Seasonal business cash flow: how much to save in the busy months to get through the quiet ones

Short answer: a seasonal business makes its year’s cash in a few busy months and spends some of it back in the quiet ones, so the number that matters is the quiet-season shortfall: what the fixed costs (wages, rent, leases, insurance, loan repayments) come to in the quiet months, minus what the quiet months still bring in. Work it out from two years of Xero’s Profit and Loss by month, then add a margin of about one month of fixed costs in case the busy season starts late. Move that amount into a separate account during the busy months, before you take extra money out, and keep GST or VAT collected in the busy months apart, because that tax bill usually falls due just as things go quiet. Paying yourself the same amount every month only works if the reserve is already in the bank when the quiet season starts.

Menu names move between Xero releases and differ slightly by region. If a label below does not match your screen, search Xero Central for “Profit and Loss compare periods”.

Why a profitable seasonal business still runs short

Over a year, the business can make a good profit and still run out of cash in month nine. Three things cause it:

• Fixed costs do not take the quiet season off. Your core staff, van leases, rent and software cost the same in the slowest month as in the busiest. Costs that move with sales, such as materials, casual labour and fuel, drop away; the rest do not. Fixed and variable costs shows how to split your own.
• Busy-month cash feels like spare cash. The bank balance is at its highest at the end of the peak, which is when owners take a bonus, buy equipment or pay down a loan early. Then the quiet season eats what was left.
• The tax from the busy months arrives late. GST or VAT collected in the peak quarter is paid at the next return, often in the first quiet month. Income tax on the year’s profit can land in the quiet season too. How much to set aside for tax shows how to put it aside as you go.

How to find your seasonal pattern in Xero

1. Run the Profit and Loss by month. Pick the latest whole month, then under Compare with choose 11 previous periods with the period set to month. That gives 12 monthly columns; Xero Profit and Loss by month has the steps. Run it again for the 12 months before that, so you have two years. One year can mislead: a wet spring or one big job can look like a pattern.
2. Mark your peak, shoulder and quiet months. For each month, divide its sales by the average month’s sales. Around 1.3 or more is a peak month, around 0.7 or less is a quiet one, and the months in between are shoulder months. If both years agree, that is your season.
3. Split the costs. Take the average monthly cost of each line and mark it fixed or variable. Leave out depreciation, which is not cash. Add loan principal repayments, which are not on the Profit and Loss.
4. Work out the cash each month makes or loses. Sales minus variable costs minus fixed costs, for a typical peak, shoulder and quiet month. Add up the losing months. That is the shortfall the busy months have to pay for.
5. Check the bank actually followed the pattern. Run the Balance Sheet at the end of each of the last 12 months, or look at the bank account balances, and see where cash bottomed out. If customers pay 30 or 60 days after the invoice, the cash low comes a month or two later than the sales low, and the reserve has to last that much longer. The cumulative cash flow guide shows how to chart it.

A worked example: a landscaping business

A landscaping business has two years of Xero figures that agree with each other. Sales average $30,000 a month, $360,000 a year, but they are anything but even. Materials, casual labour and fuel are about 40% of sales. The fixed costs (two permanent staff, van leases, the yard, insurance and software) are $14,000 a month all year.

Season	Months	Sales a month	Sales ÷ average	Cash a month (60% of sales − $14,000)	Cash for the season
Peak	4	$45,000	1.5	$27,000 − $14,000 = $13,000	$52,000
Shoulder	4	$30,000	1.0	$18,000 − $14,000 = $4,000	$16,000
Quiet	4	$15,000	0.5	$9,000 − $14,000 = −$5,000	−$20,000
Year	12				$48,000

The year’s profit is $48,000 before the owner is paid, which is the same as sales of $360,000 minus variable costs of $144,000 minus fixed costs of $168,000. The year runs: two shoulder months, the four peak months, two more shoulder months, then four quiet months. So the eight good months have to carry the four quiet ones.

