The basics of what determines a seasonal business are numerous, from actual climatic seasons, to school holidays and end of the financial year. For retailers especially, seasonality can mean those times of traditionally high consumer spend, such as the led-up to the Christmas period, major events, sporting activities or music festivals.
A seasonal business also falls into two main categories, the ‘off-season’ and the ‘shoulder season’. The former is the business that closes completely during the ‘off-season’, such as the snow plough operator who shuts during the summer. The latter is a business that operates year-round but experiences quiet months.
Rigorous planning is required to effectively manage a seasonal business and you need firstly to understand what the seasonal nature of your business is. You must then ensure you have ample inventory stock, enough staff and adequate resources to manage during the peak and sufficient cash flow to survive the quiet one.
Know your cycles
If you are selling snow ploughs or ski gear, surf boards or sandals then the seasonal cycles of you chosen business are fairly obvious. Even if you are a start-up or relatively new to your industry, it should be easy to identify certain business cycles if you’ve done your research.
For those businesses that have been trading for some time, you will have a good idea of what your business cycle looks like and even the factors that drive it. Therefore, seasonal sales projections can be based on historic data from the previous two or three years of trade.
It’s a lot harder to understand seasonal characteristics or to predict sales trends if the business hasn’t been around that long. Business owners that struggle in this area can consult with colleagues or industry sources, or even learn from their competitors.
It is not unusual for a new business to experience rapid growth. For these business owners it pays to be circumspect. Rapid growth can potentially disguise a normal seasonal fluctuation, leading the mistaken belief that the healthy sales will continue.
Don’t wait until the slump is upon you before you act. Factor in at least six months to plan appropriately. Your plan should include every aspect of the business, from inventory stock to staffing and seek ways to avoid unnecessarily tying up cash during the slow months. Take advantage of slow spells to prepare for the peak season, get your budget sorted, review the marketing plan and schedule social media posts and email marketing campaigns.
Online retailers need a plan for dealing with deliveries when their peak happens. Nothing is more frustrating or disappointing for customers than not receiving packages on time. This is especially crucial if you’re a distributor and your buyers are businesses, as the knock on effects are wide-reaching.
Manage your cashflow
It’s difficult for seasonal businesses to generate a profit during the quiet months and for those that close in the off-season it most certainly means taking a loss unless you have budgeted correctly or managed to save enough during the season to carry you through.
Some businesses may need to dip into savings or even take out a business loan to smooth out cash flow. It’s also worth considering that promising holiday sales don’t necessarily mean good cash flow, so avoid activities that can leave you short of cash. This means not buying unnecessarily large amounts of inventory stock or stretching your budget by taking on new staff.
Understand the seasonal effect on your inventory turnover and running costs. Manage your cash flow carefully to make sure you have sufficient working capital to pay your bills and prepare a detailed cash flow forecast to reduce the chance of encountering any nasty surprises.