The changing of the seasons reminds us that not every business works to the same rhythm every month of the year. 

For seasonal businesses, up to half the year can be absolutely booming in terms of customers and income but the rest could be a matter of belt tightening and survival, especially if the good times aren’t so good. 

So if you’re a summer business that’s wondering how you can best batten down the hatches this winter, or an autumn and winter business that is already struggling, there is a solution that you should consider rather than crossing your fingers and hoping for the best. 

It’s called a Company Voluntary Arrangement or CVA and can be a solution to outstanding company debts that are holding your business back. 

A CVA is a formal agreement between a company and its creditors where, in return for a proportion of debts being written off, the company is allowed to continue trading by its creditors while paying back the remaining proportion of the remaining debt over a fixed period of time, which is typically three to five years. 

What are my options as a seasonal business?

Businesses that operate at the same capacity all year round will make 12 regular payments of the same amount but seasonal businesses have further flexibility when it comes to their CVA payments. 

There are two options available for businesses whose work fluctuates throughout the year. 

  • Seasonal/ trend based contributions 

This CVA type is based on your business repaying either variable amounts, as defined by the projected peaks and troughs for the business calendar, or flexible amounts depending upon agreed calculations based on turnover.

As with the above example, if the business owed £300,000, you could propose to repay 4% of monthly turnover, for example, allowing you greater cash flow planning. Depending on your finances, you would still be eligible for significant debt write off and because this arrangement is written with more flexible terms, the CVA is more likely to be successful.

  • Seasonal/ trend based contribution, and/or asset release 

As above, but this CVA type also allows, or has potential for releasing assets into the arrangement. This works very well where the company owners are contemplating a sale of the whole or part of the business, but need more time to organise it.

For example they may make contributions for a 12 month period on a seasonal basis, and organise the sale of a division at the end of the year. It may well be that the division sale brings the CVA to a successful conclusion at that point. In case the sale didn’t complete or was delayed, a good CVA proposal would contain a pre-agreed alternative, such as continuing to pay contributions for a further period in lieu of the expected sale proceeds.

By trying to foresee obstacles and building alternative scenarios into the proposal, the CVA has a stronger chance of success.

One of the main benefits of a CVA for a seasonal business is that the repayment terms can be structured to take into consideration the seasonal fluctuations in the business’s cash flow.

This allows the business to be able to pay higher repayments during the peak season and lower repayments during the off-season. 

Another key benefit of a CVA is that it can help to protect the business from its creditors as once it is in place no creditor is not allowed to take legal action against the business to recover its debts (also known as a moratorium). 

This then gives the breathing room they need to turn around its finances and become profitable again. 

It is important to remember that a CVA is not a guaranteed solution for all seasonal businesses. Which is why it is important to seek professional advice before making a decision. 

We offer a free initial consultation for any business owner or director who wants to discuss how they can improve their business and make the most of their flexibility while they have the opportunity to do so.