Though seasonal businesses are only open during certain months, handling the books is a yearlong job. Could you use some accounting tips for small business owners to manage your seasonal company?
Accounting tips for small business owners
You need a system to keep your seasonal business’s accounting on track during high and low sales periods. To get started, try these four seasonal accounting tips for small business owners.
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1. Project cash flow
The seasonality of your business makes it critical for you to understand cash flow. Seasonal business cash flow projections help you plan for business activities in high and low sales months.
Cash flow is the money that comes into and leaves your business. To find your projected cash flow, look for patterns in your accounting records. Estimate future income for the high and low sales periods. Then, determine your expenses for the same periods.
Create the cash flow projections by subtracting expenses from the income. Use your cash flow projections to create a business budget.
You earn income for just part of the year, but you have expenses all year. If you don’t manage your cash flow, costs and other busy season accounting tasks could quickly dry up your funds.
For example, you might run a store in a seasonal location, such as a beach town. During the off season, you still have the store. Though you do not generate revenue all year, you do pay for rent, utilities, and small business insurance year round.
You must set money aside for your business expenses. As a seasonal business owner, you might handle costs differently than year-round companies. Communicating with the people you owe money to can make managing costs easier.
Talk with your vendors about arranging a payment plan that adjusts to your needs. A vendor might allow you to make higher payments when cash flow is high, and lower payments when cash flow is low. Make sure your income will cover your expenses.
2. Manage your receivables
Does the seasonal rush get overwhelming? Even in your busy season, you need to pay attention to receivables. Have a system for collecting the money owed to you before the busy season arrives.
You need an effective invoicing system. You want to collect payments as fast as possible. This keeps money flowing into your business.
For customers to pay you fast, they need to know the details of your customer bill payment policy. Send invoices that contain your policy and the information customers need to pay you. The information might include your business’s name, the amount due, and the due date.
How fast customers pay you also plays a part in managing receivables. You might have customers pay at certain points in the sale, such as upfront or periodically in portions.
A deposit helps you receive funds faster. A deposit is a percentage of the amount due that customers pay upfront. You can pay ongoing expenses without having to wait on customer invoice collections.
For example, the owner of a boat charter charges $300 per person. Before his customers step on the boat, he asks for 50% of the total amount due. He can use the deposits to pay the expenses necessary to run the boat (e.g., fuel).
3. Set up a line of credit
Have a plan for dealing with unpredictable costs. You need to know where to get funds for unexpected expenses before you hit a financial obstacle. Set up a small line of credit for emergency expenses.
You could open a startup business credit card to pay for business expenses. A business credit card keeps your company’s transactions separate from personal funds. The separate account helps you track company funds and report business taxes.
You could also get a seasonal business loan. Seasonal business loans help you meet short-term needs. You pay the short-term loan back as a lump sum by a certain due date. The SBA offers a microloan program to provide short-term funding for small business owners that meet the SBA loan requirements.
Let’s say a landscaper makes a net profit each month, but doesn’t have a lot of money saved. One day, his mower breaks. The mower is essential to run his business, but he doesn’t have the cash upfront to fix it. A line of credit provides him with the money he needs for the repair.
A line of credit is not meant to cover everyday expenses. Instead, it acts as a cushion for unexpected costs.
4. Use your off season productively
For a seasonal business owner, the off season is not a vacation. Business might slow, but you have to prepare for the next season.
Get all your financial statements up to date and organized during the off season. Use a small business accounting checklist to check inventory, supplies, and other costs and determine if you can reduce business expenses. Review your profit and loss statement for small business to track progress and set goals for the next busy season.
Resolve bills you owe from last season. Try to pay off debts before entering the next busy season. That way, you can get started again with a clean slate.
During slow months, update permits, repair equipment, and hire employees for next season. Make sure you are prepared to open the next busy season without any major setbacks.
Seasonal business owners might earn money in the off season by changing their products or services. For example, an ice cream shop might sell coffee in the winter. Including other services helps the owner continue to earn through slow months.
Need more accounting tips for small business owners? Here’s one: simple accounting software can help you streamline your books. Patriot’s online small business accounting software is easy to use and made for the non-accountant. Get started today with free setup and support.