How Merchant Advance Capital Can Help During Seasonal Fluctuations?

“My landscaping company comes alive from April to October every year, grossing about $60,000 a month during the peak months. But then from November to March of the following year, the figures nose dive to almost nil even as expenses like insurance payments, storage of equipment, and loan payments for the vehicles continue to escalate. So, he would be broke at the time of the year when he would most need the funds for inventory and the marketing budget.”

This feast or famine pattern is characteristic of seasonal businesses in particular, leaving you with a paradox: you are penniless during lean times and pennies when you do not need it so much. That’s why merchant cash advance funding capital is just meant for such patterns, which actually adjust to your seasonal flow.

The Seasonal Cash Flow Trap 

The traditional system of funding lets down seasonal businesses in an extreme way. The bank demands that you make a payment every month, irrespective of whether it is your peak or down time. A loan payment of $2,500 every month feels good in July, with sales of $50,000, but that same payment creates an issue in February, with sales of only $3,000.

This creates a dilemma: to consume peak sales to remain afloat in the off-season, to incur costly short-term financing in the off-season, or to underfund peak sales to save a cash cushion in the winter. With merchant advance capital, this dilemma is eliminated because repayment is based on your sales.

Repayment that Reflects Reality

The ingenuity of merchant cash advances for seasonal businesses lies in the repayment terms. You don't make a set payment every month, but instead repay a percentage of daily credit card sales. The repayment rate is high when the business is booming and low when there aren't many sales.

Suppose you consider a Christmas tree farm with a 10% hold back. December might entail $12,000 in card sales as well as a $1,200 weekly payoff. February, with $200 in weekly card sales, reduces the amount to $20 weekly. The debt lingers, but it adjusts based on your ability to pay.

Such flexibility makes cash flow management less a constant emergency and more a viable plan.

Strategic Capital Allocation Pre-Peak Season

The optimal way to finance these advances is to borrow money right before your peak months. Here’s how to use that money to take full advantage during those lucrative months:

• Keep a deeper stock of inventory to prevent selling out of best-sellers.
• You should employ more staff to manage the increase in the capacity without burdening your employees.
• Start aggressive promotion activities in order to increase traffic during your primary revenue generating period.
• Invest in equipment and facilities to improve the service experience for the customers and thereby justify the resultant higher costs.

A haunted house that earns $40,000 in September can afford high-quality props, sound equipment, and actors, in other words, the kind of investment that turns a humble attraction into something that is not to be missed. The return is then made automatically when the card volume kicks in heavily in October.

Bridging the Off-Season Valley

Besides providing funds for expansion during peak periods, merchant cash advances can help fill the cash flow deficit during the off-season. No longer will you watch your business checking account shrink while fixed expenses still linger.

For instance, a beach equipment rental company could borrow money in August to pay November through March expenses, while keeping payments low during the slow season. When April rolls around, however, tourism picks up, and it has the funds to stock up and hit the ground running rather than limping.

Maintaining Profits During Peak Seasons

"Without merchant advance capital," Blais says, "profits made in peak seasons would be bled dry in order to provide funds for the bad months." You can pull down $150,000 in profits in a busy season; however, $80,000 would be sucked down into the depths of the bad months.

Strategically utilizing the merchant advance allows you to use the money to run and expand your business while leveraging the time when your money rebuilds to put aside the profits for later construction. You utilize your peak periods to service your debts while saving on profits.

The Timing Edge

Businesses operating seasonally who use the merchant advances wisely are starting from a position of strength, not necessity. You are investing in the future of the season when it hasn't even begun, not in the middle of the season. 

With the help of these successful peak seasons that come about because of the advance, the advantage accumulates over the years. With each successful peak season, the profit obtained to sustain that season pushes the next successful peak season. Within a few years, you are enjoying the off-season while making money. 

Putting It into Action 

The key is to assess your pattern honestly and calculate the difference in your monthly processing volume during the peak and the “off-season.” Run projections for different percentages of holdback that would work for your budget cycle. Ask for advances that are adjusted to your volume, rather than your dreams. The most critical thing is that capital should target investments that generate revenues, especially during the peak periods and not only focus on covering losses during low periods. 

The Seasonal Advantage

This capital is not fighting your seasonality, but rather collaborating with it. Your prime revenue times now are more like assets than liabilities. Now the off-season isn’t something that keeps you up at night. And your business can now change from just struggling through the seasonality to using those seasonality patterns as the springboard for growth. In the case of seasonal businesses, merchant cash advances not only provide funding but also offer a means for a company to become a year-round concern