How Can Businesses Plan for Seasonality?

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Highs and lows are an accepted part of running a business and it’s common for seasonal businesses to experience high and low demand for services and inventory stock, with corresponding periods of high and low cash flow in each business year.

The timing of these seasonal ups and downs will largely depend on the type of business you have. Fundamental to successfully navigating seasonal peaks and troughs is the ability to fine-tune your budget so you can avoid any surprises.

Budget for seasonality

For managers and business owners, seasonality is a huge consideration as they plan their yearly budget to best cater for slow periods and adjust the budget for seasonal upturns in trade.

The best place to start your budget is to establish a foundation of essential expenses. Start with monthly fixed costs such as rent, insurance, equipment or vehicle leases and business loan repayments. Fixed expenses don’t change month to month, so it is important to budget enough to cover all of these.

It’s likely that some variable and semi-variable costs may be higher at certain times of the year than others. These are the outgoings that fluctuate based on use, items such as utilities, wages and inventory stock. By calculating these costs over the year and dividing by 12 months, you will get an average monthly total for these costs.

When you have a clear idea of your fixed and variable monthly expenses you are better able to plan accordingly and to cover, at a minimum, this amount every month.

Budget by three

It is good practice to create three separate budgets for your financial year. The first one is to identify and cover your baseline fixed and variable costs while the second one is your best-case budget, mapping how you will reinvest revenue when you have an excess. The third budget is a worst-case scenario budget prescribing how to save when you are missing your targets.

Having three versions of a budget enables you to plan while leaving you room to react to seasonal results.

Plan ahead

Advanced planning is crucial, particularly for a seasonal business. It is much easier to measure performance on an annual level than it is month by month. Take advantage of your slow season to start planning for the next business year.

Track and record every expense you incur because those expenses you can anticipate over the long term will represent what you need to save during your peak season. Pinpointing and evaluating your annual spend allows an organisation to identify ways to build costs into the next budget or find area where the expenditure can be reduced.

Take advantage of the off-peak seasons

The slow season is not only a chance to undertake planning activities but is also your opportunity review and evaluate performance. The more preparation you can achieve during your quiet times, the better you will manage busy times and realise revenue gains.

Slow periods are also a great time to discuss contracts with suppliers and vendors and to bargain for the inventory stock your business requires. When you don’t immediately need suppliers to fulfil last minute orders, you are in a much better position to negotiate pricing and terms. This can help you keep your pricing competitive while improving margins.

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Melanie - Unleashed Software

Article by Melanie Chan in collaboration with our team of Unleashed Software inventory and business specialists. Melanie has been writing about inventory management for the past three years. When not writing about inventory management, you can find her eating her way through Auckland.

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