A Strategic Approach to Cash Flow Management

by Adam Johnson

If running a small business isn’t for the faint of heart, then operating a hospitality business reliant on seasonal tourism might seem downright audacious. But with great risk comes great opportunity. While it may feel inevitable to hold your breath for six months each year, strategic financial planning can reduce that uncertainty, giving your business the resilience it needs to thrive through the off-season.

Why Budgeting is Non-Negotiable

For many visionary entrepreneurs in hospitality — whether in accommodations, attractions, restaurants or retail — budgeting may not be a strong suit. However, it’s the financial backbone that sustains creativity, ensuring your vision remains viable year after year. Without a well-structured budget and cash flow plan, even the most successful seasonal businesses can find themselves struggling when visitor numbers dwindle.

Consider this scenario:

Annual Revenue: $5,000,000

Cost of Goods Sold (COGS): 30% or $1.5M

Labor Costs: 30% or $1.5M

Fixed Overhead: 35% or $1.75M

Annual Profit: $250,000

At first glance, this looks like a profitable business. But the reality of seasonality presents a challenge. In 2023, only 27% of passengers at Myrtle Beach International Airport traveled between November and March. If revenue follows a similar pattern, the business above could face a $196,000 loss during the off-season. Expanding to include October and April still leaves a seven-month deficit of $136,000 — a financial challenge that, without a plan, could be devastating.

The Consequences of a Budget-Free Business

A hospitality business without a budget is like a boat without a rudder. Many entrepreneurs fall into the economic trap of marginal propensity to spend. They burn through peak-season profits too quickly, only to scramble and rack up credit card debt when cash flow dries up. Others take an overly cautious approach, hesitating to invest in business improvements for fear of running out of cash before the next high season. This results in a cycle of financial anxiety, reactive decision-making and lost opportunities.

Building a Bulletproof Budget

A strategic budget does more than allocate funds; it serves as a roadmap for year-round sustainability. It sounds simple, but businesses in the tourism industry are known for low infrastructure and operating on a whim and a prayer. Even muti-location success stories may lack the accounting and finance infrastructure for a well-calculated plan.

Instincts are not enough! Being able to execute an accurate budget to capture off-season cash burn is the foundation of success. Here’s how to structure a budget that stabilizes cash flow and positions your business for long-term success:

1. Create a 12-Month Cash Flow Forecast

• Use historical revenue trends to anticipate peak and slow periods
• Estimate monthly expenses and identify potential shortfalls
• Adjust spending accordingly, ensuring off-season reserves are sufficient

2. Allocate Peak-Season Profits for Off-Season Survival

• Set aside a percentage of peak-season earnings to cover fixed costs in the off-season
• Maintain a separate reserve fund to avoid spending surplus income too quickly
• Aim to build a cushion that covers at least three to six months of expenses

3. Optimize Fixed vs. Variable Costs

• Identify non-essential expenses that can be scaled back during slow months
• Negotiate flexible payment terms with vendors to align cash flow with revenue cycles
• Consider seasonal staffing models to minimize payroll burden

4. Diversify Revenue Streams

• Introduce off-season promotions targeting local customers
• Explore prepaid services, gift cards or seasonal membership programs
• Develop alternative revenue sources such as online sales, events or consulting

5. Use Smart Pricing Strategies

• Implement dynamic pricing to maximize revenue in high-demand periods
• Offer strategic discounts in shoulder seasons to attract steady business
• Leverage loyalty programs to encourage repeat customers year-round

6. Secure Financing Before You Need It

• Establish a business line of credit during peak seasons to use as a safety net
• Explore small business loans or grants tailored for seasonal businesses
• Work with financial professionals to assess tax strategies and smooth out annual taxable income

Plan to Thrive, Not Just Survive

Hospitality businesses thrive when they embrace financial discipline alongside creativity and service excellence. A well-executed budget isn’t just a financial document. It’s a playbook for making strategic decisions, reducing stress and ensuring that every season, peak or slow, is a step toward long-term success.

Rather than viewing the off-season as a time of financial strain, use it as a period of optimization, innovation and preparation for future growth. With the right financial foundation, you can move beyond survival mode and position your hospitality business to capitalize on every opportunity the market presents.