5 Questions Every Seasonal Business Must Answer
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1. How will you manage your cash flow year-round?2. How will you adapt operations to seasonal demand?3. How will you attract customers at the right time — and keep them engaged?4. What’s your plan for the off-season?5. How will you prepare for the unexpected?Seasonal operations still require year-round management and planning
Seasonal business owners – from summer ice cream stands and winter ski resorts to holiday retailers and tax preparers – work on a unique rhythm.
While all businesses see spikes and dips in sales over the course of a year, seasonal business owners have to strategically navigate lean periods as they prepare for bursts of revenue during their busy period.
Developing a business plan that accounts for this “feast and famine” cycle presents distinct challenges for owners. But the seasonal business model offers huge potential benefits for entrepreneurs who find the right market to tap into.
Whenever peak season happens to be, all seasonal businesses are best positioned to succeed long-term if they plan ahead so they can use their peak-season revenue can be used to fuel growth, rather than covering past expenses each year.
To help ensure you have the funds needed to optimize in-season opportunities and keep cash flow solid in the slow times, we’ve compiled five questions to ask yourself as you plan your seasonal business.
1. How will you manage your cash flow year-round?
This is arguably the most critical question for any seasonal operation. When revenue primarily flows in during specific months, how do you cover expenses during the quiet ones?
Detailed Forecasting
Seasonal businesses need to create cash flow projections that account for the ups and downs in their revenue cycles. For existing businesses, owners can look at several years of past data to spot seasonal patterns and trends within seasons. Cash can should tracked weekly or even daily during busy periods to understand exactly when money comes in and goes out.
It’s helpful to group expenses into categories: busy-season costs that change, fixed yearly costs, and optional spending. This helps determine which expenses can be cut during slow periods. Far-sighted planners create multiple forecasts — including worst-case scenarios such as a busy season being cut short by bad weather or economic problems. At the very least, forecasts should be regularly updated as the season moves along, so spending or saving plans can be adjusted as soon as issues pop up.
Building Reserves
Building cash reserves takes planning, not just saving whatever’s left over. An effective reserves strategy is to set aside a fixed percentage of busy-season revenue to automatically move into reserve accounts. Many successful seasonal businesses save a higher percentage of their revenue when revenue exceeds forecasts, which prevents overspending during surprisingly good periods. They also set up different types of reserve accounts, like emergency funds in accounts that can be accessed quickly, and longer-term savings in accounts with better interest rates that become available just before a slow season starts. Talk with financial advisors about tax-smart ways to structure savings.
Financing Strategy
If you need outside funding like a bank loan, planning for this funding will reduce risks. Look into financing options made for seasonal businesses like inventory financing, equipment leases with seasonal payment plans, or funding that adjusts payments based on your monthly income.
Consider setting up lines of credit during busy seasons when finances look strongest to get better terms and lower interest rates. And when working with banks, discuss loan payment schedules that match your revenue cycle, possibly including smaller or interest-only payments during slow seasons with larger payments during busy periods. It’s important to build strong relationships with banks that understand seasonal business cycles. Some may even offer special programs with terms that fit businesses with ups and downs in cash flow.
2. How will you adapt operations to seasonal demand?
Seasonal businesses must match their operational capacity to their natural business cycle. Scaling up too slowly during busy periods leads to missed sales opportunities, while maintaining peak capacity year-round wastes resources and erodes profits.
Inventory Planning
Seasonal businesses need to forecast inventory needs based on historical patterns. Business owners should analyze past sales data season by season to predict demand and adjust ordering accordingly.
The alternative to forecasting inventory needs is essentially to wing it — stocking shelves based on intuition about what’s to come. That’s a recipe for disaster, especially for a seasonal business. The last thing a business wants to face during their peak season is a stockout (running out of inventory) or too much inventory that can’t be sold off when business slows down. Effective inventory management takes an active mindset and an ability to build strong relationships with suppliers.
Staffing Strategy
Just like mismanaging inventory can cripple a seasonal business, so can an ineffective strategy for hiring and retaining workers. Employee development and training programs should be streamlined but thorough enough to maintain service standards.
With the right compensation, opportunities for advancement and part-time work during the off-season and, seasonal businesses can benefit by retaining their best seasonal employees from year to year, which lowers retraining costs. That may not be possible for seasonal businesses that shut down completely after their peak season. But some seasonal operations keep a small core of permanent employees on hand.
Asset Management
When is the right time to buy a major piece of equipment? How business owners plan capital improvements and inventory purchases goes a long way toward avoiding disruptions during the seasons they expect to bring in most of their sales.
Seasonal business owners should think about equipment maintenance schedules and other needs that could lower sales activity in advance, so those moves are made outside the peak season to reduce the risk of business disruptions. The worst thing an ice cream shop can deal with in July is a broken machine, for instance. Better to plan for repairs or new equipment leases in the winter.
