Seasonality and Small Businesses
When operating a small business, it is natural to assume that there will be high and low cycles. In retail, for example, the holiday shopping period is what keeps many small businesses afloat. The volatile cycles of earnings can be difficult if a business owner does not prepare well in advance. Seasonality and small businesses can be a tricky subject. The following are several challenges that a small business owner faces when operating in a seasonal business.
First Things First: Finances
In businesses like F&B and retail, it is necessary that you have a detailed yearly plan for your finances. The mountains of cash you will make during peak times will have to keep the business’ engine running until the next high-earnings period. You will have to look at your overhead costs—labor, utilities, rent, etc.—for the entire year and put back enough money to cover those costs. Furthermore, you will have to calculate the upfront costs of ramping up production during your peak season.
Issues like increasing your inventory, promotional costs and employee training will take a huge bite out of your cash before the increased sales start pouring into the company. If you can plan out your cash flow for the entire year, then there should not be very many unpleasant surprises. You should always also maintain a tight relationship with your bank in order to lean on them for a line of credit should you need it. If your business is relatively new or your credit is less than stellar there are alternative non-bank lenders that can provide fast capital but at a higher cost. Either way, having access to capital is very important.
Streamline Your Training
Every year in November, retailers have to bolster their ranks of employees with hordes of part-time employees to account for the increased traffic. If employees aren’t trained well, then that is going to significantly hurt your sales and add unnecessary stress on your managers. So, in order to avert this, it is best to use your slower months to improve your training systems. This is really an opportunity to connect with your regular employees; ask them what they consider to be the best practices and incorporate their ideas into the overall curriculum. This way your current employees feel they have an important role in the business and they will be able to train much more effectively. So, when your peak season comes around you and all of your employees will be prepared to handle the rush.
This one requires a solid, established business before you can truly utilize this technique. If you have enough capital, you can consider spreading out into other industries. Preferably, you would be able to move into an industry that isn’t seasonal, or you could find an industry that has different peak seasons from your first business. For example, if retail is great during the Christmas holiday and slow during the summer, then you can move into water parks that rake in cash during June, July and August, but shut down once the weather turns. Of course, this requires a significant amount of business experience and a capable team helming both companies. If you are able to pull it off, then you will be able to weather the famine periods in both businesses.
A critical skill to develop in managing a small business is planning and strategic skills. This is especially true if you run a seasonal business. You need to retain what you make in the feast months, so you can weather the famine months. It is certainly possible for those with dedication, creativity and a solid, yearly business plan that designates how the money will be spread out over the year. Also, preparing your employees and training system so they can handle the giant uptick in business will ensure that you are keeping your employees, customers and bottom line happy.
Effectively preparing and managing these challenges is key for any seasonal small business, and can be the deciding factor on whether you sink or float in the off season.