Cash Flow Lessons Learned From This Slow/Winter Season

Is your green industry business heavily influenced by seasonal fluctuations? Operating within a seasonal business model presents unique challenges, particularly when it comes to navigating the ebb and flow of cash flow and income peaks and valleys. As you prepare for the upcoming spring rush, it’s important not to forget the events of this past slow season, so you can learn from it and implement changes for next year. Consider the following 14 points, to assist you in managing cash flow effectively and positioning your business for success:

1. Liquidity: Continuous Monitoring of Current Assets and Liabilities

Liquidity refers to how easily assets can be converted into cash without affecting their market value. For landscaping companies, continuously monitoring current assets (like cash, accounts receivable, etc.) and liabilities (such as accounts payable and short-term debt) is essential for maintaining liquidity.

By regularly monitoring your accounts receivable (money owed to you) and accounts payable (money you owe), you can anticipate cash inflows and outflows. For instance, if you know several clients have outstanding invoices, you can follow up with them to expedite payments and improve your cash position.

2. Build Up a Cash Reserve

Building up a cash reserve involves setting aside funds to cover expenses during slow seasons or unexpected emergencies. We recommend having at least 2x fixed monthly expenses always set aside as a reserve. Build short and long term goals, and review this monthly to see how well you are progressing.

3. Debt Planning

Taking out loans can provide temporary relief, but excessive borrowing can strain your cash flow if you're unable to generate sufficient income to repay the debt.

Before you increase debt, review your cash flow projections for the slow season to see what the effect will be.

4. Labor Suspension or Retention During the Winter

During the off-season, landscaping companies may need to make decisions regarding staffing levels to manage costs effectively. One of the quickest ways to deplete the profits that were generated during the busy season is to keep on too much labor during times of little to no work. If you do plan to keep team members in times where there is lower work volume, then you must generate higher profits in the busy season to make up for it. Generating a 12 month budget will help to show you the reality of what profits are needed each month to hit your full year financial goals.

5. Taxes Due at the Tail End of Slow Season

Consider the timing of tax payments and factor them into your savings goals to avoid cash flow shortages.

Example:

You anticipate a tax bill at the end of the slow season. To prevent a cash crunch, you set aside a portion of your revenue each month specifically for taxes. Additionally, if possible, you explore the option of prepaying estimated taxes to spread the financial impact over multiple quarters.

6. Offer Winter Services to Help with Cash Flow

Diversify your service offerings to include winter-related services that can generate additional revenue during the off-season. This is a great way to improve cash flow and retain team members throughout the entire year.

7. Don’t Wait Until the Winter to Start Thinking About Winter Cash Flow Needs

Anticipate and plan for off-season cash flow challenges well in advance to implement effective strategies and mitigate financial risks. Utilize your historical data to pinpoint areas to improve!

8. Set Reasonable Off-Season Goals

Establish achievable goals to improve off-season financial performance and gradually reduce losses over time.

Example:

If your landscaping business typically experiences losses for five months of the year, set a realistic goal to shorten the duration of losses to four months in the following year. To achieve this, you might focus on increasing revenue through winter service offerings or implementing cost-saving measures.

9. Adjust Payment Terms, Collecting Payments During the Right Times

Optimize cash flow by adjusting payment terms with customers and collecting payments strategically to align with your business's cash flow needs.

10. Temporarily Suspending Subscriptions/Downgrading Plans

Evaluate recurring expenses and consider temporarily suspending non-essential subscriptions or downgrading service plans during the off-season to conserve cash.

Example:

You review your business's subscription services and identify several software tools that are underutilized during the slow season. Instead of maintaining full access to these services year-round, you temporarily suspend the subscriptions until business activity increases in the spring, saving money in the short term.

11. Consider Larger Down Payment Schedule for Install Work or More Frequent Progress Payments

Negotiate payment terms with clients to receive larger down payments or more frequent progress payments for landscaping projects to improve cash flow during the off-season.

12. Utilize High-Yield Savings

Maximize returns on idle cash by depositing funds into high-yield savings accounts that offer higher interest rates, providing an opportunity to earn additional income on surplus cash reserves. Some banks have rates of up to 5% right now!

13. Price Shop your Fixed Expenses and Prevent Overhead Creep

Review fixed expenses such as insurance premiums, phone services, and loan interest rates to identify opportunities for cost savings and negotiate better terms with providers. Monitor and control overhead expenses to prevent unnecessary spending and maintain profitability during the slow season.

Example:

You compare quotes from multiple insurance providers to find the most cost-effective coverage for your landscaping business. After researching different plans and negotiating with insurance agents, you secure a policy with lower premiums and improved coverage, reducing your overall expenses and improving cash flow during the slow season.

14. Consider Timing of Asset Purchases and Analyze Asset Utilization

Evaluate the timing of asset purchases and assess the utilization of existing assets to determine if selling or upgrading equipment can optimize cash flow and improve operational efficiency.

The slow season doesn't have to translate into a negative financial experience. By adhering to the aforementioned points, you can enhance cash flow during these periods. This approach not only enables you to maintain an offensive stance but also empowers you to pursue growth and seize opportunities, rather than worrying about dwindling cash reserves.