Most businesses experience cash-flow fluctuations, but the swings can be especially intense for seasonal businesses. Revenue may rise sharply during busy periods and fall in slower seasons, yet many expenses continue year-round — and some must be paid months before sales peak.

This timing mismatch can leave an otherwise profitable business short on cash. Here are four ways to make cash flow more predictable and reduce the risk of a shortfall.

1. Map your cash-flow cycle

Start by identifying when cash typically flows in and out of your business. For example, a lawn-and-garden distributor might purchase materials and build inventory in the fall, ship products in the spring and wait until early summer to collect customer payments. In the meantime, it must cover payroll, storage, utilities, transportation and other overhead costs.

Don’t confuse profit with available cash. A credit sale may appear as revenue on the income statement weeks before the customer pays. Conversely, purchasing inventory reduces cash but generally doesn’t produce an immediate expense, and repaying loan principal reduces cash without affecting your bottom line.

Because an income statement doesn’t show the timing of cash receipts and payments, use it in conjunction with a rolling cash-flow forecast. A 13-week forecast can provide a detailed short-term view and can be supplemented by a 12-month forecast covering the full seasonal cycle. Update the forecasts using current revenue, receivables, inventory, payroll and upcoming payments.

A forecast reflects the conditions management expects and the actions it plans to take. You might also prepare cash-flow projections based on hypothetical assumptions to explore “what-if” scenarios. For instance, what would happen if demand falls short, customers pay late, costs rise or bad weather shortens your selling season? Projections can help you decide in advance which expenses you could defer or reduce in a pinch.

2. Make data-driven spending decisions

A short selling season leaves little time to recover from excess spending. Use prior-year sales, current orders and other relevant data to develop realistic inventory and staffing plans. Track how quickly products are selling throughout the season. This gives you time to adjust future orders or promote slow-moving items before they lose value.

When planning seasonal staffing, consider the full cost — not just hourly wages. Recruiting, training, payroll taxes, workers’ compensation insurance and lower initial productivity may add to the cost of temporary workers.

Apply similar discipline to marketing. Establish a preseason budget and decide how you’ll measure results. Compare each campaign’s cost with the revenue and gross profit it helps generate, where measurable. This analysis can show which marketing activities are paying off and which should be adjusted or discontinued.

3. Monitor working capital closely

Small changes in working capital can substantially affect available cash. To enhance collections, be sure to:

• Invoice customers promptly,
• Provide clear payment terms, and
• Follow up consistently on overdue balances.

Depending on the business, deposits or advance payments on large orders may bring in cash before related bills are due. Early-payment discounts are another option, but weigh the cash-flow benefit against the effect on profit margins.

Also review vendor terms and volume discounts carefully. Buying more than you need ties up cash and may leave you with inventory that becomes obsolete or must be marked down. If your forecast indicates that you won’t have enough cash to pay an invoice on time, contact the supplier before it’s due to request an extension or payment plan. Delaying payment without a vendor’s approval could damage the relationship or trigger late fees.

Current accounting records are essential. Regularly review receivables and payables aging schedules, inventory reports, bank balances and upcoming obligations. Reconcile bank and credit card accounts promptly so you can investigate errors or unexpected charges.

4. Build reserves and arrange financing early

Ideally, cash retained from the peak season will cover slow-season expenses and help you prepare for the next cycle. Establish a reserve target that includes a cushion for unexpected costs or weaker-than-anticipated demand. Consider designating a separate account for those funds to discourage discretionary spending.

If your reserves aren’t enough to cover your next cycle, consider applying for a line of credit before cash becomes tight. Lenders may request current and historical financial statements, cash-flow projections, tax returns, debt information, inventory reports, and receivables and payables aging schedules. Accurate, timely records can strengthen your application.

Review interest rates, fees, collateral requirements, repayment terms and financial covenants carefully. A line of credit should cover temporary working-capital gaps, not ongoing operating losses.

Are you ready for your next busy season?

After the busy season, compare actual results with your budget and forecast. Review revenue, gross margins, labor costs, inventory levels, collections and marketing performance. Apply what you learn to your next cycle.

We can help you analyze your operating cycle, prepare rolling forecasts and maintain accounting records that provide a clearer view of your cash-flow needs. Contact us to get started.

A financial statement audit can give lenders, investors and other stakeholders greater confidence in your business’s financial reporting. But not every private business needs an audit — and you must weigh the potential benefits against the cost and time involved.

Understand what an audit provides

Most businesses maintain an in-house accounting system to manage their financial records. The documents your staff prepares through this system are called “internally prepared financial statements.”
Depending on your business’s needs, internally prepared financial statements may follow U.S. Generally Accepted Accounting Principles (GAAP), a tax basis, a cash basis or another financial reporting framework. However, internal statements may not include all the adjustments, disclosures and other elements required under the applicable framework.

