Seasonal Businesses & Their Corporate Finance Challenges
Owners of seasonal businesses often face unique financial challenges when it comes to managing the business. This is especially true for retail businesses, many of which rely on sales made during the last quarter of the year to ensure a profit for the entire year.
The 2017 holiday season has passed, but it’s not too early to begin planning for how you will manage your seasonal business in 2018. By planning early, you can avoid some of the pitfalls that seasonal businesses sometimes face during the last quarter of the year.
Inventory and Cash Management Strategies
One of the biggest keys to success for seasonal businesses is making sure that sufficient inventory will be in place to meet the increased demand and thus maximize sales during this crucial period. To ensure that sufficient inventory is in place, owners of seasonal businesses must make sure that enough cash is available to pay vendors promptly. If cash flow isn’t sufficient to pay vendors, the inventory supply chain could be disrupted — with potentially devastating effects on the business.
It’s also important to realize that in a retail environment, customer preferences change from one year to the next. What was popular last season might not be in demand this coming season. This makes it critical to perform research throughout the year to determine which products will be in demand during the upcoming season and plan your inventory strategies accordingly.
Potential Negative Impacts
A failure to plan for how you will manage your seasonal business in 2018 can lead to several or more negative impacts on the business, including the following:
- Sufficient inventory will not be in place to meet customer demand during the last quarter of the year. This problem is prevalent in seasonal businesses that have perpetual cash flow difficulties.
- Your business does not have the right mix of inventory on hand due to a failure to analyze prior buying patterns and adjust them to reflect changing customer preferences.
- Vendors will be unable to supply needed inventory due to their own constraints that result from poor product planning and demand forecasting.
- Revenue and profits are lost and customers are discouraged, which can have a damaging effect on the company not only in the short term, but over the long term as well.
How a CFO Services Partner Can Help
A CFO services professional can help you start planning now for a successful 2018 selling season. This high-level financial professional can perform the necessary cash flow analysis throughout the year to ensure that cash will be available to pay for the inventory needed during your critical sales season. If cash flow is going to be an issue, a project CFO or a part-time CFO will suggest financing options that can help.
A CFO partner can also analyze historical demand trends and put tracking mechanisms in place to ensure that you achieve the highest possible ROI and margins on cash spent. He or she can also work with suppliers to negotiate more beneficial payment terms and arrangements, which can improve your business’s cash flow.
Bringing in an outsourced CFO services provider to help you plan inventory and cash flow management strategies can result in a variety of positive outcomes for your business, including the following:
- You will be able to stock and sell the most in-demand products during the most critical sales period of the year, which will help you meet your annual sales and profit goals.
- You will realize the highest possible ROI on cash spent and gross margins on products sold.
- Relationships will be established early on with potential financing sources, so you will have access to capital later if you need it.
- Relationships with vendors will be optimized, which will maximize cash flow as it relates to vendors.
Owners of seasonal businesses often face unique challenges when it comes to managing the business. This is especially true for retail businesses, many of which rely on sales made during the last quarter of the year to ensure a profit for the entire year. While the 2017 holiday season has passed, it’s not too early to begin planning for how you will manage your seasonal business in 2018. An outsourced CFO services provider can help you start planning now for a successful 2018 selling season.
Mark S. Becker, Partner, CFO Edge, LLC