Strategies to Navigate Seasonal Working Capital Issues

Many businesses experience the impact of seasonality. This will necessarily impact on the working capital of your business.

In some industries, like construction, operations will seize over Christmas with work-in-progress remaining un-invoiced until the next year, while subcontractors as well as materials suppliers needing to be paid. Other industries, like retail, might want to invest in 2 to 3 times normal stock levels ahead of the Christmas build up to share in that opportunity.

Many businesses I deal with need to really plan for that quarterly BAS and Superannuation payments, adding a further complexity to cash flow management.

Regardless, whether you have great working capital practices with good trading terms in place with your suppliers and customers to “smooth” working capital seasonality over, many businesses might experience cash flow challenges during peak trading periods, or simply not being able to capitalise on growth opportunities at all. Businesses in a growth phase almost always experience working capital challenges.

1 in 3 business owners access cash in their home loan redraw or offset account to bridge cash flow gaps, which might also not be the best option from a tax point of view. (Consult with your tax advisor or accountant.) It might be an option to have a facility in place for times like these.

I work with lenders that offer unsecured cash flow facilities aimed at these challenges, ranging from an overdraft to a line of credit and with extremely fast turnaround times.

These facilities should not be considered for saving your business, but merely as an opportunity lend that you repay in a short period of time, e.g., early in the new year after the Christmas rush. You should also be conscious of these facilities not forming a “hard core” of debt that might be an indication of a systemic issue in your business.

Should you wish to look at capitalising on “once-a-year” trading opportunities, it would be time to contact me.