Thriving as a Seasonal Business
March 2, 2019 | Tools & Tips
Most businesses experience some form of seasonality, a term that refers to changes in customer demand for your product or service throughout the year. Anticipating the financial impact of your customers’ buying patterns at various points in time is critical to ensuring your business remains healthy year-round. While there are some techniques to mitigate the effects of seasonality, such as running sales or increasing advertising to help fill the gaps during slow periods, the effects of season changes are often inevitable.
Seasonal business examples, like ice cream shops peaking in the summer, or landscaping companies slowing down during the winter, are models that are directly impacted by seasonality. Most seasonal businesses make 70% of their revenue in just a few months.
You can evaluate the impact that seasonality can have on your business by asking questions like, When is my peak season or slow season? How long does each last? Does my business have a single peak or multiple peaks? What is the difference in revenue and cash flow between my highs and lows?
Planning is essential in order to avoid the negative impacts of small business seasonality. Unfortunately, if you don’t plan properly, it can create volatile cash flow, which can put a strain on your business and make it difficult to take advantage of surges in demand when peak season arrives.
What You Can Do to Reduce Seasonal Business Risks:
Know your seasons: Track your business performance by season to understand what drives your seasonality. This will help you effectively plan for the leaner cash periods. While many factors attribute to seasonality, here is a list of the more common seasonal drivers:
- Weather
- Holiday and vacation seasons
- Tourist activity
- Growing seasons
- Hunting seasons
Most businesses tend to manage by looking ahead one to two months, and some plan quarterly. If you are facing significant seasonality, you need to extend your outlook, and plan up to six-plus months out.
This allows you to prepare for upcoming budget shocks and plan temporary employment needs ahead of the hiring crunch. It also allows you to run promotions and events to counter your seasonal business revenue declines, which can help smooth the ride through the dips.
Separate wants from needs: When there is high profit, luxuries can seem like necessities. It’s important to remember that large purchases should be carefully considered in order to preserve money for later in the year.
Evaluate if you or your business actually need the product or service you are considering purchasing. Calculating the expected return on investment will help you determine the risks associated with any expenditure, as well as the time frame it will take to recoup your cash outlay. Unless there is substantial data to support the decision, it may be wise to hold off purchasing. This is where checking in with a business mentor may be helpful. They will have a high-level perspective and experience to advise you on what to do.
Financial discipline is a learned process and one that will be vital to your success. When there is money available, purchasing luxury items seems like a great idea, however, saving that money and using it during slimmer times will be well worth the wait. American culture does not always emphasize the importance of saving money. In fact, 31 percent of U.S. adults could last only a few months on their savings if they had to retire tomorrow.
While this is a disconcerting statistic, it is an area for growth both as individuals and as small business owners. Saving money and avoiding non-essential items during high profit seasons will help maintain your bottom line during the slower months.
Analyze your fixed versus variable costs: Fixed costs are difficult to change quickly, whereas variable costs allow you to easily flex your capacity and spending in response to changes in demand. Analyze your business to explore what fixed costs you might be able to replace with more flexible variable costs. With today’s gig economy, hiring quality freelancers and contractors has never been easier. You can scale your workforce up or down as demand changes.
Consider sites such as Upwork, Fiverr, and other freelance marketplaces. You can outsource needs like writing, advertising, social media and even web development (plus a lot more) for a fraction of the cost of a full-time resource and with less financial risk.
For fixed costs, open a separate bank account and pay a fixed amount into it each month to save up for off-season expenses like utilities, rent and supplies. Pro Tip: Open a high-yield savings account and take advantage of the earned interest.
Create alternative income flows: Seasonality is inevitable, but one way to offset it is to create alternative revenue streams. For example, landscapers can also plow snow or wedding planners may do event planning for small businesses in their off season.
Adding services that are steady throughout the year or that peak during your current slow season can help tremendously. For example, if you own an ice cream shop, consider selling hot chocolate in the winter.
One thriving example is Cruz Farm. They started as a dairy farm and began selling ice cream from a food truck. From there, they moved into a brick and mortar and continued selling ice cream, but found that peak season was in the summer and fall.
They extended their brand and now sell pizza at their Pizza Barn. They’ve continued to grow through selling wholesale to supermarkets, and have a small “shop” where people can purchase merchandise while they eat ice cream. Cruz started with a small dairy farm and built an entire brand that easily ebbs and flows with the different seasons.
Get paid by your clients: Anytime you are trying to do cash flow planning, the most important step is making sure you have the cash. Outstanding invoices are one of the biggest drains on a small business. Having a good invoicing system partnered with good follow up procedures not only helps to ensure you get paid, but also that you stay top-of-mind to your customers.
Another tactic that helps is varying the ways your customers can pay you. With today’s payment applications you have to move beyond cash or card. Accepting things such as Venmo, Paypal, or even online bill pay programs help your customers get you your money quicker.
Regardless of your business type or its particular seasonal cash flow pattern, by adhering to a plan to stay strong in slow season, you will be in a position of strength when the market picks back up. This can enable you to take market share from your competitors as they will be cash constrained if they did not plan well.
Whatever you choose to do to get ahead, understanding your seasonality and planning for it will make your business a stronger player in your field.