August slowdown? Smart ways to manage business cash flow in the summer lull

For many businesses, UK summers can often result in slow trade. But while your competitors might be struggling with reduced activity and tighter cash flow, you can use this period for your strategic benefit.

The reality is that over 70% of UK SMEs are currently struggling with outstanding late payments, with the average business owed nearly £97,000. And with almost half of UK businesses saying cash flow is an issue, summer's natural dip in activity can make regular cash flow problems a critical issue.

Fortunately, with the right approach, you can not only survive the summer lull but actually strengthen your business for the busy autumn period ahead.

In this article, we’ll explain how summer slowdowns can impact different businesses, proven strategies to optimise your cash flow during quiet periods, and the finance options that could help bridge any gaps.

Key points:

• The summer lull can impact various aspects of your business, from reduced customer footfall to delayed payments

• You can optimise cash flow management with proactive planning and leveraging financial tools

• Funding Options by Tide can help when optimisation of working capital isn’t enough, offering access to business finance up to £20 million

How can a summer lull affect your business?

Fewer customers is one of the most obvious effects of the summer quiet period. With many people choosing the summer months to go on holiday, footfall and online engagement often drop with it. This can lead to lower sales and, consequently, reduced cash flow.

Even those who aren’t on holiday may become less active customers, choosing instead to spend their time and money in other ways while the weather’s warm or the kids are at home – both impacting your bottom line.

If you operate in the retail and hospitality sectors, the summer lull might involve managing seasonal staff shortages, which may require hiring extra temporary staff or reducing opening hours.

Late payments from clients can also increase during the summer period, as their employees take time off and processes slow down.

How can you optimise cash flow management during the summer lull?

To make sure your business stays financially healthy during slower periods, you’ll need to be proactive. A good place to start is by forecasting your cash flow to try and anticipate any shortfalls. You may be able to use historical data to predict when business is likely to slow and make your plans from there to get ahead of the curve.

Consider leveraging technology to streamline your financial processes. For example, automating invoicing and payment reminders could help speed up payments as well as reducing the administrative overhead – time that could be used focusing on strategic planning and business development. You could also consider using tools that provide real-time financial insights to help you stay on top of your financial situation and make more informed decisions.

Another smart strategy is to diversify your revenue streams. For example, this might include offering promotions, exploring new markets, or introducing seasonal products and services for audiences that do stick around over the summer. This could supplement your primary revenue and keep cash flowing.

What types of seasonal slowdown finance could help?

When internal cash flow management isn’t enough, external financing could help bridge the gap until business picks up again.

Here are a few options to consider:

• Invoice finance: This allows you to unlock funds tied up in unpaid invoices, providing immediate cash flow relief. It’s particularly useful for businesses experiencing delayed payments

• Working capital finance: These loans are designed to cover short-term operational needs, helping you manage day-to-day expenses during slower periods

• Asset-based lending: If you own business assets like property, equipment, or vehicles, asset-based lending can unlock their value for working capital. This includes asset refinancing, where you borrow against assets you already own

• Merchant cash advance: This can work well for businesses with regular card transactions. You receive a lump sum and pay it back through a percentage of your daily card takings, so payments automatically adjust to your sales levels

• Business line of credit: This is a flexible financing option that allows you to withdraw cash as needed, providing a safety net for unexpected cash flow gaps

• Government grants and support: Various schemes are available to help businesses manage financial challenges during seasonal slowdowns, including the Growth Guarantee Scheme

What are the risks and considerations of seasonal finance?

Not all seasonal finance solutions are suitable for every business. And while they can provide valuable support, it’s also important to be aware of potential risks:

• Increased debt: Taking on additional finance can lead to higher levels of debt, which might become challenging to manage if the summer lull lasts longer than you expect

• Interest costs: Some financing options charge interest and other fees which can add up, impacting your overall profitability

• Dependency risk: Relying too heavily on external financing could make your business vulnerable to changes in lending conditions or interest rates

• Impact on future borrowing: Some types of finance may affect your ability to borrow elsewhere, and significant increases in debt might affect future lending decisions

• Personal guarantees: Many lenders require personal guarantees from directors, making them personally liable if the business can't repay

How can you prepare your business for future summer slowdowns?

The best way to handle future summer slowdowns is to prepare for them during your busy periods. That way, you’ll be ready for the quiet months rather than scrambling to manage cash flow problems when they arrive.

During busier trading periods, when cash flow is stronger, consider setting aside a percentage of profits specifically to help you navigate seasonal lulls. Many businesses aim to build cash reserves covering around 12 months of operating expenses, but seasonal businesses may need more.

