Managing Winter Cash Flow

I love the change of seasons. I have family living in west Africa and one of the hardest adjustments for them is that there’s no change of seasons (unless you count the change from “hot” season to “hotter” season).

But here at home in Canada, we get to experience the changing of the seasons. And fall is my favourite. It’s my favourite for all sorts of reasons – for cooler weather, for a return to routine after the summer, for campfires on cool nights, for Thanksgiving, and even for pumpkin spice lattes!

I also love the change of seasons when it comes to our business. The fall brings with it a change in the type of work we’re doing, the start of planning for the snow season, the excitement of new equipment, and the return of everyone back at work after summer holidays.

But the fall brings with it some unique financial stressors for business owners. These include material and equipment expenses, contracts that don’t pay out until January, equipment and vehicle repairs and maintenance expenses to prepare for the winter, higher labour costs, lots of unbillable time in order to prepare for the winter, rain days, staff training, fewer workable hours in a day, and the purchase of smaller pieces of equipment (snowblowers, shovels, parts, etc.).

If you aren’t prepared for these expenses, it can be an incredibly stressful time of the year (despite the availability of pumpkin spice lattes). I too often see business owners panic and make poor decisions to compensate for this. They make decision like

• Using customer deposits for spring work to cover winter expenses
• Taking in unearned revenue from 12-month maintenance contracts
• Using personal lines of credit that the company cannot pay back
• Receiving high-interest loans from private lenders
• Using suppliers as a line of credit (not paying for 90+ days)

IT DOESN’T HAVE TO BE THIS WAY! If you understand your cash flow and how it changes throughout the year, you can manage it all year long. Here are a couple of suggestions:

• Create a budget and review it monthly
• Create a cash flow spreadsheet to eliminate much of the guesswork and the surprises
• Ask for an operational bulge on your overdraft from your bank
• Ask for longer terms from suppliers
• Arrange for 6-month equipment lease payments, rather than 12-month, and have them start in January
• Set money aside for the fall
• Bundle small equipment purchases into a lease rather than paying cash for individual items
• Provide a personal loan to the company – BUT put a payback date on it and stick to it!
• Put customer deposits for spring work in a separate bank account. Put this money on the balance sheet rather than on the P&L.
• Determine what summer services are profitable, focus on those services and eliminate the ones that aren’t profitable.
• Service your winter equipment in the spring when cash flow is better
• Invoice on the first of the month for that month, rather than at the end of month.

The bottom line is that a successful winter season starts with preparing for it and understanding that there’s a difference between cash flow and profit. There are plenty of companies who are profitable on paper but run out of cash. But if you know your numbers and plan ahead, you can head into the winter season with confidence in your cash position. Besides, there are far more important things for you to be thinking about besides cash flow. Like enjoying a pumpkin spice latte!