Managing seasonal cash flow in a trades business
Seasonal cash flow is managed by ring-fencing the trough months' fixed costs during the peak season, which means knowing the monthly fixed cost base, the owner's draw, the debt service and the tax instalments before the peak begins. This is an illustrative example set in a US landscaping business with six vans and a heavy seasonal swing.
Scenario — an illustrative example of how Salt approaches this problem. Not a description of a specific client engagement.
The business shape it describes: US landscaping business, six vans, strongly seasonal.
- Scenario covers
- Bookkeeping, seasonal cash flow modelling and reserve planning
- Software it assumes
- QuickBooks Online · Dext
- Jurisdiction
- United States
- Sector
- Construction & trades
- Revenue concentrates between spring and autumn. Fixed costs — vehicle finance, insurance, yard rent, year-round staff — continue through the winter.
- The owner draws the same amount every month and finds February tight every year without treating February as predictable.
- Cash is managed off the bank balance. With no forecast, a good month and a good year feel like the same thing.
- Equipment gets bought in peak season, when cash feels abundant, which deepens the trough that was already coming.
- Federal estimated tax instalments fall due 15 April, 15 June, 15 September and 15 January. The January instalment lands in the worst cash month of the year, calculated on income earned in the best ones.
- Winter maintenance contracts are priced per visit or per push, with no reference to the fixed cost base they exist to cover.
- Laying crews off each winter feeds the state unemployment insurance experience rating, which raises the rate applied to future payroll. It is a seasonal cost that arrives later and is never attributed to the season that caused it.
- Deposits taken in autumn for spring work are being spent as revenue, which pulls next season's cash forward and leaves the work to be funded from nothing.
- The monthly fixed cost base would be established first: everything paid whether or not a single crew goes out. That figure is the foundation of every other number in the model.
- A twelve-month cash model would be built on it, with the seasonal shape explicit — revenue by month, fixed costs by month, payroll by month, and tax instalments on their actual due dates.
- A reserve target would be set at the trough months' fixed costs plus owner draw, debt service and the January tax instalment, and transferred to a separate account on a schedule during peak season rather than at the owner's discretion.
- A rolling thirteen-week cash forecast would run alongside the annual model and be updated weekly, because the annual model sets the target and the thirteen-week tells you whether you are hitting it.
- Customer deposits would be tracked separately from earned revenue, so autumn cash held for spring work is visible as an obligation rather than as a good month.
- Winter contracts would be repriced against the fixed cost they are meant to cover, with a seasonal flat rate considered where per-push pricing leaves the business exposed to a mild winter.
- Equipment purchases would move to a planned replacement cycle timed to the model, with any tax effect treated as a consequence of the decision rather than as the reason for it.
- The modelling is not the difficult part. Getting an owner to ring-fence cash in the month it feels most abundant, for a shortfall three seasons away, is the difficult part, and it only holds if someone puts the reserve position in front of him during peak season rather than in February.
- It also takes a bookkeeper who will separate customer deposits from revenue in the month the deposits arrive, when nobody wants to hear it.
- The business would be able to say in July what the bank balance should be in February, and to see in September whether it is on track.
- The reserve would be funded on a schedule rather than out of whatever happens to be left.
- Equipment decisions would be made against the model rather than against the balance on the day the dealer calls.
What we'd flag
A reserve policy only works if the account is separate and the transfer is scheduled. Left in the operating account, ring-fenced cash gets spent and the intention survives about two months. Working out what a piece of equipment does to the trough is straightforward; the tax deduction available on it changes year to year, so that part belongs with the business's tax preparer rather than in the cash model.
Managing seasonal cash flow in a trades business
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