How to manage your working capital cycle in a seasonal business

Seasonal businesses — those where revenue is concentrated in specific months — face working capital challenges that non-seasonal businesses don't. You need capital to build inventory and fund operations before the revenue comes, and you need to manage surplus cash carefully in the off-season.

Map your working capital cycle accurately. For a seasonal business, your working capital need is not your average monthly burn — it's your peak working capital requirement, which occurs just before or at the start of your peak season. Calculate this: your peak inventory level + your peak accounts receivable - the payables you have outstanding at peak. This number is your maximum working capital requirement.

Build a seasonal cash flow forecast. Project monthly: inventory build (cash out), production or procurement costs (cash out), revenue collections (cash in — typically lagged by your payment terms), and fixed costs (cash out regardless of season). This forecast will show you exactly when your cash is lowest and by how much.

Finance the peak, not the average. Your working capital facility should be sized for your peak need, not your average need. A revolving credit line — overdraft or cash credit — that you draw on during the build season and repay from season revenue is the appropriate structure. Don't fund seasonal inventory with term loans that require fixed monthly repayment.

Negotiate payment terms that match your cash cycle. If your revenue comes in from October to December, pushing key suppliers for 60-day terms (so their payments fall in October-November rather than August-September) improves your working capital cycle. Similarly, if you can collect advance payments or deposits from your customers before season, you reduce the financing requirement.

Manage off-season cash deliberately. The cash surplus in your off-season is not available for investment in long-term assets — it needs to be available for next season's build. Keep off-season surplus in liquid instruments: short-term FDs, liquid mutual funds, or an overnight sweep in your current account.