For seasonal businesses, cash flow takes on another dimension. Instead of being a steady, predictable stream, there are peaks and troughs as the year unfolds.

Those that have been in business for years will know when busy periods are and when things usually quieten down. What they might not know, however, is the value of having tangible forecasts and budgets.

Not only does forecasting provide business owners with an extra degree of certainty about their expenses within a week, a month or a year, it also makes it easier for other members of the team to understand where the business is heading, when it is time to save and when it is ok to spend.

This doesn’t mean creating a rigid expenditure plan that can’t adjust to unforeseen circumstances and challenges. Rather, it allows business owners to better prepare for a volatile revenue stream, knowing exactly how much money they’ve committed during certain time periods and whether or not they have room to spend more.

Any upcoming projects or withdrawing money from the business for personal reasons can be planned for, with a clear understanding of the potential future effect. This reduces the chance of surprise bills or other obligations ‘popping up’ that may force borrowing or stretch creditors beyond breaking point.

A cash flow forecast that maps out your ups and downs will help you to understand when you might need to draw on reserves.  It will also help understand when to grow revenue, cut costs and/or look for other opportunities.

Knowing when to grow revenue

Knowing how to maximise after-tax cash flow has a significant impact on business operations. It’s important that business owners are aware of what they can do to try and grow their revenue, and having a cash flow forecast that maps seasonal slumps and periods of growth makes it much easier to time these initiatives. For example, when a business owner might time the start of a campaign to most effectively extend their shoulder season.

In most cases, this means detailing the connection between an organisation’s business plan and its marketing strategy. Namely, does the way a business communicates with its target audience align with its growth objectives and actually succeed in increasing revenue?

A cash flow forecast that is incorporated into other business operational reporting can also indicate whether or not it might be time to try something new in regards to how services are priced. For example, dynamic pricing is a great strategy for seasonal businesses to use in making the most of peak revenue periods, particularly in the accommodation and airline industries, where costumers are already accustomed to the notion of paying more or less depending on when they book.

The difficulty in cutting costs

When thinking about maximising cash flow, many business owners might see cost-cutting as an easier alternative to growing revenue. While it does take extra effort and planning to find avenues to increase revenue, it’s much less disruptive than many of the cost-cutting procedures businesses pursue.

Cost-cutting relies on business owners making a number of hard decisions. In some cases, this may include cutting employee numbers, reducing wages where appropriate or removing important customer or staff benefits. While these changes may succeed in lowering expenditure, there’s often a wider cost to the business beyond the immediate financial implications.

However, business owners may need to look at areas that have become ‘bloated’ and are either not delivering a significant return on investment or simply don’t need as much financial attention as they are currently getting.

What does a business’s tax position mean for cash flow?

The advantage for businesses looking to review their tax position is that this is the least disruptive way for them to maximise their cash flow. Increasing revenue growth can demand investment in new capabilities and infrastructure. Managing costs may mean lowering wages or cutting jobs, decisions which impact the day-to-day running and culture of the business.

Optimising after tax cash flows can be as simple as getting the right advice from an expert or dedicating the time to research any tax opportunities that may be in existence for your business and/or industry now and into the future. By understanding your tax obligations and how the business’s financial position may be impacted, business owners can greatly improve or better manage net cash flow.

This article is sponsored by BDO Adelaide.