Planning for a Seasonal Business: Remaining Profitable Year After Year
Author: Clint Sporhase, Vice President, Small Business Banking
Like any business, a seasonal operation experiences ebbs and flows when it comes to demand for core products or services. However, unlike year-round operations, seasonal businesses shutter their doors during periods of inactivity, making business planning critical to profitability.
Planning for Cash Flow in the Down Time
It’s important to note that 29 percent of all startups fail because they run out of cash,[i] making cash flow an important concern for any business. However, seasonal businesses face additional challenges since bills may continue to come in even when revenue does not.
That’s why it’s important for a seasonal business to have a solid business plan, one that addresses fixed costs, such as rent or insurance, as well as variable costs, such as those associated with labor. Tallying up your expected annual expenses is the first step in making sure your business can survive through seasonal closures.
The next step is to calculate your anticipated revenue and compare it to your fixed and variable costs. The goal is to ensure that income gained during the open season is sufficient to carry the business through seasonal closures. If not, you’ll need to look for ways to bring in additional revenue during the off season.
Some owners supplement business income by taking a second job to cover personal and business expenses during seasonal down times. Others turn to alternative distribution channels.
For example, a brick and mortar retail store specializing in pool supplies during the summer in Nebraska, may sell products through online channels during the winter. This strategy allows the business to reach customers in other areas of the country where there is still a demand for their products.
Other business owners may seek alternative revenue streams, such as the landscape company that becomes a snow removal contractor during the winter.
The importance of planning is that it brings these issues out in the open, before the season ends, making it possible for business owners to stretch cash realized during the operating season or plan for other streams of income.
Setting up the Seasonal Workforce
In a good economy, it can be difficult for any small business to acquire talented workers. According to a survey conducted by NFIB, 53 percent of businesses were hiring or trying to hire in 2019, but 94 percent of those companies reported few or no qualified prospects.
Finding qualified talent can be more of a concern for seasonal businesses, since they annually release much of their staff. It’s another area that should be addressed in your business plan.
For instance, hiring for a seasonal business should begin well in advance of opening day, and use multiple approaches to find candidates. Placing want ads in local papers may have worked in the past, but businesses have a variety of hiring tools available today, including social media, networking and promoting hiring information on the company’s website.
Last, to attract the type of employees you really want to hire, consider getting creative with pay and benefits. Offering employees referral incentives and providing perks that aren’t typically available to workers in your business, such as paid time off, could help you find employees that are willing to come back year after year.
By addressing these issues in your business plan, you know exactly when to start the hiring process and how you will go about it.
Bringing the Customers Back
Another challenge a seasonal business may face is staying engaged with their customers throughout the year. If your business is out of sight out of mind, it could pay to do some off-season marketing.
You could try sending out monthly email newsletters letting your customers know that you are still hard at work preparing for the next season. A pick-your-own fruit and vegetable farm, for example, can keep customers engaged by providing frequent updates during the growing season. Seeing regular progress can encourage a sense of anticipation that will draw customers back once the season begins.
You might also consider sending out coupons to loyal customers as opening day approaches, rewarding them for their repeat business. The point is to stay in contact and to continuing engaging with your customer base.
Here again, planning is essential. In order to put marketing strategies into effect during the off-season, you’ll need to begin while your business is in active operation. To start an off-season email campaign, for instance, you need to gather customer emails during your operating season.
Understanding your marketing efforts will also help you plan for off-season costs, helping you better manage cash flow throughout the year.
Setting Your Seasonal Business up for Success
Making sure your small seasonal business remains a profitable venture for years to come requires an operating plan that addresses both fixed and variable costs. You’ll need to understand how to stretch your income, how much you need to save, and then be disciplined about putting money away for the off season.
However, for businesses that get it right, the rewards can outweigh the additional work required to ensure success.
About the Author: Clint Sporhase leads FNBO’s efforts to serve small business owners. Clint has 25 years of sales, marketing and strategy experience.
The articles in this blog are for informational purposes only and not intended to provide specific advice or recommendations. When making decisions about your financial situation, consult a financial professional for advice. Articles are not regularly updated, and information may become outdated.