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As a young boy, I remember visiting my grandfather’s farm and spending time with him on the tractor from early in the morning until it was too dark to work. He would often say to me, “You gotta make hay while the sun shines.”
I must admit it took years for me to really comprehend what he was saying, but the owners of seasonal small businesses have no trouble understanding the phrase. Every day, they recognize the importance of “making hay” during the busy season because it pays the bills the rest of the year. If that describes your business, here are six tips to help you manage your seasonal business and maximize its ability to grow and thrive:
Although this might sound like an oversimplification, it takes some discipline to know that the cash flow boon happening during peak season will ebb into a trickle when the season is over. Nevertheless, it’s important to plan ahead and prepare for those times when business is going to be slower. Having spent many years in a seasonal business, I recognized the importance of setting aside some profits to pay for expenses during the lull before the next busy season. I also came to appreciate that when it was time to “make hay,” I needed to be ready for the extra work—which often meant longer hours and a lot more to do.
As seasonal businesses grow, some of the part-time employees that get hired to help through the busy season become full-time employees, and their part-time roles are taken by new seasonal employees hired to fill in the gaps. The business owners that are the best at anticipating and planning for the busy seasons (and the gaps in between) are those who build strong and thriving businesses.
During the busy season, it’s easy to rationalize spending a little extra capital, but it’s important to budget for your off-season expenses if you anticipate investing in your business during the peak times. This takes discipline and patience, but it’s well worth it as revenues drop when the season is over.
Budgeting includes more than your capital resources, too. Many seasonal businesses reduce their hours during the gap between seasons, and some close their doors altogether. Reducing staff is another important part of minimizing off-season expenses and should be addressed whenever new employees are hired so they understand if there is a defined season of employment.
You may also be able to work out favorable terms with your suppliers that will accommodate those times when business is slower and monthly revenue is lower. At the very least, taking what’s called a “Just-In-Time” approach to managing your inventory during the peak season will help you keep your inventories low as you rely on your suppliers to have quick-access inventory ready to ship to you as you need it. This might require you to take tighter control of how you manage inventory, but you’ll be able to avoid ending the busy season with too much inventory on your shelves.
If you’re anticipating the seasonality of your business, you can set yearly, quarterly, and monthly cash flow projections to make sure you have control over the revenue coming in and the expenses going out. Poor cash flow management is one of the biggest reasons businesses fail, and this can be particularly true for seasonal businesses.
This isn’t something that can be put off. Make sure you’re monitoring your cash flow situation on at least a monthly basis, and if you’re not sure about what you should be doing, have your accountant, CPA, or other trusted financial advisor help you establish practices that will allow you to stay on top of your cash flow needs for both your peak times and your slack times.
If your customers pay on invoice rather than a cash basis, offer them prompt payment terms. For example, if you regularly accept 30-day terms, give them some kind of discount for paying their invoices within 10 days.
If your customers pay cash, encourage them to either use a debit card, which gives you immediate access to their payment, or offer them a discount if they pay in cash. The faster you have access to that cash flow, the easier it is to manage.
Don’t let your customers make a habit of paying late. Customers who habitually pay late eat into your profits. Depending upon the nature of your business, it doesn’t take long for late payments to erode your profits entirely and start costing you money. As a business owner, I felt like any customer who paid on invoice started costing me profits at 45 days and at 60 days my profits were lost due to the cash flow burden it put on my business.
Nobody likes to call their customers about an old invoice, but the longer they go past due, the more difficult it is to collect.
I know this is sometimes easier said than done, but fortunately, it doesn’t have to happen all at once. Some of the smartest small business owners I know make it a habit of setting aside a little capital every month with the goal of having enough money in the bank to pay for six months of expenses. They feel like this is the minimum required to keep their business on its feet should something happen. If you don’t have anything set aside today, it’s time to start.
In much the same way many landscape contractors do snow removal during their off-season, many seasonal businesses can look for opportunities to augment their revenues during slack time. Are there complimentary products that make sense or a service you can offer that will keep your staff engaged and profitable during the slack time? If you’ve planned and budgeted properly, you likely won’t need to reinvent your business, but a little creative problem-solving might help you find an off-season revenue stream you hadn’t thought about before.
Some seasonal business owners turn to a line of credit or business loan to bridge a slow season. This can be a reasonable strategy provided you don’t wait until you’re in the middle of the off-season. As mentioned above, make sure you plan ahead and strategically consider when you’ll apply for financing and can demonstrate your ability to meet those periodic payment obligations once your peak season is over. Remember, lenders want to know that you’ll be able to make timely payments starting with the very first one.
Depending upon how busy your busy season is, some of these suggestions might not apply to your specific business, but managing and growing a seasonal business takes discipline and planning.
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Ty Kiisel is a contributing author focusing on small business financing at OnDeck, a technology company solving small business’s biggest challenge: access to capital. With over 25 years of experience in the trenches of small business, Ty shares personal experiences and valuable tips to help small business owners become more financially responsible. OnDeck can also be found on Facebook and Twitter.