During an external audit, an independent CPA performs risk assessment procedures and obtains evidence about amounts and disclosures in your financial statements. The goal is to obtain reasonable assurance that the statements are free from material misstatement, whether caused by error or fraud. Management remains responsible for preparing the financial statements and maintaining appropriate internal controls.

If the auditor issues an “unmodified” opinion — sometimes called an “unqualified” opinion — the auditor has concluded that the financial statements are presented fairly, in all material respects, in accordance with the applicable financial reporting framework.

A qualified opinion means the statements are presented fairly except for a specific material matter. It may result from a material departure from the applicable reporting framework or the auditor’s inability to obtain sufficient appropriate evidence about a particular issue. Depending on the circumstances, material and pervasive issues could lead to an adverse opinion or a disclaimer of opinion.

Balance the benefits and costs

U.S. public companies generally must issue audited annual financial statements. External stakeholders often influence a private business’s decision to prepare audited financial statements. For instance, lenders and investors might ask for audited financial statements before providing financing. Similarly, audited financial statements may be a prerequisite for obtaining surety bonds or bidding on certain government contracts.

Even when an audit isn’t required, audited statements may strengthen the credibility of your financial reporting and help stakeholders evaluate your business. For example, audited financial statements can help you prepare for a business sale, merger or initial public offering.

From an internal perspective, an audit may also identify needed accounting adjustments, disclosure issues or weaknesses in internal controls that deserve management’s attention. Auditors use risk-based procedures, which may include inspecting records, confirming information with third parties, observing certain activities and testing selected transactions. However, an audit doesn’t examine every transaction or guarantee it will detect all errors or fraud.

Despite these potential benefits, your business shouldn’t pursue an audit without careful consideration. An outside audit requires a financial investment and substantial time and effort from you and your employees. You’ll need to gather and provide extensive documentation and respond to the auditor’s questions and requests for evidence.

Ready, set, audit

Whether an audit is required or voluntary, early preparation can make the process more efficient. Audit planning often begins months before fieldwork starts. If your business operates on a calendar year, now is a good time to review your accounting records, reconcile key accounts, gather supporting documentation and address accounting or internal control issues that could complicate the audit process. Contact us to discuss your upcoming audit and identify steps you can take to get your books and records audit-ready.

Deferred taxes remain one of the more misunderstood areas of financial reporting. Deferred tax assets and liabilities generally reflect temporary differences between when items are recognized for book and tax purposes. Here’s a practical overview of how deferred taxes work and why they matter.

Who must report deferred taxes?

Not every business reports deferred taxes. The accounting rules for deferred taxes generally apply to businesses subject to entity-level income taxes that prepare financial statements under U.S. Generally Accepted Accounting Principles (GAAP). Many S corporations, partnerships and other pass-through entities don’t record federal income taxes at the entity level, though exceptions may apply. Small businesses that use the cash or tax basis of accounting don’t usually report deferred taxes either.

C corporations and other businesses subject to entity-level income taxes pay tax on “taxable income” as determined under applicable tax law. However, for GAAP purposes, total income tax expense generally includes 1) current tax expense or benefit, reflecting taxes payable or refundable for the current year, and 2) deferred tax expense or benefit for changes in deferred tax assets and liabilities.

Where do deferred taxes come from?

Each year, taxable income and pretax book income may differ. A common reason for a temporary difference is depreciation expense. For federal income tax purposes, businesses may be able to use accelerated depreciation methods to reduce taxable income in the early years of an asset’s useful life. Some businesses also may elect to claim Section 179 deductions and bonus depreciation in the year an asset is placed in service.

For GAAP reporting purposes, businesses frequently use straight-line depreciation. Early in an asset’s useful life, this divergent treatment usually makes taxable income significantly lower than accounting pretax income. However, as the asset ages, the temporary difference in depreciation expense reverses itself.

Using different depreciation methods for book and tax purposes typically causes a business to report a deferred tax liability. In effect, the business pays less tax today because it claims larger depreciation deductions upfront. However, those deductions won’t be available later, resulting in higher taxable income in future years.

Depreciation is just one type of accounting event that may give rise to deferred tax items. Other common examples include certain loss contingencies, charitable contribution carryforwards and accounting estimates (such as warranty costs and allowances for credit losses).

It’s important to distinguish temporary differences from permanent differences. Temporary differences reverse over time and create deferred taxes. Permanent differences, such as certain nondeductible expenses or tax-exempt income, may affect the business’s effective tax rate but don’t result in deferred tax assets or liabilities.

How are deferred taxes reported on the balance sheet?

