Seasonal Working Capital

by Jess Wu
December 13, 2022
Seasonal Working Capital

Securing the right level of working capital affects many aspects of a business, from keeping the office lights on to offering fair, competitive compensation and benefits to retain employees. In many cases, calculating how much working capital you’ll need comes down to a relatively simple formula that subtracts current liabilities from your assets.

Working Capital = Current Assets - Current Liabilities

In this formula…

  • Current Assets would include things like cash, accounts receivable (or customers’ unpaid bills), and inventories of raw materials and finished goods. 

  • Current Liabilities include things like any current debts, accounts payable, and more.

If you’re able to keep a close eye on your organization’s overall financial picture over time, this formula can be fine-tuned to drive further efficiencies. 

What about businesses with a seasonal component, though? For example, while a landscaping company in a region with hard winters might not need as much working capital during the off-season, a Christmas retail store would instead require considerably more working capital for the season. That’s why seasonal businesses benefit from seasonal working capital (also sometimes known as seasonal variable working capital).

With the holiday season virtually upon us, we’re taking a look at seasonal working capital—including what it is, how to calculate it, and what your options are for securing it.

What Is Seasonal Variable Working Capital?

Seasonal variable working capital refers to the amount of working capital a business needs to make it through its peak season successfully. This is usually calculated and analyzed in relation to the fixed working capital the business relies on for everyday operations. In some cases, a business will need to secure additional funding to make it through its peak season, especially if they’re still fine-tuning its overall working capital model.

Some types of businesses that benefit from seasonal working capital include those in the following industries:

  • Holiday retailers, who focus on specific holidays—like Christmas, Halloween, or fireworks retailers.

  • Landscaping services, who typically don’t see very much business in the winter.

  • Resorts and hotels, who see spikes at different times of the year (spring break destinations, for example).

  • Outdoor activities and recreation, like zoos or tour companies.

  • Restaurants and food trucks, especially those located in areas that see seasonal spikes (near theme parks, beaches, or sporting arenas, for example).

One of the keys to successful working capital management is to think carefully about any seasonality that might impact your business. When you are proactive and plan ahead, you can rest easier knowing that you can get through peak season without needing to resort to measures like an emergency loan.

What Is a Seasonal Working Capital Formula?

To calculate your seasonal working capital needs, you can use the following temporary working capital formula:

Temporary (or Seasonal) Working Capital = Temporary Working Capital - Permanent Working Capital

This formula simply brings attention to the difference between peak season working capital needs and the working capital you depend on day-in, day-out to keep operations humming along smoothly. 

How Can a Business Increase Its Working Capital?

There are several different ways a business can secure additional working capital to help them successfully navigate their peak and off-peak seasons. Revisiting the basic working capital formula, we can identify two rather obvious—though not necessarily easy to implement—opportunities to begin with:

  • Increase the overall value of current assets. You might accomplish this by simply securing additional funding through a traditional loan or line of credit, for example. 

  • Decrease the overall value of liabilities. One way to do this is to evaluate the business’s various expenses, and work to cut any unnecessary expenses.

Of course, neither of the strategies mentioned above should make up the entirety of your financial strategy. You wouldn’t want to make a hasty decision to aggressively cut expenses, for example, without deeply considering the impact it might have on your overall business and/or customer relationships. 

Do You Need Additional Seasonal Working Capital? Then You Need Backd!

Backd offers temporary working capital and lines of credit for small businesses. Whether you’re experiencing seasonal shifts in your needs, would benefit from more working capital overall, or aren’t entirely sure where to turn, we’ll work with you to find the perfect solution. 

The benefits of working with Backd include:

  • A collaborative approach. You know your business best, so we’ll start by simply listening to you. This way, we can explore the right options and develop the right strategies for your business needs and preferences.

  • Borrower-friendly terms. Your business isn’t like anyone else’s, and we won’t treat it that way. Together, we’ll work to tailor solutions to perfectly fit your temporary or seasonal working capital needs.

  • A quick and easy application process. Pre-approval is just minutes away when you complete our brief application.

Ready to get Backd? You can get funded in a few easy steps, beginning with our online application!

What would you do with the right amount of capital?

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