If you own a seasonal business—such as a tax preparation office, a lawn-care service, or a vacation resort—the revenue you make during your busy period has to cover your expenses throughout the entire year.
That means running a lean, disciplined operation even when the money is pouring in, and making sure there’s enough cash left over when customers stop calling.
From cutting unnecessary expenses to finding creative ways to generate income, here are 10 things that seasonal businesses can do to protect their finances and stay above water.
How Seasonal Businesses Can Cut Expenses
1. Don’t overspend on labor.
The team you need in your busy season is not the team you need in your off-season.
To avoid burning your annual operating budget on labor costs, you should keep only a small team of permanent employees to maintain essential operations year-round, and add seasonal employees during the months when you know you’ll be busy.
Employing temporary seasonal workers is a significant cost-saving measure for seasonal businesses. Also known as “contingency workers,” these employees generally aren’t entitled to the same costly medical benefits as full-time core employees, and often don’t stay with your business long enough to earn pay raises. Plus, if you hire independent contractors, your business doesn’t need to pay payroll taxes on their wages.
2. Take control of your invoices.
Collecting past due invoices can be difficult. This is especially true when you tend to bill your clients infrequently. The greater the amount on an invoice, the more difficult it will be for your client to pay.
Start sending invoices bimonthly or throughout the course of a project. Smaller amounts and more frequent billing cycles will help you keep your uncollected receivables top of mind.
In order to ensure timely payments and more stable cash flow, many businesses also choose to incentivize early payments. Although many companies assume that this means discounting invoices, there are better tactics that can help you collect:
- Create a valued customer group and offer perks, loyalty rewards, and special treatment. This doesn’t need to take away from your margins—you can waive charges for rush orders, offer free shipping, send holiday cards, or even host an exclusive event.
- Offer a discount to customers who prepay for the year ahead. While this won’t help you collect past due invoices, it will provide you with cash flow during your off season.
- Charge a hefty penalty for overdue invoices rather than discounting them for prompt payment.
3. Secure better terms from vendors.
For many businesses, reducing supply costs is the easiest way to drive profits. The key is staying vigilant: Always keep a close eye on what your vendors are charging you for supplies and raw materials, and be on the lookout for unexpected price hikes.
Remember: It’s not your vendors’ responsibility to make sure you’re getting the best deal, it’s yours. At least once a year, you should invite other vendors to bid for your account, and try to find better deals—at the very least, it keeps your suppliers honest.
Even if you’re satisfied with the vendors you have, there are ways to negotiate for even better terms. Offer to buy supplies in bulk or pay upfront with cash, in exchange for a friendlier price—and your continued loyalty. If you’re an important asset to your supplier, they’ll want to keep you happy.
How Seasonal Businesses Can Manage Their Working Capital
4. Maintain a six-month cash cushion.
Ideally, you should have six months’ worth of operating expenses stashed in the bank. Otherwise, an emergency situation or a down year could potentially wipe you out.
If you haven’t built a cash safety net for yourself, put any growth plans on hold this year and direct your business profits toward your savings until you have enough to withstand an unexpected setback.
5. Line up backup financing.
Even if your cash savings are strong, it’s always a good idea to have a financing source on standby that you can draw from in case of unexpected needs or opportunities.
In addition to small business loans and lines of credit, seasonal businesses may want to consider merchant cash advances, in which a lender provides a business with funding in exchange for a portion of the business’s future receivables. Since you’re remitting a fixed percentage of your revenue, your payments will be lower during the slow season.
6. Hedge against linked commodities.
Many seasonal businesses are greatly affected by weather and natural disasters, and your chances of controlling elements are slim-to-none. However, by hedging against linked commodities markets, you can protect yourself from unfavorable conditions.
For example, many state and local governments, tourism economies, and snow removal companies are heavily affected by snowfall. These entities can purchase binary snowfall options, which net them a return in the case that it’s a down year for snow accumulation.
While the learning curve can be steep, hedging against linked commodities greatly reduces your risk as a business owner by stabilizing your cash flows and earnings. We highly recommend consulting an experienced advisor before investing.
How Seasonal Businesses Can Generate Revenue in the Off-Season
7. Sell off excess inventory.
Leftover product is dead weight. It can be expensive to keep in storage, and you might have trouble convincing your customers to buy it the following year.
When your peak season is over, start slashing prices near wholesale level (or even at a small loss) in order to get shoppers to take it off your hands. The closest you can get to zero inventory in your off-season, the better.
8. Rent out your owned assets.
You might not have any use for your storefront or machinery during your off-season—but another business might. If you own your own real estate, look for another company or organization that would want to rent the space in the months that you don’t need it.
The same goes for your owned equipment. Anything from trailers and forklifts to electrical generators can provide you with a source of income during your off-season.
9. Take your business online.
Retail shops aren’t the only seasonal businesses that find success selling online. After all, you don’t need to sell a physical product to take advantage of the digital space. Landscapers, snow removal companies, kayak tours, and kid’s summer camps can all benefit from establishing a strong online reputation.
Build a website, optimize your local business listings, and start generating leads online. Instead of converting shopping cart transactions, focus on building your contact list. As the season approaches, send email newsletters to get prospects excited about your offering and keep them in the loop year-round.
This low-budget approach will help you boost brand equity and customer retention, not to mention off-season sales.
10. Diversify your services.
Sometimes, you just have to get creative. Ask yourself: How can the services I provide during the peak season be of value to customers during the off-season?
Your summer landscaping business can serve the same customers in the winter by offering tree and snow removal services. If vacationers stop going to your beach resort when the first cold fall winds start blowing, you can still operate the space on a limited basis for business conferences and retreats.
If the idea of shifting your business model doesn’t appeal to you, then be flexible about what your “peak season” really means. For example, you can offer your services earlier in the year than your competition. If your contracting business tends to be busiest in the summer, start your marketing efforts near the beginning of the year, and consider offering early-bird rates for work done in the spring. That way, you’ll have customers and cash flowing in before your core operating season even starts.
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from Fundera Ledger https://www.fundera.com/blog/seasonal-businesses-finances