Seasonal demand can present a unique challenge for small and growing businesses. In the holiday season, summer, back-to-school marketing or other predictable lulls in the sales cycle, there can be a strong surge in sales that is in advance of the cash flow. Enterprises are supposed to take the expense of stock acquisition, supplier payments, transport costs and even possibly hiring temporary employees or marketing. This can leave a shortfall in cash flow between the sale and the payments.
Profability is not always synonymous with cash available; this is the first step in good financial planning. Even though a company expects sales to be high, they may not have enough funds available to pay their immediate bills since funds are tied up in inventory. The U.S. Small Business Administration also points to cash-flow management as a key component of business finance, and suggests that a business may need to look at various financing options based on their unique situation.
Why Seasonal Inventory Creates Pressure
Often, customers actually do not buy anything until weeks or months after the inventory is bought. Retailers who might predict a hectic holiday season, for instance, could place orders for goods in October or November. The supplier has to wait until the products have been on the shelves before it can be paid, and the customers have to wait until December to buy the products.
This time lags can strain working capital. When a company invests too much of its planned resources into purchasing inventory, it may not have sufficient funds to pay rent, pay salaries, market, pay utilities or have cash to cover the unexpected.
The initial step is to forecast. Businesses should account for the operating expenses, when their products or goods are expected to be sold, when they are due to be paid to their suppliers, and their stock level prior to determining if their business needs extra funding. Cash-flow forecasting will show precisely how big the gap may be in the short-term.
Choosing Financing Carefully
Short term financing may be helpful when the anticipated revenues are fairly stable and the funding is for a specific purpose. This can range from supplier credit, business credit facility, asset-based lending or a conventional business loan, depending on the nature of the business and its situation.
When taking a closer look at forbrukslån or business financing, the website for companies who want to research consumer-credit terminology, forbrukslån.no – bedriftslån can serve as a further reference. But, the conditions of the loan, interest rates, charges, repayment period, and criteria for the loan must always be considered by businesses before incurring any debt.
Norwegian businesses should also ensure that, if applicable, a lender or financing provider has the proper authorisation. Finanstilsynet is the regulator of financial institutions providing services in Norway and keeps information on authorised financial businesses. å
Using Financial Planning Before Borrowing
Financing should be for a viable business plan, not for a return to cash flow that is always poor. Owners may look at past seasonal sales, average inventory turnover, gross margins and the amount of time it takes to receive customer payments after purchasing stock prior to applying for funding.
U.S. Small Business Administration financial planning tools also stress the importance of not comparing financing to a single size fits all approach. It can be useful to compare options and to have an understanding of the company’s capability in terms of payments to avoid a very helpful funding solution from becoming a financial burden.
Finanstilsynet’s information about banks and finance is another good resource to read, describing how banks, financing companies and credit institutions work in Norway.
A More Controlled Approach to Seasonal Growth
By getting ahead of the busy season, businesses can minimise the need for emergency loans. Consider negotiating extended supplier payment terms, placing orders based on sensible sales predictions, tracking slow-moving stock, and maintaining a cash buffer.
If your business is keen on financial planning and seasonal inventory strategy, then phoenixstrategy.group has some further advice to follow when managing inventory financing and planning for seasonal demand.
The secret is to see financing as an integral component of an overall cash-management plan. While a loan can offer some breathing room if inventory has to be bought prior to revenue, the numbers should add up before they apply for the loan. Predicting demand, determining the actual cost of financing and ensuring adequate liquidity for day-to-day needs will enable businesses to take advantage of seasonal opportunities with greater confidence, while at the same time keeping financial risks under control.
