In many ways, running a business is like riding a rollercoaster. There are ups and downs, unexpected turns, and—for some of us—really bad hair days. When you run a seasonal business that ride goes from Disney’s It’s a Small World to Six Flags’ Medusa. In other words, when you’re running a small business, every little thing can get exaggerated.
Seasonal businesses experience periods of high and low cash flow throughout each calendar year. As you might expect, seasonality is a huge factor that new and growing businesses need to consider when building their year-round budget. While these fluctuations come with their own roadblocks, there are a few universal mantras and best practices that businesses can follow.
Do’s and Don’ts for Seasonal Business Budgeting
Surviving seasonality as a business owner takes some cunning. Here are some of the right and wrong ways to tackle your seasonal business’s cash flow throughout the year.
DON’T make hasty budgets cuts during slower periods
It’s natural to instinctually pinch as many pennies as possible, but it’s more important to think with a holistic long-term vision. Bear in mind that you might need to reevaluate what success indicators look like when you investment in activities that don’t necessarily generate revenue right away.
DO spend time and money getting prepped for your busier times
“Obviously, in a [seasonal] business, you need to budget carefully to make sure you don’t overspend or extend yourself past your capabilities,’ Dennis D. Vourderis co-owner of an amusement park in Coney Island, New York tells Entrepreneur Magazine. “Maintenance, taxes and equipment financing all need to be based on a 12-month year, so you need to know you’ll have enough funding to cover those expenses during the time you have no cash flow.”
In fact, counter-intuitive as it might seem, you may want to budget to increase spending in certain areas during your offseason. This downtime is great for planning ahead and saving your future self time and stress by crossing any preparational tasks as you can off your to-do list. Try new things, build engaging marketing campaigns and allocate resources on researching and developing (R&D) for your product or offering.
This can also be a good time to travel and send your team to conferences or events that are relevant to their trade or function. Like any strategic spending, keep a critical eye on these expenses and try to tie any extra activities to future returns and business growth.
DON’T set a single budget in stone too soon
Even if you’ve been running your beach-boardwalk-bathing suit business for decades, creating just one plan based on the seasonal patterns you’ve seen in the past could mean shooting yourself right in your flip-flop wearing foot. While this assumed repetition can make planning more convenient, it leaves your business exposed when things don’t go as anticipated (which we know deep down is all too common).
So yes, the pitfalls of putting all your eggs in one basket ring true when it comes to your seasonal budget, too.
DO anticipate different scenarios so you can be flexible
In the past, we put it this way: “Plan for sunny and rainy days but don’t decide what to wear just yet.” Just like packing for a trip to the Pacific Northwest, you’re better off building options into your busy or slow season spending strategies.
As you plan for any time period think about the possibilities: What would allow you cover your expense responsibilities? What deficiency would mean having to cut costs? And finally, what magic number would give you the capital you need to re-invest something new in your business? From there, start with your basic budget to cover all fixed costs and then create two alternative budgets that will allow you to react and pivot based on actual outcome, good or bad.
DON’T forget about ongoing tax obligations
The IRS and other tax authorities might experience their own quiet periods throughout the year themselves, but your compliances responsibilities are not to go forgotten. There are plenty of key deadlines such as estimated quarterly taxes and monthly sales tax due dates that don’t disappear just because you’re in the midst of offseason.
DO consider an alternative fiscal year
The calendar year isn’t for every business. Organizations that experience seasonality are known to swap the standard 12 month period starting January 1 and ending December 31 for what’s known as an alternative fiscal year or even a short tax year.
Amusingly enough, think about a tax firm, for example. Assuming the majority of their clients follow the calendar year, the firm could instead use May 31 as their fiscal year-end. This makes sense because their work would be complete by April 15th and then they would have a little over a month to bill their customers and collect payments.
Some businesses that only exist for a few months a year—typically holiday retailers—use a short tax year. With this strategy, they’re only responsible for filing a tax return that spans time they were open for business that year. Businesses that stop doing business altogether at any point during a year can also file using a short tax year.
Before you change your business’s fiscal year, be sure to research how this choice affects your business tax planning and responsibilities.
DON’T immediately slash prices
This is where you need to back up gut feelings with actual figures and break down the cost-benefit analysis. Don’t let yourself get caught up in a lull and think that it means it’s time to sell yourself short. Cutting prices during the offseason can also be bad for your brand. After all, nothing smells worse than desperation!
DO look for ways to offer more value
Reach out to customers to see what would improve their satisfaction with your good or service. Start looking for ways to enhance your audience’s experience with your brand and your year-round utility or relevance.
You can also use this strategy to your advantage with vendors. Because you won’t be in immediate need of their services, you take this time to research competitive pricing and bargain with potential vendors for what your business delivers. This will help you keep pricing competitive and margins high.
DON’T be afraid to take on short-term debt
The word debt can be scary no matter what the nature of your business is, but when your business’s cash flow is inconsistent at any time of the year, a little debt can take you a long way.
If you don’t have the capital on hand from prior business seasons you can look for alternative capital resources to support revenue-generating ideas. This is where Vourderis emphasizes how “having good credit is a necessity in a seasonal business.” Just remember to repay any short-term loan or line of credit off once that revenue is secured! Otherwise, interest rates will eat you alive.
Putting Seasonality to Work for Your Business
Part of budgeting as a business is making things as predictable as possible. To do this, you’ll use trends to capture revenue growth over time and essentially make educated guesses about what will happen again. This is especially true and trickier for first-year businesses who already have limited historical information to rely on.
Predictability and seasonality go hand in hand. From the very start, businesses building a year-round budget must create a survival strategy for both periods of high interest and revenue generation and periods where times are tough.
Other than inferences you can make based on trends in your industry, tracking year-over-year performance metrics as you observe your budget in real-time is your best bet for anticipating your slow and seasons. Evaluating and discovering seasonal trends in your business is a crucial part of creating a useful business budget that guides your key decisions year round.
The post The Right & Wrong Ways to Plan Seasonality Into Your Business Budget appeared first on Fundera Ledger.
from Fundera Ledger https://www.fundera.com/blog/2016/08/19/seasonality-business-budget/