If the owner takes the same $4,000 every month (the $48,000 profit spread over 12), the eight good months leave $68,000 − $32,000 = $36,000 in the bank when the quiet season starts. Each quiet month then costs $5,000 plus the owner’s $4,000, which is $9,000, and four of them come to $36,000. The business ends the quiet season with $0. On paper the plan works; in practice one wet month at the start of spring, or one customer who pays late, puts the account into overdraft.

What the owner does instead:

Reserve item	Amount
Quiet-season shortfall (4 × $5,000)	$20,000
Margin: one month of fixed costs, in case the busy season starts late	$14,000
Reserve to hold when the quiet season starts	$34,000

The owner moves $8,500 a month into a separate savings account in each of the four peak months (4 × $8,500 = $34,000). That leaves $4,500 of each peak month’s $13,000, and all of the shoulder months’ cash, for drawings and the unexpected. In the quiet months the reserve pays the $5,000 gap each month and the $14,000 margin stays put. Building the margin the first year means taking $14,000 less out that year: $34,000 of drawings instead of $48,000. From the second year the margin is already there, and the owner can take the full profit out again, just at the right time of year.

GST or VAT is left out of the figures above on purpose: it goes into its own account as it is collected, so the peak quarter’s return, due in the first quiet month, is already covered.

Ways to make the quiet months easier

• Collect before the season turns. Chase every overdue invoice in the last busy month, while customers still have work going on and cash coming in. Who owes me money? shows how to find them in Xero, and the debtor days calculator shows what faster payment is worth.
• Ask for deposits on next season’s work. Bookings taken in the quiet months with a deposit bring cash in when it is scarcest.
• Agree supplier terms ahead of the peak. Stock or materials bought before the busy season are paid for out of quiet-season cash. Longer terms on that first order move the payment into the peak; the creditor days guide shows how long you are taking now.
• Look at the fixed costs. Every $1,000 a month you take out of fixed costs saves $4,000 across a four-month quiet season. Where is my money going? ranks a year of costs.
• Arrange an overdraft while the figures look good. A bank is happier to lend after a strong peak than in the middle of a quiet month. Treat it as the backup, not the plan; cash flow loans compares the options.
• Forecast the year and the next quarter. The free 12-month cash flow forecast template finds the lowest month of the year, and a 13-week cash flow forecast built at the end of the peak shows which week cash runs lowest.

Common questions

How much cash should a seasonal business keep? Enough to cover the quiet-season shortfall (fixed costs in the quiet months minus the cash those months still bring in) plus about one month of fixed costs as a margin. For a general rule on months of cash, see how many months of cash should a business have, which suggests four to six months of fixed costs when sales are seasonal.

When should a seasonal business save for the quiet season? In the busy months, before taking extra money out of the business. The bank balance is highest at the end of the peak, which is why it feels like the time to spend it.

Should I compare a quiet month with last month in Xero? No. A quiet month will always look bad next to a busy one. Compare it with the same month last year, using the Profit and Loss by month for two years. That shows whether the business is doing better or worse once the season is taken out.

Is it normal for a seasonal business to make a loss in some months? Yes. A loss in the quiet months is expected if the busy months make more than enough to cover it. What matters is the year as a whole and whether the cash set aside lasts until sales pick up.

How should a seasonal business owner pay themselves? Either take a smaller fixed amount every month and a top-up after the peak, once the reserve is in place, or take the same amount all year only after the reserve has been built. How much can I pay myself? works out what the business can afford.

Does an overdraft replace a cash reserve? No. Use it as a backup. A bank can reduce or withdraw an overdraft, and is most likely to do so when your recent months look weak, which for a seasonal business is the quiet season.

Seeing your season every Monday

ReportPilot reads your Xero figures and sends a short plain-English email every Monday, with a 24-month dashboard behind it. The email covers the cash in the bank against the end of last month, sales and profit against last month and the same month last year, money owed to you that is past due and by whom, and bills due in the next two weeks against your cash. It asks Xero for read-only access, and there is a 14-day free trial with no card.