Many of my clients have to deal with the fact that their sales can vary significantly depending on what month of the year it is.
These seasonal changes can have a negative effect on the business’ cash flow when sales drop. And although having more customers is normally seen as a good thing, the busy months can also cause problems with cash flow if proper planning is not in place.
It is critical that you understand how your business is affected by seasonal changes and plan accordingly. Researching the industry and observing industry trends is one way to better understand how your business might be affected. Drawing on your previous experience in the industry and directly observing trends in your business will also reveal ways to deal with these changes.
Seasonal changes in your sales can affect your inventory purchases. Be prepared to build up inventory when the busy months are approaching and let inventory drop as slower months approach. Work with your suppliers to be sure the timing of your purchases is right.
Seasonal sales may also call for a different mix of inventory during certain times of the year. For example, an ice cream shop might also sell coffee, hot chocolate and other hot drinks. Some ice cream and hot drinks are sold throughout the year but what you would emphasize in inventory planning would differ as the level of demand for these items changes with the season.
Your advertising message and methods would also need to change throughout the year if you have a seasonal business. Promotional sales will vary with the season.
Your advertising might concentrate on a different type of customer and emphasize different products or services for changing seasons. Also, be willing to reduce prices and promote clearance sales to move out old inventory that isn’t selling to make space for new, season appropriate inventory.
Your staffing needs might vary significantly throughout the year if you have a seasonal business. Plan ahead so you will have adequate staffing during busier times and be willing to cut back during the slow months.
Also, depending on your type of business, you might need different types of employees during different times of the year. Whatever your situation, be sure your employees understand that your business will have different staffing needs throughout the year and their hours may be increased or reduced accordingly.
Owners of seasonal businesses sometimes have problems paying rent during the slower months. Some businesses that are highly seasonal, such as those in beach towns, may actually close their doors during the really slow months of the year to cut costs. But they typically must still pay rent to hold on to their space.
If slower seasonal sales are causing a problem with rent, you might be able to negotiate with your landlord to pay a lower rent during slower months and a higher rent during busier months.
Depending on your business, there might be other areas of your operation that will need to be managed differently because of seasonal changes. So you should prepare monthly cash flow projections to help you see what changes you need to make.
Monitor the accuracy of your projections and make revisions as required. Use your projections to look at some “what if” scenarios so you will be prepared for potential changes.
Your projections will also help you determine and prepare for the possible need for outside funding. When sales are slow, you may need additional funding to help you pay your regular bills. When sales are increasing, you may still need additional funding to help you fulfill the obligations incurred by the increased sales.
Even a well-managed, viable business can experience negative cash flow when faced with seasonal changes in demand. So, incurring debt to deal with the effect of seasonal sales should not be seen as a negative move. But you must analyze your cash flow projections to be sure the business will be in a position to repay the debt.
Your local Small Business Development Center can assist you with cash flow planning, evaluating operations, and looking for funding options so that you will be better prepared to handle the effects of seasonal changes in your business.
Connie Edwards is a business consultant with the University of Georgia’s Small Business Development Center. Contact her at 651-3200.