A recent article featured on bizjournals.com titled, “8 ways a seasonal business can manage money better,” discusses how a seasonal business must have a year-round money management strategy to maintain long-term success.
“Proper planning is crucial when it comes to cash flow, expenses, billing and other business bookkeeping,” notes Tracy Nazzaro, contributing writer, in the article.
The article offers eight best practices to ensure a seasonal business stays on track financially:
- Be precise. You must estimate your costs as precisely as possible. Guessing the cost of equipment can put your company in the red early.
- Cover costs. Prices should be set based on what the market can bear during peak season and not on what your business may need to make per sale in order to make it through the year. Research the prices of competitors and allot for enough margin to be profitable by managing operation and production expenses. During off season, pay attention to fixed expenses such as rent, insurance and utilities. Products/services should be priced to generate enough revenue and profit to sustain your business year-round.
- Year-round billing. If your business sells a seasonal commodity, offer a “budget billing” option to your customers to let them make payments over 12 months instead of larger payments during peak season. This can provide steady cash flow as well as more accurate annual projections.
- Be practical. Stretch every dollar, even during peak season. Don’t blow peak profits during the off-season, because future profits are not guaranteed for the remaining months of the year.
- Project revenues/expenditures conservatively. To determine you financial needs during peak times and off-season, review past years’ expenditures and revenues by month and forecast next year’s expenditures/revenues accordingly. Discount revenue estimations to account for any bad weather or other interruptions that might affect productivity. Ensure you are covered for adequate inventory while still having enough to generate revenue in peak season to sustain your business during off-season.
- Interruption insurance. Purchase a business-interruption insurance policy to cover any lost revenue due to interruptions like hurricanes, tornadoes and blizzards. If your peak season coincides with storm season, you could lose business.
- Be flexible with staff. Manage staff on a seasonal basis, such as transitioning from one part-time employee with another on call during off-seasons to a few full-time employees during peak seasons.
- Don’t drain funds. Some accountants will advise business owners to prepay expenses or take a bonus at the end of the year to lower taxes by shrinking net profits. However, it may not be advantageous to purchase items or nonessential services just to owe less in taxes. For example, if you are a summer-dependent business and you don’t manage your funds sensibly, the nominal revenue generated between January and June might not be enough to make it to peak season.
You can read the entire article on managing seasonal businesses here.