By Willem van Lynden, Director of Sales and Marketing at Boost Capital
Summertime means one thing for many businesses – work, work, work. Companies operating in tourism, wedding-related firms, garden centres, and even those that harvest and sell crops are all examples of seasonal businesses that flourish in the sun. There are many such enterprises that see trade and revenue fluctuate dramatically and that rely on a few months to see them through the bulk of the year. Running a small business that experiences peaks of activity and troughs of inaction involves clever planning, canny management, and a great deal of financial know-how – plus year-round vigilance.
Small businesses need to plan
Even small business owners who recognise the seasonal nature of their operation can be prone to putting their head in the sand about what that really means in practice. Recent research from Santander Corporate & Commercial found:
Two out of three UK businesses are affected by seasonality, yet more than a quarter of these fail to make any business plan to protect their bottom line during quieter times. Smaller companies are the least likely to have a strategy.
About six per cent of bosses rely on credit cards to get them through leaner times, while four per cent use business loans to ease their way between periods of greater trade.
Such financial provisions can be fine if they’re planned for, but are less advisable when done in a state of panic. And it’s really not that hard to be more organised. Enterprises can manage themselves through a balanced and productive 12 months with some very simple financial planning.
Cash is always king
Seasonal businesses need money as they enter their peak, and money as they come out. These firms generate a lot of cash during busy times, but they still have expenses to pay ahead of the rush, both to cover running costs during slower periods, and to have enough in the bank to buy stock and hire extra staff to meet the inevitable increased demand. They also need sufficient funds to settle vendors’ invoices as the season winds down and income drops.
Upfront costs are particularly hefty at the beginning of the season, so business owners need a stockpile of savings or have ready access to some other form of capital, whether an overdraft, borrowing from friends and family, short-term business loan or other bridging finance. Banks can be loath to extend credit lines for a short period, whether to cover staff wages or extra stock, so many businesses opt for quick, unsecured business funding, such as that offered by Boost Capital, or invoice factoring. Trade credit can be a method of acquiring extra inventory without the front-loaded costs or the risk of being landed with unwanted stock at the end of the season. In essence, this works like a grace period of up to 60 days before companies have to pay for the goods they’re selling.
There are a number of other ways of raising revenue ahead of a business’s most active period:
Pre-sell summer deals direct to customers during the winter months, collecting deposits ahead of time. This works particularly well for holiday firms or those in the tourism or recreation fields.
Offer a prompt payment discount on large invoices if it means getting money in early.
Cut prices in the low season to ensure you have a constant, if reduced, income stream. But do a thorough cost analysis to see if short-term discounting may hit your bottom line in the longer-term.
Diversify in non-busy months to boost the company coffers. Hoteliers may try to attract conference business in winter, for example, or garden centres could focus on the Christmas trade for trees and decorations to counter balance the busy summer months.
Manage cashflow and know your numbers
It’s vital to maintain a cashflow forecast even when things are going swimmingly. Accountants typically recommend operating a 13-week rolling cashflow projection, which includes all income and expenditure, predicting where possible areas of stress may lie. For example, you should include calculations of sales falling short of expectation or if some costs are greater than usual. This exercise should be undertaken regularly, at least weekly, taking into account your real revenue figures once they’re apparent. Tracking these figures, plus knowing your daily or even hourly sales if you’re super busy, will mean you understand what’s happening in the here and now and can make adjustments accordingly.
Many small and medium-sized enterprises (SMEs) still use manual bookkeeping methods, but accounting software could save a lot of time and money, as we’ve detailed on this blog before. The Chartered Institute of Credit Management (CICM) has also worked with the Department for Business, Innovation & Skills to produce a series of guides for SMEs on managing and understanding cashflow in different situations.
Keep marketing even in the down time
Once you get past the seasonal peak, don’t take your foot off the accelerator. While business may no longer be booming, it’s a great opportunity to catch up on neglected administration, as well as planning for the year ahead. Work on research and development to see if there are other areas into which you could diversify or ways in which you might improve your current offering. And keep marketing now more than ever.
One in twenty seasonal businesses closes when they’re quiet, according to the Santander research, but with a little lateral thinking and effective marketing they could well keep some income going year round. To use an historic example, two Milanese bakers popularised pannetone bread as a Christmas treat in Italy in the early 20th century as a marketing ploy to overcome an otherwise slow trading period. Bridal businesses can aggressively market their winter collection past August even though summer remains the most popular wedding choice. Confound people’s expectations and make your own market, perhaps using some of our previous business marketing tips to do so. And, for now, enjoy a successful and lucrative summer season, while saving a thought – and some reserves – for the slower months ahead.