3. How will you attract customers at the right time — and keep them engaged?
Marketing for a seasonal business requires precision timing and year-round thinking. The most successful seasonal operations develop marketing strategies that capture customers when they’re ready to buy and maintain relationships during off-seasons.
Strategic Timing
Seasonal businesses must plan their main marketing campaigns to begin well before their peak season starts. Business owners (or staff who handle marketing) should work backward from their opening date or peak period to create a promotional calendar, ensuring enough lead time to build awareness among potential customers to and influence their purchasing decisions.
Marketing for seasonal businesses needs to create excitement. Think about a ski resort celebrating the first snow of the season, or that ice cream shop announcing extended hours as the temperature rises. Peak season is exciting! So marketing content should reflect that.
Off-Season Engagement
Even when the peak season has come and gone, there are still plenty of opportunities to interact with customers and build brand awareness. Email newsletters and engaging social media content are two great examples. Companies that create engaging content can build loyalty and keep their brand top of mind so customers are anxiously awaiting their doors to open once the peak season comes back around.
4. What’s your plan for the off-season?
Relying solely on a few peak months creates vulnerability for seasonal businesses. For the majority of the year, sales are slower (or the businesses closes its doors). But owners need to plan to manage their resources and plan to have at least some cash during the off-season so they’ll be ready to ramp up again when peak season approaches.
Diversification
Some seasonal businesses can capitalize on complementary offerings that will still attract customers during the off-season. A ski resort might open up their mountain to nature hikes or zip-lining during the dummer, for instance. Think about your seasonal business and whether there are business assets or expertise that can be translated into a different — but related — service. Diversifying can be key to maintaining healthy cash flows during the rest of the year.
Asset Utilization
Seasonal businesses with physical locations or specialized equipment should explore alternative uses during down periods. That could mean renting a building or equipment to other businesses or community organizations. Besides bringing in some extra revenue during the off-season to cover costs, sharing resources can also create interesting partnership, customer referral and public relations opportunities.
Planning & Improvement
It’s worth briefly mentioning that the off-season is also the time for owners to take time to develop strategic plans for their business’s future. All of the areas for improvement an owner might take note of but be too busy to act on during those peak months can be formalized in a business plan during the quieter months. Then it’s just about strategizing to put those opportunities into place before the next busy season.
5. How will you prepare for the unexpected?
Business owners can’t control unforeseen events like natural disasters or economic downturns. But they can control how they plan for them. Even though seasonal businesses follow their own business patterns, those sales cycles can be upended by circumstances outside their control.
Flexibility
Cultivating relationships with multiple suppliers, cross-training staff to handle various roles, and developing marketing approaches that can adapt to different conditions create extra flexibility for owners to respond to changing circumstances. Many seasonal businesses build modular business plans with alternative scenarios ready to implement if primary strategies become unworkable. For example, outdoor venues might develop indoor program alternatives, or businesses with weather-dependent operations might create packages that combine activities suitable for various conditions.
Monitoring Performance
Even though it’s tempting to wait for the off-season to analyze your sales, it’s actually vital to track key performance indicators for your business throughout the peak season. Owners need to establish how they’ll monitor their progress toward hitting metrics like daily sales targets and profit margin goals.
By taking time during the busy season to evaluate these metrics daily, it becomes easier to spot issues and adjust to take better advantage of the busy season. Think about establishing systems in your business to monitor those metrics in real time, whether through a Point of Sale system or through a business planning software like LivePlan.
Seasonal operations still require year-round management and planning
Even for business that only operate for few months in the summer or winter, owners still have plenty of work to do year-round:
- They should use the quieter months to evaluate the past season and plan for the next.
- They should keep developing their brand by engaging with customers through newsletters and social media.
- For owners who know their business will struggle financially in the off-season, they should plan to meet with lenders about funding options. If their business plan is solid, lenders may offer favorable terms that make it easier to get through slow times and be ready for peak season.
Owners of successful seasonal businesses tend to not even think of their businesses as seasonal. Instead, they’re operating with a year-round mindset. For these owners, the off-season isn’t a time to forget about their business, but a time to explore ways to operate more efficiently, roll out new marketing campaigns and plan for new or expanded offerings.
By answering these questions and building those answers into a business plan, you’ll be better prepared to handle the unique cycles of seasonal businesses.
Steven Cohen
Steven Cohen is president of Excelsior Growth Fund (EGF), which helps New York State small businesses grow by providing streamlined access to business loans and advisory services. Excelsior Growth Fund is a not-for-profit 501(c)(3) and certified by the U.S. Department of Treasury as a Community Development Financial Institution (CDFI). Steven has a bachelor’s degree from UC Berkeley and a master’s in public administration from Harvard’s Kennedy School.
