MANY businesses, from garden furniture suppliers to event organisers to transport companies, experience marked seasonal peaks and troughs in demand for their products or services. What impact does this seasonality have on managing the cashflow of a business?

For most businesses, and this comes as a surprise to many new entrepreneurs, it is the busy season that poses a challenge to a business's cashflow.

It is a sad fact that many a business has survived a long dry season only to go bust when the good times start rolling and demand picks up.

How does this happen?

It all has to do with variable costs, costs directly related to producing your product or service.

Richard Kohler, financial director at Afri Adventures explains: “In the tourist season and during school holidays, notably Easter and July, we need a lot of cash upfront to pay for petrol, to organise vehicles. So it is in the busy months that we need the most cash.”

Ryan Donald of Baytree Functions and Events, finds the same pattern in their high season October through to December.

Many business owners make the mistake of thinking that they are making money in the peak season, but forget that the actual cash only comes in a while later.

So how do businesses cope with seasonal cash flow problems?

“The only way, is to plan ahead,” says Kohler. “You have to work out your budget for the year and convert this into a cashflow statement, so that you can see exactly when   you will need money and how much.”

Once you know this, you can start getting the money together to cover you through this time. An overdraft facility would of course be an ideal solution, but as Donald says, this is extremely   difficult for a smaller business to get.

“You must have been trading for at least a year and have a very good credit record.” 

Or, as Leela Gopee owner of JRA Travel and Tours explains, they need their overdraft for other things. “We have to keep it for emergencies such as vehicle breakdowns.”

Planning ahead will increase your chances of getting an overdraft or increasing the size of your overdraft. The bank will never bail you out when you are already in trouble. You need to show them a set of carefully worked out figures, including a cashflow forecast.

Says Kohler, “The banks are inclined to sell you umbrellas when the sun shines and to take them away when it rains.”

Even if you do get an overdraft, but especially if you don't, you need to carefully build your business around the seasonal highs and lows.

Cynthia Motau of Cee Mee Catering explains, “I work out my pricing so that I make enough in the busy season to cover my costs for the year.”

Then, when you do have a surplus you need to decide how much you can spend on growing your business and how much you need to keep aside to cover cashflow problems later in the year.

Says Donald, “January to March, after our busy season, is the time we invest in new equipment and assets for the business. But you must be levelheaded. You can't grow too fast. The key is following your budget.
Some of the money is kept in a call account for anticipated cash needs.”

For more information contact Gopee on 011 855 1870, Motau on 011 886 3144, Kohler on 011 908 4929 and Donald 0on 11 714 2130.


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