Business Seasonality
If you run a seasonal business, then you’ll 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. This phenomena is often called “Business Seasonality”. It impacts companies from eCommerce websites to landscapers based in colder climates who 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 freelancers, 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 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.
Preparing For Business Seasonality
Whatever seasonality your business experiences, preparing for these fluctuations in trade and knowing how to play it in line with your strengths is key to survival and growth!
Here are five ways you can survive and prosper through the business seasonality of your year.
Look for ways to diversify
Not all of us can switch our vocational skills or move to a whole new line of business at the drop of a hat. We can offset seasonality by being as innovative as possible. Whether that means diversifying product lines or by pre-empting what your customers want.
Is there a demand for a product or service offering that makes more sense to focus your sales and marketing energies on when it’s 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 and keep marketing it all year long (more on this below).
Develop sales, inventory and staffing plans for the year
Retailers and wholesale supplier should plan sales and inventory for the year in order to balance the projected income versus expenses throughout the year. This is your best bet for getting a grip on seasonality and maintain positive cash flow is to
Analyze past sales and the inventory you needed to generate those sales on a month-to-month basis. You may need your supplier receipts out to help get a true account of your inventory at such a granular level. However, this 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. Plan everything from stock levels to staff. That way 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. We offer lots of tips for getting more cash flow out of your business, finding and fixing cash flow problems, and preparing your finances for a dry spell. One of the simplest ways to stay on top of business seasonality 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 and midway 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. Here at Fundbox we can also help you fix any cash flow issues that pop up by advancing payments for your outstanding invoices.
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 CAPLines 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 advisors and all flavors of seasonal businesses in between. Use your offseason wisely. Look for ways to stay in touch with your clients and maintain interest in what you have to offer. This way, they are 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 offseason.
