5 ways to weather business seasonality without going broke.
If you run a seasonal business, then you know the challenge of maintaining revenue streams during your off-season. Many seasonal business owners can flip their businesses to overcome the effect of seasonality. For example, landscapers based in colder climates often get into the business of snow removal during the slower winter months.
Business seasonality doesn't just flow with the weather. Tax advisers, for example, experience an obvious seasonality. But so do freelance accountants or advisers, many of whom experience busier seasons early on in the calendar year when clients have new budgets approved. Year-end can also be busy as clients ramp up spending in order to overcome the "use it or lose it" budget crunch. During the summer months, however, freelancers may experience a dry spell as their clients take advantage of vacation time.
Whatever seasonality your business may experience, you can prepare for these kinds of fluctuation and leverage your natural strengths. Here are five ways to anticipate seasonality and even help your business prosper throughout the year.
Look for ways to diversify.
It isn’t easy to switch your vocational skills or move to a new line of business at the drop of a hat, but you can offset seasonality by being as innovative as possible. That could mean diversifying product lines so that you're not left with inventory that you can't shift, or pre-empting what your customers want.
Is there a demand for a product or service that you can offer in your off-season? Are there untapped market segments that could prove lucrative at different times of the year?
Be cautious not to neglect your primary revenue driver. Continue marketing all year long.
Develop sales, inventory and staffing plans for the year.
If you're a retailer or wholesale supplier, the best way to get a grip on seasonality and maintain positive cash flow is to plan your sales and inventory for the year. That way, you can achieve balance in your income versus expenses as the year progresses.
Get a sense of your inventory needs throughout the year. Analyze past sales and inventory on a month-to-month basis with a business intelligence platform or point-of-sale system. You may need to get your supplier receipts out to help get a true account of your inventory at such a granular level, but the exercise is worth it because it allows you to create a benchmark for planning ahead.
Planning inventory and sales at least six months ahead will help you pinpoint where you'll need to build in a cash cushion to tide you over during quieter periods. This includes planning everything from stock levels to staff so that you have the supplies and labor you need on-hand when demand picks up again. A cash flow forecast can also help with this.
Protect cash flow with creative invoicing.
Maintaining cash flow as a seasonal business is a top priority. One of the simplest ways to stay on top of this is to creatively manage your invoices. If you run a service business, try and negotiate upfront payments on contracts from your customers. Alternatively, if you have fixed-price contracts consider asking clients to pay in two installments, at the beginning of and mid-way through the season. On the supplier side, try to negotiate terms that spread payments over net 60 or 90 days.
Have a financial back-up plan.
Another financial rule of thumb is to prepare for the worst-case scenario. This is true whether you're a freelancer, retailer or service business. Cash cushions include setting up a savings account or getting a line of credit so that you can draw on cash when you need it.
Because seasonal businesses incur inventory, marketing and staffing costs, often before they can expect to make a profit, a short-term loan can give you access to funds without impacting cash flow. The SBA offers a loan program designed just for this purpose – the SBA CAP Lines Program is designed to help small businesses meet cyclical working capital needs. Loans can be used to finance accounts receivable, inventory needs, purchase orders, construction and more.
Stay in touch with customers.
This applies to everyone from freelancers to tax advisers, and all kinds of seasonal businesses in between. Use your off-season wisely: look for ways to stay in touch with your clients, and maintain interest in your services so that they're primed to do business with you once your season ramps up again.
If you plan to do any promotions, reach out sooner rather than later and look for ways to entice prospects and clients to do business with you during the off-season.
- Check out the monthly cash flow forecast calculator.
- Talk to a Small Business Banking Specialist for ideas for improving your cash flow.