Six Cash Flow Best Practices for Cyclical Businesses

Kirsch CPA Group

Oct 19, 2023

While cash flow best practices apply across all types of businesses, there’s added difficulty for businesses that experience dramatic fluctuations in sales and cash flow due to the seasonal or cyclical nature of their products or services.

Seasonal businesses like landscaping, hospitality, and even retail sales must carefully navigate the peaks and valleys of profitability to remain sustainable. Other businesses have cycles that can be years long, like a provider of large-scale maintenance services performed on a multi-year schedule.

Such irregularities in cash flow require a long-term view to ensure a reliable level of working capital, so meticulous planning is key. A monthly cash flow review can help you develop strategies that leave your business prepared and thriving all year round, year after year.

If you’re a cycle-based or seasonal business owner, here are six cash flow best practices for insulating your business against periods of financial drought or economic uncertainty.

1. Understand Your Cash Conversion Cycle

Your cash conversion cycle begins as soon as you start spending money on a project – including labor expenses – and it doesn’t end until the cash comes in the door. Manufacturers, for example, may have exceptionally long cash conversion cycles if they are required to pay a percentage of upfront costs to purchase material from overseas.

2. Map Out Recurring Expenses

Recurring expenses like rent, utilities, quarterly tax payments, and insurance premiums are examples of the types of fixed payments you know you’ll need to make throughout the year. Accounting for them will give you a clear picture of your baseline expenses that you’re responsible for every month, no matter what the season. As for variable expenses, try to link them to revenue at all times and cut back on them if cash is tight.

3. Get into the Weeds of Your Forecasts

A 12-month rolling cash flow projection is a minimum for companies looking to increase their cash flow stability; businesses with longer cycles may want to forecast up to 30 months in advance. By updating forecasts regularly, business owners can anticipate cash shortages and take advantage of higher revenue periods when there is extra cash on hand. A rolling 12-month cash flow projection will give you not only a complete financial picture but also the ability to detect problems and pivot before leaking cash for more than a month at a time.

Businesses with cycles longer than a year will need to right-size their projections according to needs. If you know that your business is a service that’s only needed once every three years, a 36-month projection will help you remain steady during long sales cycles.

4. Put Your Cash to Work

By now, you should know your peak and trough seasons. If your peak means you accumulate a sizable cash balance, good cash flow management includes making that cash earn its keep. If it’s sitting in your bank account, there’s little it can do to grow. Once you ascertain that there is sufficient cash on hand to meet your operating needs and liabilities, consider putting your excess cash to work for you, so you can have more cash to work with in the future. Options include:

  • Set up a money market or other interest-generating account
  • Make a bulk inventory buy that saves you money in the long run and provides better margins on goods sold
  • Invest in a new business or product line

5. Establish a Line of Credit

As hard as you may work at your cash flow management, there are still times when a big purchase may be necessary, or an unforeseen event means that you’ll need to make a large-scale expenditure. A line of credit can ensure that you have extra funds on hand during slower times. While helpful, a credit line must be managed wisely so you don’t end up burning through cash that doesn’t exist in your forecast.

6. Delegate Responsibilities

Wise managers know how to delegate. And when it comes to intricate accounting duties, your staff may not have the right skills to provide the level of financial detail you need. Delegating certain aspects of cash management can free up your time so you can stay focused on growing your business. From using an administrative person to manage routine accounting processes to investing in software that eliminates manual processes for data entry and bill payment, shrewd delegation leaves you with time you can use for more strategic cash flow management. At the same time, a reliable accounting partner can ensure that you have the financial transparency you need for accurate and reliable cash-flow management throughout every stage of growth.

The Right Accounting Partner for Your Cyclical or Seasonal Business

Kirsch CPA Group takes a holistic and forward-looking approach to your business and cash flow strategies, which are key to sustainability. From forecasting and calculating all significant cash activities, to analyzing cash flow processes, profitability and strategic advisory services, Kirsch will provide the financial confidence you need to meet your short and long-term business goals.

Speak with us to learn more about where professional accounting and advisory services fit into your strategic growth plans.

Contact us to learn more about cash flow management


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About The Author

Kirsch CPA Group is a full service CPA and business advisory firm helping businesses and organizations with accounting,…

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