Managing cash flow is one of the most challenging parts of running a business. And seasonal fluctuations in demand can seriously stress your cash flow.
When you think of a ‘seasonal’ business, you might think of a swimwear retailer, a Christmas décor business or ice cream maker. But the reality is that nearly every business will have seasonal fluctuations in demand. A restaurant or hair salon might see an influx of patrons during the summer months, a long bout of rain could keep your customers indoors (or buying up all of your umbrellas!) and the Christmas holidays might be the most important time of the year for you. Even a professional service business will experience ups and downs throughout the year.
These ups and downs might be minor or potentially, keep you from earning an income for weeks or even months. For businesses without a plan, the result could be catastrophic.
So, how can you protect your small business against these seasonal changes?
1. Have a plan of attack
To successfully navigate seasonal changes, you have to know what changes to expect in the first place. Experts say that’s why businesses must have a clear plan. Andrew Spring, Partner at Jirsch Sutherland, has more than 17 years’ experience in helping businesses through insolvency. He says no one should go into business without a solid understanding of their market.
“Business planning is key – whether you’re a startup or three or 10 years in. Doing your research and creating a business plan will ensure that you can better forecast shortfalls and opportunities and resource them appropriately.”
2. Track and measure your progress
Experience will help you understand how the market changes throughout the year and annually. Businesses, however, need to ensure they are tracking stock and sales, following up on customer enquiries and making informed decisions based on your business data.
“If you regularly sell 50 units per month, but sold 100 units in December, you might be tempted to order more ahead of next year’s holidays. But if your data shows that you’ve been down 10 per cent, you should plan accordingly,” added Spring.
It may not be an exact science but using data will help you avoid making important decisions based on a gut feeling or ‘hunch’.
3. Make your business as scalable as possible
You wouldn’t buy a car if you never plan to drive. The same logic applies to your business. Look for opportunities to scale your resources up and down as needed, so that you’re not paying for anything that you’re not using.
“Try to match resources with your demand. Don’t commit yourself to relationships that exceed the term of your period of demand. You wouldn’t want to enter into a year-long employment contract if you only need help for three months out of the year. Take the same approach with your supplier relationships and debt facilities.”
4. Diversify your business
By diversifying your products or services, you can better protect your small business from the harmful effects of seasonal lows. You could diversify where you sell (geographic diversification), what you sell (product diversification) or who you sell to (customer diversification). You may have a shop that sells coats in Australia but during the summer, you can focus on selling off your excess stock online to customers in the Northern Hemisphere.
“Ski resorts have also done a good job at diversifying their product. You may think of them as a ‘winter only’ business but now, many offer summer activities such as mountain biking, hiking and zip lining to keep customers coming year round,” said Spring.
5. Be realistic
You likely started your own business because you are passionate about what you do and the customers you help. While it is great to dream big, it is important to be realistic about your expectations. Setting your sights too high could stretch your business, especially when you’re just starting out. This could result in unnecessary and added stress, not to mention business owner burnout.
“Which position would you prefer to be in at the end of your high season? To have sold through everything and met your budget and potentially left some sales on the table or to be stuck with excess stock, unable to pay your employees or suppliers? Make small improvements. Avoid exceeding your budget as things can get away from you quickly.”
6. Don’t bury your head in the sand
If your business does run into trouble as a result of seasonal changes, business owners should seek advice quickly.
“If your business has underperformed or struggled during a low season, it is important to take immediate action and talk to an expert, preferably outside of your business. Then, you can start working on a solution that is specific to your business and situation and hopefully, get back on track.”
Navigating seasonal changes is certainly a challenge for many businesses. Success is all about balancing your scalable resources. Should you add a staff member to take advantage of a busy period? Stock up on items that are looking to be more popular? How much inventory do you hold and how quickly will it sell? Can you offer a special promotion during a slow period? These are all questions you’ll need to ask yourself in order to protect your small business against seasonal changes.
Let us know how your business navigates seasonal fluctuations. What causes the highs and lows in your business? What is or isn’t working for you? What are you looking to improve in the year ahead?