Keeping cash flow steady is a tough job. Not only are there unforeseen interruptions such as late payments, or surprise expenses to contend with, but also seasonal fluctuations in demand that can be very difficult to manage. Managing these issues efficiently can often make the difference between mere survival, and the boost you need to grow and establish yourself as a leader in your industry.
A business that operates below capacity during most of the year to be ready for spikes in demand inevitably wastes a lot of resources on maintaining that readiness during low demand seasons. On the other hand, businesses that operate efficiently during the off season run the risk of not being able to take full advantage when a rush comes. For many industries, the most significant of these high demand times is the holiday season, starting with Black Friday, and continuing to the end of the year. To accommodate seasonal demand, businesses need to find ways to rapidly and temporarily scale their operations up as needed without overinvesting.
Find funds to increase capacity temporarily
Increasing capacity is often a multifaceted task that means hiring additional labour, renting equipment and temporary workspace, and purchasing additional materials to supply your increased output. Each of these issues present their own unique challenges, but the biggest and most difficult hurdle throughout is inevitably funding. Keeping the funds on hand to do this out of your own pocket would be unrealistic at best, leaving businesses with a number of specially designed financing options that they can employ.
Building capacity
Expanding your production capacity is a complex operation, and you’ll need flexible funds that can be used to cover a wide range of costs. To do that, you’ll need to either take out a loan, or find a way to give yourself an advance on future revenue. If you have sizeable outstanding invoices, you can use invoice financing to collect payment early. This works by effectively selling your client’s debt to you to your financial institution. They’ll pay the bill immediately, and then collect payment from the client themselves when the invoice is due.
Another great option is to take out a short term business loan. This works like any other loan, and can be secured against a wide variety of assets, though that can present a problem if your business doesn’t have sufficient assets to use as security. In that case, it may be worth looking into accessing an unsecured business line of credit. Unsecured lines of credit tend to be more expensive than secured loans, but they’re an invaluable tool in situations like this.
Stocking up
The biggest financial hurdle for many businesses, especially those in the retail sector, is getting the stock they need to meet demand during an upcoming seasonal spike. To fund this massive purchase, businesses can take advantage of a stock loan. Stock loans are limited in the sense that they can only be used, as the name implies, to purchase stock. This restriction comes with an incredible advantage, however, which is that stock loans are secured against themselves, and won’t tie up any of your business’ assets.
Make sure your supply chain can support you
A critical factor that many businesses don’t consider is their supply chain. Your business’ suppliers are facing the same hurdles as you are, and they won’t necessarily be able to accommodate you. One simple way to deal with this would be to find alternate temporary suppliers, but this can also present a problem when you and your competitors are all looking to scale up at the same time. To make sure your supply chain is up to the task, you may need to take steps to ensure that they can accommodate your needs.
Supply chain finance
Since you’re dealing with your own cash flow issues, you can’t simply advance funds to your suppliers to help them handle the increased load. Unfortunately, they still need cash in hand quickly to meet your needs. In a situation like this, the ideal solution is supply chain finance.
At Fifo Capital, supply chain finance allows a business to pay its suppliers early without drawing on the business’ own funds until a later date. It does this by creating an investor-supplied credit fund, out of which businesses can pay their suppliers. When a supplier needs an early payment, they can request it in exchange for a discount on that invoice, which they propose themselves. If the business agrees, the payment is sent out. Effectively, this tool gives suppliers the flexibility they need to make their own purchases on their own schedule, empowering them to support your business better and more reliably.
Taking advantage of seasonal changes in demand isn’t easy, but it can be very lucrative. In some industries, the majority of all sales might be made in just a few weeks every year, requiring businesses to inflate their operations by an order of magnitude to keep up. In many cases, making sure that your business can adapt rapidly and cost-effectively is a critical part of establishing yourself as a dominant force in your industry.
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