How to ... Manage cash flow in slow times

Everything is negotiable.That's a good rule to remember when it comes to managing cash flow during slower months, especially in Florida where so much business is seasonal.

Duane Hoversten, a consultant with the small business development center at Florida Gulf Coast University in Fort Myers, knows all about that. He owned an operated a fertilizer plant that did most of its sales in two months out of the year. “If you run out of cash, you're done,” Hoversten says.

The first thing to do is identify the fixed and variable costs in your business. “You have to have a system for controlling that,” Hoversten says.

Consider one of the biggest fixed costs: labor.

Once you've developed a budget, for example, figure your full-time labor costs during the slowest month of the year (Hoversten generally advises fixed full-time labor costs shouldn't exceed 25% of sales). Any amount above that should be allocated to variable temporary labor that can be cut during slow months and increased during busy months. It's tough to keep training new employees, Hoversten acknowledges, particularly as the labor market tightens.

Then, negotiate terms with lenders, landlords and vendors. For example, bankers can structure loan payments so they're lower during the slow months and higher during the busy months. While you're at the bank, ask for a line of credit you can tap if you need cash. “It costs you virtually nothing,” Hoversten says.

Ask the landlord for lower rent payments during slower months and higher rents during the busy months. After analyzing your business, you may even find it pays to shut down during the slow summer months.

Beware of so-called “triple net” rental rates that exclude maintenance. For example, Hoversten says tenants should negotiate for gross rents that cover unexpected problems such as a broken air-conditioning unit that typically occur during slower summer months.

Ask for payment terms from vendors so you can pay them back when the cash comes in. “You have to ask for it,” Hoversten says.

Finally, rethink your business to generate sales during slower summer months. Brainstorm ideas with employees and advisers. Tap into the Internet marketplace. “What can I add?”
Hoversten says.

— Jean Gruss