When temporary differences exist between taxable income and accounting pretax income, your business generally must record deferred tax assets, deferred tax liabilities or both on its balance sheet. You must record deferred tax assets for expected future tax benefits from deductible temporary differences and from carryforwards related to capital losses, net operating losses or tax credits. Conversely, you must record deferred tax liabilities for the additional future amounts your business will owe.

Deferred tax assets and liabilities are measured using enacted tax rates expected to apply when the related temporary differences reverse, or carryforwards are used. Because deferred taxes reflect future tax consequences, changes in tax law or tax rates can affect their reported amounts, with the impact generally recognized in income from continuing operations in the period of enactment.

Under GAAP, deferred tax assets and liabilities are generally presented as noncurrent items on the balance sheet. They may be netted only when they relate to the same tax-paying component and tax jurisdiction.

Deferred taxes also aren’t discounted for the time value of money. Instead, they’re recorded based on the applicable tax rate and the expected future tax effects of temporary differences.

Deferred tax assets may be reduced by a valuation allowance that reflects the possibility they’ll expire before the business can use them. Management must evaluate all available positive and negative evidence when determining whether a valuation allowance is necessary. Deciding how much deferred tax valuation allowance to book requires significant judgment and is often one of the more challenging aspects of income tax accounting. Changes in the allowance generally flow through to the income statement.

Look beyond today’s tax bill

The rules surrounding deferred taxes can be complex, but understanding them is important for maintaining accurate financial statements. Because deferred tax balances may affect both the income statement and balance sheet, they may also impact ratios that lenders and other external stakeholders use to evaluate your business’ financial results. We can help you account for deferred taxes and explain what they mean for your business. Contact us to learn more.

A profitable business can still run short of cash. Receivables may take time to collect, inventory can tie up funds and bills may come due before customers pay. Effective working capital management can help your business maintain liquidity and remain prepared for growth opportunities or unexpected challenges.

What are the components of working capital?

Working capital is calculated by subtracting current liabilities from current assets. The math is simple, but the result requires context. Start by identifying the specific components that drive the calculation.
Current assets generally include assets expected to be converted to cash, sold or consumed within one year (or the business’s normal operating cycle, if longer). Common examples are:

• Cash and cash equivalents,
• Accounts receivable,
• Inventory,
• Certain short-term investments, and
• Prepaid expenses.

Not every asset that could eventually be sold or converted to cash qualifies as current. Classification depends on the asset’s nature and when the business expects to realize or use it.
Current liabilities generally include obligations due within the same timeframe. Examples include:

• Accounts payable,
• Accrued expenses,
• Short-term loans, and
• The current portion of long-term debt.

An outstanding balance on a line of credit may also be classified as current, depending on the arrangement’s terms and the business’s ability to defer repayment.

How can you manage it more effectively?

Although many items affect working capital, the following three levers often provide the greatest opportunities for improvement:

1. Receivables. Strong collection practices are critical. Review accounts receivable aging reports regularly, address disputed or overdue invoices promptly, and establish credit limits and payment terms based on customer risk. Early payment discounts may accelerate collections, but weigh the cash flow benefit against the cost of the discount.
   You also can improve the collection process by issuing invoices quickly, offering electronic payment options, automating payment reminders and requesting deposits or milestone payments when appropriate. A bank lockbox may speed processing for businesses that still receive a significant volume of paper checks. Monitor customer concentration and recurring late payments, because receivables contribute little to liquidity if they can’t be collected on time.
2. Inventory. Excess or obsolete inventory can consume cash and generate unnecessary storage, security, insurance and handling costs. But reducing inventory too aggressively can lead to stockouts, production delays and lost sales. The goal should be to maintain enough inventory to meet expected demand while limiting slow-moving and obsolete items. Regularly review inventory turnover and demand forecasts. Modern inventory systems can help identify purchasing trends and automate reorder points. When appropriate, sharing forecasts and other data with key customers and suppliers may improve planning and reduce supply chain disruptions.
3. Payables. Businesses often try to preserve cash by delaying payments, but consistently paying late can damage vendor relationships and lead to less favorable terms. Use the full payment period available under your agreements without exceeding the due date. Also evaluate whether early payment discounts provide a worthwhile return.

Prepare short-term cash forecasts so upcoming obligations don’t come as a surprise. If existing terms create liquidity pressure, consider negotiating longer payment periods, installment arrangements or other terms with vendors before balances become past due.

Are your improvements sustainable?

To maximize the benefits of your improvement efforts, adjustments to these three levers must be sustainable over the long run. This requires management’s ongoing attention. Include working capital in strategic planning and review relevant measures at regular management meetings. Common metrics include:

• The current ratio, calculated as current assets divided by current liabilities,
• Days inventory outstanding (DIO), the average number of days inventory is held before being sold,
• Days sales outstanding (DSO), the average number of days it takes to collect payment from customers, and
• Days payables outstanding (DPO), the average number of days a business takes to pay its suppliers.

