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Seasonal business: should you consider refinancing? Add to ...

If you have a seasonal business such as tourism or farming, you may have difficulty meeting financial obligations during sluggish periods. Even though your revenues may be decreasing, you still have to pay your fixed costs. Refinancing a loan for variable monthly payments can help you better control your cash flow needs.

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Assess your sales cycle and cash flow

From the get-go, you should first evaluate whether or not you can build more business during a low season, i.e., expand product inventory, add more services that extend into busier seasons, or find another source of revenue. But if that's not possible, be sure that you clearly understand your sales cycle and what impact it has on your operations and cash flow.

Low-revenue periods are particularly difficult, since cash outflow can be much greater than inflow. You need to carefully monitor and forecast to avoid finding yourself temporarily "in the red".

Ask yourself these questions:

  • Is your sales cycle similar from year to year?
  • Can you identify the highs and lows of the cycle?
  • At which points in the sales cycle have you experienced financial difficulties?
  • Have you always been able to meet your financial commitments?
  • What are the main payments you need to make during the low season?

Negotiate better payment terms

Making variable rather than fixed monthly payments can be advantageous for some small businesses. Modifying your payments according to your particular revenue cycle enables you to better manage your company's working capital by paying less when seasonal demand drops off.

If you can't change your sales cycle, you could consider refinancing one or all of your debts.

Eliminate costly credit

Using high-cost credit such as credit cards and bank overdrafts can significantly lower and affect your working capital. Your company's cash flow might not allow you to fulfill your obligations according to the loan terms. In this case, you can always consider refinancing. Consolidating your debts allows you to reduce your payments when cash is low. Essentially, you could get one long-term loan and one easier-to-manage payment per month.

Content in this section is provided in partnership with the Business Development Bank of Canada. BDC provides entrepreneurs with financing, venture capital and consulting services. To find out more go to BDC.ca.

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