Managing your business through the year can be a challenge. But managing a seasonal business is a special challenge.
Seasonal businesses are characterized by a sharply up and down sales pattern within the year. Periods of strong business, running along the capacity line are offset by quiet times, low revenues, etc.
These seasonal issues affect all parts of your business, including your purchasing, capacity planning and cash management. The biggest problem: while sales are slowing down, you still have to pay your fixed expenses like rent and insurance. The good thing is, you know about it. So you can react and be proactive to avoid any problems particular in the slow part of the year. Here are some key things to consider.
Market Research is a must
With a seasonal business, you are forced to rely on a short timeframe to make your business successful. To achieve this, you have to know your market exactly. One missed market opportunity, and your business is done, and cannot recover for the rest of the season, leaving you to struggle through the weak out-of-season period.
How do you overcome this? Take your time in the slower business months and research your market, customer behavior, and other external circumstances that may influence your business. For example, in the Tourist business, it can be important to know the currency exchange developments, because it can make a tremendous change as to where the Tourists are coming from, and you have to adapt your offers to appeal to them.
Purchasing from Vendors
Plan the purchases from your vendors precisely to best manage cash flow. Too few products is bad, too much ties up money. Another way of looking at it is that every seasonal product you don’t have available cannot be sold. This is a loss of revenue. On the other hand, if you have too many in stock, you have invested capital and tied up cash which you will need in the out-of-season period to pay for fixed business expenses.
A further problem is when your products are overstocked and they either expire (food) or become outdated (clothes). In these cases your only option is to sell it at significant discounts.
Plan every month for both sales and expenses. Think about your cash flow. As a seasonal business, you have to buy in the out-of-season period to be prepared for when your season starts. This means you must know exactly how much money you have to save for the out-of-season purchases. Put simply, Cash is King.
You need a proper monthly Cash Flow statement. Knowing your variable and fixed expenses is essential. When your sales are slowing down, you will still have to pay your fixed expenses, such as insurance and rent.
On variable expenses, you have more influence as to when you make your expenditures, but this is also limited. Try to negotiate with vendors about credit lines and payment plans.
Securing your liquidity in the out-of-season time is your first priority.
Plan your human resources
Your employees are very important. Of course in the busy season it is easy to hire some employees to cover the capacity peaks. But over the year you have to provide your business with experienced employees with the skills you need. You cannot lay off these employees and hope that they will show up when the season is starting again.
You have to figure out a plan to retain essential employees. Use all the flexibility you can offer to your best employees to keep them on staff. Consider such approaches as reducing hours, sharing shifts etc.