashflow position suffer, try to experiment with seasonal pricing offers if your payment terms are short. 
 
Offering seasonal discounts to a level that you still retain acceptable profit margins can encourage a boost in cash earlier than expected.
 
Incentivise speedy debtor payment 
This is the alternative to Seasonal Discounting. Whatever your most difficult trading time is, consider a small discount to people who pay early. It may be enough to have a really positive impact on your cashflow. However, proceed with caution if implementing this strategy. It is only viable when your net margin is high and you have good staff to control unauthorised deductions. If only bad payers are offered cash discounts, all your good payers will want the same offers.
 
Accrue for large seasonal outlays 
If, for example, Christmas is the time when seasonal sales drop as operations wind down and consumer spending does too. Outbound cashflow can spike with expenditures on items such as staff bonuses, Christmas parties, corporate gifts and hospitality to key clients. This should not come as a surprise, and you should make adequate plans either to offset these by making allowances during the year or you could offer bonuses at the end of your financial year (if its not December ) and move the Christmas party to November or January when the restaurants are less busy and offer more competitive group prices.
 
Thanks TK and Stuart for your advice
 
If you need any help and advice for your business on reducing Debtor Days, cashflow and Payment Terms contact Lavinia Newman, Stuart Coleman or Tonmoy Kumar to discuss how ABDS can help
 
ABDS Chartered Certified Accountants of Southampton.
Tel: 023 8083 6900 E-mail: abds@netaccountants.net
 
Brilliant with numbers  
Great with people  
Clear and precise with advice
Timely and cost effective
In touch with issues that face our clients
Mindful of our client’s long term strategic goals
 
Helping Your Business is Our Business
 

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