Cash Flow Management Strategies for Seasonal Businesses

Properly managing liquidity is essential for every business, especially those that experience wide fluctuations in revenue.

Zions Bank Jun 22, 2020

It's no secret that starting and managing a business is hard work. In fact, Forbes recently reported that 70% of small businesses don't last a decade.

While there are various reasons why companies close, problems with cash flow are one of the most common reasons cited for ceasing operations. Many startups and even well-established businesses may struggle with how to spend their money.

CB Insights found that 29% of startups failed because they did not know how to allocate their resources. Properly managing liquidity is essential for every business, but perhaps even more so for those that operate on a seasonal cycle and experience peaks and valleys in revenue.

Troy Scott, Treasury Management Sales Manager for Zions Bank, shared his insights on how a treasury team helps seasonal businesses with this pain point.

Struggles with cash flow for seasonal businesses

With 15 years’ experience in the treasury management industry, Scott understands the difficulties seasonal businesses like ski resorts and ice cream shops face with their cash flow.

"A business has to maintain enough liquidity, or cash, to operate on a daily basis," he said. "As business and revenue decline during slow months, operating expenses typically remain the same."

While seasonal businesses may offset the costs of operating during the slow season by reducing staff, many operating expenses such as the mortgage and utilities are non-negotiable.

"The speed of collecting payments is also critical during a seasonal business's slow months," Scott added. "As extended delays in payments from customers can create a devastating effect on cash flow."

Troy Scott of Zions Bank
Troy Scott

On top of daily business operations, managing liquidity and a payment schedule can be overwhelming for even the most experienced business owner, and that's where Zions Bank Treasury Management services can help.

What does a treasury management team do?

A treasury team is a resource for businesses looking to manage their cash flow.

"It is important that a business maximize its NET benefits during its peak season, generating excess earnings to build up during the slow season," Scott explained.

To achieve this, he outlined a few things a treasury team can help a seasonal business with:

  • Finding the correct treasury management tools to help make the cash flow cycle as efficient as possible. "This could be accomplished by using an integrated payables tool," Scott said.Along with offering customers multiple options to pay invoices and incentivizing customers to complete payments early, businesses can speed up the collection process and optimize payables.
  • Strategizing an operating target balance needed to offset bank fees from treasury products with earning credits.
  • Sweeping all daily excess balances that are above the operating target balance into an overnight short-term investment. This effectively maximizes a return on investment while maintaining liquidity, according to Scott.

"In essence, liquidity management is the basic concept of having access to readily available cash to cover debts, pay for goods and services and to fund short-term investments," Scott explained.

Whether suggesting tools for faster collection or taking advantage of a commercial credit card to extend payable terms, treasury management teams provide seasonal businesses with the tools and guidance they need to manage their cash flows.

Visit the Zions Bank website for more information on Treasury Management services or get in touch with a Zions Bank Treasury Management officer today.

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