Seasonal businesses: how to plan and finance working capital

A seasonal business has two cash problems a year. Before the season, you spend heavily on inventory, equipment and hiring before revenue arrives. After the season, revenue drops but loan payments, insurance, rent and key staff don’t.

The businesses that handle this well treat it as a planning problem, not a surprise. They know their low point, finance the right things in the right way, and talk to their lender before they need the money.

Build a 12-month cash map

List expected cash in and cash out by month for the next year. Use last year’s bank statements as the base and adjust for what you know is changing: new contracts, new equipment, price increases. Most owners know their busy months by heart but underestimate the shoulder months on either side.

Track the running cash balance month by month. The lowest point on the map is the amount of working capital you need, plus a cushion for a late start to the season or a slow-paying customer.

Match equipment payments to revenue

Equipment financing can be structured around seasons. Lenders usually offer these structures to industries with proven seasonal patterns, such as agriculture, landscaping and construction, and to borrowers with a track record.

• Skip payments: no payment in named off-season months.
• Seasonal or step payments: higher payments in peak months, lower in slow ones.
• Deferred start: the first payment falls 60 to 90 days after funding, on approved deals.
• Annual or semi-annual payments: common in agriculture, timed to harvest or sales.

Use short-term money for short-term needs

A pre-season inventory build is a classic working capital need: you know the amount and you know when the money comes back. A short-term working capital loan, or a line of credit repaid at the end of the season, fits it well. Paying for it out of the operating account leaves you thin if the season starts late.

An example

A pool and patio contractor does 70% of its work between April and September. In February and March it buys materials, services trucks and rehires crews, spending about $90,000 before the first job pays. By financing two new trucks with skip payments in January and February and taking a short working capital loan for the materials, it starts the season with its cash reserve intact and repays the working capital from June receipts.

Plan the off-season

• Set aside a share of peak-month revenue for the slow months before you spend it.
• Schedule maintenance and equipment purchases for the off-season, and finance them with payments that start when work picks up.
• Look for off-season revenue, such as snow removal, holiday work or service contracts.
• Talk to your lender before you need the money, not in the middle of the slow season.

The bottom line

Seasonality is predictable, so the financing should be too. LenderCloud finances seasonal equipment with structures built around your calendar, and can add working capital to the same application. All financing is subject to credit approval.