The cash conversion cycle (DIO + DSO − DPO) estimates how long cash is tied up in your operating cycle. Your accountant can help you calculate these metrics, determine what’s most relevant for your operations and evaluate your results over time or against industry benchmarks.

At smaller businesses, the owner may need to lead the effort. At midsize businesses, working capital management should involve finance, sales, purchasing, operations and other functions that influence customer terms, inventory levels and vendor payments. Assigning clear responsibility can help prevent one department’s decisions from creating cash flow problems elsewhere.

Reliable technology is also important. Rather than assuming every business needs a full enterprise resource planning (ERP) system, evaluate whether your existing accounting platform and integrated receivables, payables and inventory tools provide timely, accurate information.

More complex businesses may benefit from an ERP system, but the appropriate solution should reflect your business’s size, operations and reporting needs.

In addition, technology — such as electronic invoicing, customer payment portals, automated reminders and integrated payment processing — may shorten collection times and reduce manual data entry. Appropriate user permissions, approval controls, data backups and cybersecurity protocols can help safeguard these processes.

Keep liquidity in view

It’s common for business owners to focus on growing the top and bottom lines of their income statements, but the balance sheet deserves attention, too. Regularly monitoring the components of working capital can help reveal operational issues, such as slow-paying customers, obsolete inventory and unfavorable payment terms, before they become larger cash-flow problems. Contact us for help evaluating your existing processes and identifying strategies to strengthen your working capital management.

Fraud is a major threat facing small and midsize businesses. While audits aren’t designed to uncover fraud, they can help business owners identify anomalies and deter would-be fraudsters. Recent findings from the Association of Certified Fraud Examiners (ACFE) underscore the important role audits play, together with other controls, in a broader fraud prevention strategy.

Recent ACFE study

External audits can be effective antifraud controls. The ACFE’s Occupational Fraud 2026: A Report to the Nations analyzed 2,402 occupational fraud cases across 143 countries. Consistent with previous studies, the latest version of the ACFE’s report estimates that organizations lose approximately 5% of their annual revenue to occupational fraud. The study also found that a typical fraud scheme lasts 12 months before it’s detected.

More than half of the cases in the 2026 study involved either a lack of internal controls or management overriding existing controls. However, respondents with strong antifraud controls — such as external financial statement audits, management review, proactive data monitoring and surprise audits — generally experienced lower fraud losses and detected fraud more quickly than organizations without those safeguards.

Limits on audit assurance

The purpose of an audit isn’t to detect fraud. Instead, it provides an express opinion about whether the financial statements are fairly presented, in all material respects, in conformity with U.S. Generally Accepted Accounting Principles (GAAP) or another comprehensive basis of accounting.

An audit provides a reasonable level of assurance that the business’s financial statements are free from material misstatement and conform with GAAP. However, external audits don’t provide guarantees against intentional financial statement fraud or inadvertent errors.

The role audits play in fraud detection

Auditors play a crucial role in supporting the integrity of financial reporting. Here’s how certain audit procedures may help reveal suspicious activity and identify weaknesses in your business’s controls.

Risk assessments. These assessments identify high-risk areas for misstatement or errors. They help direct the auditors’ attention to the accounts and transactions that warrant more rigorous audit procedures. Auditors analyze the business’s operations, financial reporting processes, internal controls and industry environment to pinpoint potential risks. Then they develop audit plans focusing on these areas.

Audit fieldwork. Auditors perform various procedures during fieldwork to help them detect discrepancies that may indicate fraudulent activity. For example, they may test certain financial transactions and account balances to verify their accuracy and completeness. They may also examine supporting documentation, such as invoices, contracts and bank statements, to ensure that transactions are legitimate and properly recorded. And they might confirm accounts receivable, review pending litigation and physically observe year-end inventory counts. Auditors customize their procedures to fit each business’s risk assessment.

Auditors are trained to recognize the warning signs of fraud, including unusual transactions, inconsistencies in financial records and deviations from standard procedures. When auditors identify red flags, they may ask questions and conduct additional audit procedures to help ensure the financial statements are fairly presented and conform to GAAP.

Financial reporting compliance. Businesses must comply with a wide range of laws and regulations, including those related to financial reporting, taxes and corporate governance. Auditors consider laws and regulations that could have a material effect on the financial statements and may identify issues that warrant management’s attention or further review.

A stronger defense

No organization is immune to fraud. But an external audit can help reduce your business’s risk by examining financial reporting procedures, evaluating internal controls and identifying potential warning signs before they become larger problems. If you have questions about your business’s fraud risks or you’d like to discuss our audit and forensic accounting services, contact us. We can help you build a stronger fraud prevention strategy and investigate any suspicious activity.