To avoid accidentally spending them during good times, it’s a sensible idea to keep your reserves in a separate business savings account – and if you choose the right account, you could earn valuable interest on your savings.

The most resilient businesses have diverse income sources that don’t all peak and trough at the same time. This could involve serving different customer segments, offering complementary services, or developing passive income streams like online courses, digital products, or subscription services.

If you can, consider focusing on recurring revenue since monthly contracts, subscription services, or maintenance agreements can provide stable income during variable periods.

You could also use the quiet summer months to strengthen your relationships with existing customers. For example, you could schedule lunch meetings, send personalised updates, or offer exclusive early-bird promotions for autumn business.

Summer’s slower pace may also provide you with spare time to improve your business systems. For example, you could implement better invoicing processes, upgrade your accounting software, or refresh your website.

Remember that what worked this summer might not work next year. So review your cash flow strategy each year and consider updating them based on changing market trends and conditions, new opportunities, or lessons learned from previous seasons.

Find business finance with Funding Options by Tide

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Checking if you’re eligible is free, only takes a few minutes, and while a full application would impact your personal or business credit score, checking eligibility won’t. Just submit your details via the link below to find out if you could be eligible to borrow up to £20 million.

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FAQs

How much cash reserve should I maintain for seasonal slowdowns?

Most seasonal businesses should aim to keep around 12 months of operating expenses in reserve, although this will vary by industry. Build your reserves during peak trading periods and keep them in a separate account to avoid accidental spending.

When should I start preparing for the summer lull?

It’s a good idea to start preparing in March or April when you can see the seasonal pattern emerging. This gives you time to build cash reserves, arrange any finance facilities, and implement cost-saving measures before the quiet period arrives. Don’t wait until cash gets tight – it’s often better to arrange facilities when you don’t desperately need them.

Can I get business finance during a seasonal downturn?

Yes, but it’s usually easier and cheaper to arrange facilities in advance. Asset finance has a 96% approval rate compared to 44% for traditional bank loans, making it an attractive option. And invoice finance and working capital facilities are often available even when traditional lending isn’t, as they’re secured against specific assets or receivables.

How do I know if my cash flow problems are seasonal or structural?

Seasonal problems follow predictable patterns and resolve when business picks up. Structural problems persist year-round or worsen over time. If you need the same level of external finance each year, or if your cash flow doesn’t improve during traditionally busy periods, you might have structural issues that need addressing.

What’s the quickest way to improve cash flow during summer?

Try focusing on collecting any outstanding payments first. With a large number of invoices being paid between 80-90 days, aggressive but professional chasing can have an immediate impact on your cash flow. Invoice finance could also provide cash within 24-48 hours if you have a lot of unpaid invoices.

Should I cut costs or seek additional finance during summer slowdowns?

Both strategies can work together. You could start by cutting unnecessary costs first to improve your position immediately and reduce the amount of finance you might need. Then you could use suitable finance to bridge any remaining gaps.

How do I choose between different types of seasonal finance?

Consider the speed, cost, and suitability for your business model. For example, invoice finance works well if you have large or many unpaid invoices, working capital finance suits operational needs, and overdrafts provide flexibility for predictable seasonal dips. You’ll want to match the finance term to your expected recovery period.

What sectors are most affected by summer slowdowns?

Professional services, legal, consulting, and B2B companies typically see the biggest impact as decision-makers take holidays. And construction and hospitality businesses can actually see increased activity. 25% of businesses say seasonality affects cash flow, but the impact varies by sector.

Can I use the VAT cash accounting scheme to help with summer cash flow?

You might be able to, if your turnover’s under £1.35 million. The VAT cash accounting scheme means you only pay VAT when customers pay you, rather than when you issue invoices. This can significantly improve cash flow timing during periods of slow payment.

Please note that the information above is not intended to be financial advice. You should seek independent financial advice before making any decisions about your financial future.

It’s important to remember that all loans and credit agreements come with risks. These risks include non-payment and late-payment of the agreed repayment plan, which could affect your business credit score and impact your ability to find future funding. Always read the terms and conditions of every loan or credit agreement before you proceed. Contact us for support if you ever face difficulties making your repayments.

Funding Options, now part of Tide, helps UK firms access business finance, working directly with businesses and their trusted advisors. Funding Options are a credit broker and do not provide loans directly. All finance and quotes are subject to status and income. Applicants must be aged 18 and over and terms and conditions apply. Guarantees and Indemnities may be required. Funding Options can introduce applicants to a number of providers based on the applicants' circumstances and creditworthiness. Funding Options will receive a commission or finder’s fee for effecting such finance introductions.