Planning Seasonal Business Growth with Merchant Cash Advances

“The previous year, my ice cream parlor along the beach was lined up block after block on each weekend of July,” said Denise. “By 3:00 pm, I was having to turn customers away because my best-selling flavors were all gone. Thousands of dollars were lost to me, while larger freezers in other eateries were taking the orders.”

This year was different in one aspect. In May, before Memorial Day marked the start of the rush, Denise got a $35,000 MCA. This was used to purchase two commercial freezers, doubling the flavor options, as well as advertising on Instagram targeting tourists heading to the beach. In mid-July, thanks to all these efforts, revenue was up 140% compared to last year. This was repaid by Labor Day and marked the best profits she’d seen thus far.

What happened? She positioned the merchant's advance capital based on the pattern of growth.

In a seasonal business, the focus is not on steady year-after-year progress but on maximizing every moment within the peak. MCAs, when planned properly, make great accelerators, which can easily convert a seasonal business into an industry-leading business. Here is how seasonal progress with MCAs can be planned so that not a single dollar from the peak business is left behind.

Plan Six Months Before Peak Season 

The mistake seasonal business owners make most often is to think and plan for expansion when the peak season approaches but not otherwise. In this way, you are just reacting to demands when you should have goals to follow.

Six months before the peak, begin the growth plan. For instance, if the event is in October, start the plan in April. If the wedding season is in the summer, begin in January. This allows time for:

• Identify direct growth opportunities and compute precise investment requirements.
• MCA options must be evaluated calmly, not out of desperation.
• Apply for grants while the results from the previous year are still fresh and compelling.

Compute Growth ROI Targets

Ask: "How much more money is the MCA going to make?"

• Start with the cost:  When an MCA has a factor rate of 1.3 and costs $40,000, you must factor in an additional gross profit of at least $52,000 to simply break even; but really, you need an additional gross profit of at least $75,000 and more.
• Specific projections can be made: “Two new commercial ovens increase our capacity to serve an additional 150 customers per day during the six weeks of peak. This adds $12 average check x 150 customers per day x 42 days = $1,800 per day, or $75,600 per year, or $49,140 at the 65% gross profit margin, which costs $52,000.”

Timing Your Application Strategically

It is necessary to decide optimal moments, depending on when you require the funding to be used:

• Apply during the previous peak year when most favorable terms and odds are obtained. Your processing volume is highest, and you are attractive to providers. Funding acquired in December is used the next October.
• Apply when you enter your peak season, if you require funding within the current year. 
• Millennials, for example, can apply in March to be able to use the money from April to October. 
• However, off-season performance in past quarters may result in reduced amounts or harsher interest rates.

Never invest during the middle peak if possible.

You’re too busy investigating vendors thoroughly, and this means you’ll allocate funds defensively rather than proactively.

The sweet spot for most seasonal businesses: toward the end of your previous peak or immediately after it, when your robust processing data is still fresh.

Organize Repayment Based On Your Cash Flow Pattern

This is where planning really pays off. Structure your MCA to make repayments match your revenue cycle.

• Use factor rates and holdback rates that allow most of the payment during your profitable period. A holdback rate of 10% could be just right 
• It's doable during peak seasons when your volume is $50,000 per week, very small when it's down to $2,000 per week during the off-season.
• Steer clear of loans requiring large amounts during the off-season if revenue dries up. 

"What works beautifully on paper ends up being a nightmare when July business is down significantly."

Run scenarios with percentages for holding back: peak season repayment schemes and off-season repayment schemes, to see if you can comfortable after deductions are made.

Create Your Own Growth Timeline 

Develop a one-year plan showing when you specifically plan on investing and when you expect results:

• Month 1: Obtain funding from the MCA ($40,000 received
• Month 2: Buy equipment ($25,000), employ and train personnel ($5,000), commence marketing ($8,000), set aside cash buffer
• Months 3-4: Acceleration, Initial Revenue Increase
• Months 5-7: Peak tourism season, maximum revenue effect, high MCA repayment.
• Eighth month: The peak season is over, and MCA is largely repayeed, profits are ensured.
• Months 9-12: Off-season, low MCA repayment, plan year's growth

Such a timeline also keeps you on track and is a yardstick that shows performance compared with projections.

Plan for Multiple Scenarios Threat Theme

Your hypothesis assumes everything goes more or less well. Intelligent planning also considers some glitches.

• Best case: Sales outperform projections by 150%. Do you have the capacity to extend your sourcing partners and makeadditional emergency hiring?
• Expected: Revenue increase is 30% to 50%. This is your planning goal.
• Worst case: Revenue may grow by only 10-15% or may not grow at all because of weather-related issues, economic downturns, or competition. Can you repay? At what stress points do you arrive?

"Planning for worst-case outcomes is not pessimistic planning, it is simply smart planning." If your worst-case outcome is that you are unable to repay the advance, you need a smaller advance or better strategies for growth.

Track and Adjust Throughout the Season 

The growth plans are not prepared when the peak begins. The actuals are measured against the plans on a weekly basis:

• Is revenue growth meeting, exceeding, or missing estimates?
• Is the MCA repayment affecting the cash flow as expected?
• Are there opportunities for mid-season changes? 
• Do you have to make operating expense adjustments based on actual results? 

Thus, mid-season adjustments are made before it is too late. Additionally, weekly checks enable mid-season adjustments. 

Plan Your Next Growth

Smart seasonal businesses view MCAs as a long-term plan, not a one-off deal. So, if last year’s $40,000 MCA brought about $80,000 additional profit, next year's $60,000 MCA might result in $120,000. Each good cycle brings about more and more ambitious growth. The Planning Mindset Strategic growth planning makes merchant cash advances transform from expensive loans into high ROI investments. It’s not the product, it’s the strategy. Plan ahead. Compute carefully. 

Time is a crucial consideration. Act thoughtfully. Keep tracking. In this manner, it will not be a struggle for your business to succeed during the seasons; it will be so successful that rivals will be baffled by your success strategy.