When it comes to certain industries within the world of business, avoiding peaks and troughs due to seasonality is impossible – it is just the nature of the beast.
Whilst there are some businesses out there that flourish all year round, there are others that experience a huge increase in demand at certain points, followed by very quiet periods afterwards. Weather can especially have a gigantic impact on many businesses out there – think about it, have you ever rushed out to an ice cream van to get your hands on a 99 Flake when it's pouring it down with rain? Most probably not. On the other hand, extremely hot weather can mean people avoid doing any physical shopping at all, preferring to shop online in the comfort (and coolness) of their own home!
Managed correctly, the challenges of running a seasonal business are lessened. Sometimes it can even work to a business’s advantage, having quieter periods to prepare thoroughly for busy times ahead. Planning ahead and understanding how seasonality has an impact – for better and for worse - will help businesses, especially SMEs, to accommodate the tougher months ahead.
Difficulties with retaining a healthy cash flow during the troughs of seasonal business are one of the biggest challenges faced by SMEs. Seasonal differences can create problems and this can impact their cash flow for the entire year. The team at Nucleus Commercial Finance have offered some solutions to overcome cash flow challenges due to seasonality below
Large swings in revenue can be tricky to manage all year round, especially if companies do not put the time and effort into planning properly ahead. But cash flow challenges can be managed. Preparing a cash flow forecast for the entire year is certainly the first thing all businesses should do, but for seasonal businesses out there, this one really is unavoidable.
For seasonal businesses, it will be necessary to work out how much profit will be earned over the good months so that the costs of running the business all year round can be spread evenly. Whilst it may be difficult to not get ahead of yourself when receiving huge amounts of money in such a short space of time, it is absolutely key that you remind yourself that there are going to be very quiet, lower-income months too.
It is also important that business owners account for those variable expenses that seem to always pop up out of nowhere unexpectedly. Of course, there are fixed expenses that are easy to predict and keep track of, such as utilities and rent. But when preparing a cash flow forecast, you must remember to include those payments that are more scarce, like quarterly tax payments.
There can be no ifs or buts… once you have created a budget for the year, your business must adhere to it, otherwise taking the time to work out the budget to begin with will have been a waste of time. Staying on track with budget management means your business will remain one step ahead and there should be limited, if any, unexpected cash flow challenges, as you'll know exactly what to expect - and when.
The peak for your business may have just come to an end, but your payment terms may allow customers a much lengthier period of time to pay what they owe you. If you need access to the funds sooner in order to keep things ticking, invoice finance is a funding solution that allows businesses to access money tied up in unpaid invoices.
Nucleus Business Loans are also another great lifeline for seasonal businesses. This type of funding is a hassle-free, unsecured commercial loan that can be used to fill a cash flow gap. This sort of loan is extremely popular amongst businesses that experience seasonal peaks and troughs in their cash flow cycles.
Understandably, your main line of business is clearly seasonal if you are reading this post, but that does not mean that you cannot expand to offer something else during the quieter parts of the year.
If a business can work out a way to diversify what they offer, it certainly will not find itself closing its doors for the last time in the near future.
Another approach to consider is to offer your product or services at a reduced rate during quieter periods. For example, if your business is based around having lots of weddings during the summer months, offer cheaper weddings with fantastic deals during the colder months too. It is better to take half as much financially when it is quiet than nothing at all.
Finally, if you sell products and find that there is a surge of demand at certain periods of the year, you may be able to balance out the calmer months by getting online and running an eCommerce shop alongside the physical one. Your business will then be able to trade anytime, practically anywhere, all year round.
Having a business that thrives at intervals can be amazing, yet it comes with its own trials and tribulations. However, with some careful planning and consideration, and the right financial backing in place, a seasonal business can make some serious money, year in, year out, without too many hiccups along the way.