Entrepreneurship Course

Discussion Opportunity – Chapter 13

Manage Cash Flow in a Highly Seasonal Business

Allen and Jeanne Bell came up with the idea for Sea Turtle Sports, a small leisure
sports company that designs, manufactures, and markets creative outdoor games
and accessories aimed at beach- goers, while on a family vacation at a Florida
beach. Their friends who lived at the beach introduced the couple’s two young
sons, who seemed to be addicted to video games, to beach bocce ball. The young
boys enjoyed playing bocce ball on the beach so much that they put aside their
video games, which made a dis- tinct impression on their parents, who were
concerned about the decline in offline interaction among family members and
friends.
The bocce set the boys played with had been damaged by the salty air and sun, so
the Bells set out to create a bocce set that was more durable and portable, featuring
bright colors and beach themes and balls made from materials that would not crack
or rust. They launched Sea Turtle Sports from their New Orleans home and were
surprised at customers’ enthusiastic response to their beach bocce ball game.
Inspired by their early success, the Bells and their two sons, now old enough to
help in the family business, set out to create more games to encourage families and
friends to get outside, have fun, and create lifelong memories.
Within a few years, the Bells transformed Sea Turtle Sports into a full-time
business and relocated it to Pass Christian, Mississippi.
Because the majority of their sales take place during the warm- weather months but
their expenses continue year-round, the Bells face the same challenge that all
seasonal business owners face: managing cash flow. For example, the Bells have to
begin build- ing up their inventory during the winter months when their cash
balance is at its lowest and their fixed costs of operation remain in place. Not only
does gearing up for the busy summer season blitz require lots of advance planning,
it also demands some clever cash management techniques, particularly for the
slower off-season. For instance, the Bells require their wholesale customers to pay
a 50 percent deposit for each order so that they have sufficient cash to produce the
necessary items. They also have established a line of credit with their bank, which
has increased as their company has grown, giving them the equivalent of a cash
flow “safety net.”
As the Bells have learned, seasonal businesses are far more difficult to manage
than those that generate sales and cash year- round. How can business owners
whose companies face highly seasonal sales patterns manage the uneven cash
flow?
 Be financially disciplined. Seasonal business owners must establish a
realistic budget, stick to it, and avoid the temptation to spend lavishly when
cash flow is plentiful. Teevan McManus, owner of the Coronado Surfing
Academy in San Diego, failed to heed this advice in his first year of
business. “I burned through everything I made in the summer and was living
off of my business line of credit before the next season came around,” he
recalls. “I barely made it to the next June.”
 Manage your time and your employees’ time carefully. During the busy
season, employees may be working overtime to serve the rush of customers;
during the off-season, a business owner may cut back to 20-hour workweeks
or operate with a skeleton crew.
 Use permanent employees sparingly. Many owners of seasonal businesses
use a small core of permanent employees and then hire part-time workers or
student interns during their busy season. Planning for the right number of
 seasonal employees and recruiting them early ensures that a business will be
able to serve its customers properly.
 Put aside cash in a separate account that you use only for the lean months
of your seasonal business. The Bells put aside a cash reserve each year to
use for emergencies or unexpected opportunities, such as a large order.
 Maximize your productivity in the off-season. Use the slow season to
conduct market research, perform routine maintenance and repairs, revise
your Web site, and stay in touch with customers. Steve Kopelman’s
company, HauntedHouse.com, earns all of its $2.6 million in annual revenue
in a six-week period leading up to Halloween. Starting in November,
Kopelman surveys his customers so that he can refine his marketing efforts
for the next season and solicit suggestions for improvement. He visits trade
shows to look for the latest technology and gadgets to keep his haunted
houses fresh and exciting for his customers. Kopelman also
negotiates leases on properties for the next season and studies his competition by
visiting every haunted house Web site he can find.
• Keep inventory at minimal levels during the off-season. As you will learn in this
chapter, holding inventory unnecessarily ties up valuable cash uselessly.
• Negotiate payment terms with vendors that are synchronized with your
company’s cash flow. Schedule payments to vendors so that they coincide with
your company’s cash peaks rather than its cash valleys.
• Offer off-peak discounts. Doing so may generate some revenue during slow
periods.
• Consider starting a complementary seasonal business. The weeks leading up to
Halloween are the peak season for Sam Fard, owner of Los Angeles–based Roma
Costume, a manufacturer of costumes for women. To reduce the highly seasonal
nature of his business, Fard added a line of bikinis and lingerie to his company’s
product mix.
• Create a cash flow forecast. Perhaps one of the most important steps that
seasonal business owners can take is to develop a forecast of their companies’ cash
flow. Doing so allows them to spot patterns and trends and to make plans for
covering inevitable cash shortages. Make sure that you include a pessimistic or
worst-case scenario in your cash forecast.
• Establish a bank line of credit. The line of credit should be large enough to
cover at least three months’ worth of expenses. Use your cash flow forecast to
show the banker how and when your company will be able to repay the loan. A
good cash forecast “shows the banker that you know exactly where the peaks and
valleys are and what your cash needs are,” says one banker.

Questions
1. What impact do highly seasonal sales have on a small company’s cash flow?
2. What advice can you offer owners of seasonal businesses about coping with the
effects of their companies’ highly irregular sales patterns? About managing cash
flow in general?
Source: Based on Allen Bell and Allison Goldman, “Secrets to Managing Cash Flow in a Seasonal Small Business,” All Business,
www.allbusiness.com/managing-cash- flow-seasonal-small-business-106086-1.html; “Our Story,” Sea Turtle Sports, https:// seaturtlesports.com/pages/our-story-1;
Nick Mead, “Seasonal Businesses: Dealing with Quieter Months Is Critical to Cash Flow,” The Guardian, January 10, 2014, www.theguardian.com/small-business-
network/2014/jan/10/seasonal-business-cashf low- income; Rohit Arora, “Winter Brings Seasonal Cash Flow Issues,” Fox Business, February 5, 2013,
http://smallbusiness.foxbusiness.com/marketing-sales/2013/02/05/ winter-brings-seasonal-business-cash-flow-issues/; Cindy Vanegas, “Creating a Successful
Seasonal Business All Year-Round,” Fox Business, November 16, 2011, http:// smallbusiness.foxbusiness.com/marketing-sales/2011/11/16/creating-successful-
seasonal-business-all-year-round; Gwendolyn Bounds, “Preparing for the Big Bang,” Wall Street Journal, June 29, 2004, pp. B1, B7; Rich Mintzer, “Running a
Seasonal Business,” Entrepreneur, March 16, 2007, www.entrepreneur.com/management/ operations/article175954.html; Sarah Pierce, “Surviving a Seasonal
Business,” Entre- preneur, July 15, 2008, www.entrepreneur.com/startingabusiness/businessideas/ article195680.html; Dan Kehrer, “10 Steps to Seasonal Success,”
Business.com, May 2006, www.business.com/directory/advice/sales-and-marketing/sales/10-steps-to- seasonalsuccess; Amy Barrett, “Basics for Seasonal Business
Owners,” Businessweek, April 16, 2008, www.businessweek.com/magazine/content/08_64/s0804058908582 .htm?
chan=smallbiz_smallbiz+index+page_best+of+smallbiz+magazine.