What goes up, must come down. And as we have learnt all throughout 2020 and even into 2021, under the pall of a worldwide pandemic, things can change at a moment’s notice, putting an unwanted dent in a more regular business cycle or a roadblock on the path to recovery.
A truly seasonal business will make a majority of their profits during a certain time of the year – year after year. And though this can work in extremes – an ice cream shop that closes over the winter seasons to avoid paying employees, for example – most, if not all, businesses and industries will experience seasonality to varying degrees throughout the year.
As noted, many businesses also face the risk of uncertainty for the foreseeable future too. Whilst this isn’t necessarily a seasonal issue, it does raise some of the challenges and opportunities listed below that come with peak periods and downtime.
And though there are some businesses, like the aforementioned ice cream shop, that close their doors during off-peak times, the majority of businesses must find alternative ways to manage cash flow in the non-peak periods.
Yes, seasons inevitably change for all businesses, but there are a few key tactics to help you minimise the effects of seasonality on your business, and turn your business into a year-round success.
Understand your business cycles
It takes time to understand your business cycles, but this is the first step towards managing your cash flow and business volatility. The most effective way to do this is through analysing financial trends and data such as sales, inventory, COS, overheads, cash and profit. It is ideal to analyse at least three to four years of historical data, however if you are a new business, seek information from peers and industry sources.
Plan and budget for the 12 months ahead
Once you understand the fluctuations of your business’s performance, you can refine your business plan. Using the results of your trend analysis, you can forecast cash flow levels based on the timing of anticipated sales in order to manage recurrent and known expenditure for 12 months of the year.
Create alternative revenue streams or alternative delivery methods
Research other products or activities that could generate revenue streams during your off season. Other revenue sources can result in the retention of staff, heightened customer awareness, and an increase in market share whilst maintaining a strong cash flow position. The key to introducing alternative sources of revenue is not to divert too much focus away from the primary business activity so it is at risk of being jeopardised or neglected.
Again, as 2020 showed us, adaptation to changing circumstances is also very important, such as the restaurants and cafes that turned to take away and additional delivery, along with fitness and martial arts academies that adopted remote video training classes.
Invest in marketing
Even in the most extreme cases, where a business closes their doors for a period, marketing remains an essential business tactic. Continuing to engage with your customers or clients via a digital presence is a must for all modern businesses. Maintain a well-designed and regularly updated website and blog at all times, and utilise social media to keep you relevant and at the forefront of your customers’ minds, and earn their return to your business.
Keep busy in the off season
If you forecast and budget for expenditure in the slower times of the year, the off season is a great time to complete required maintenance and repairs, as well as undertake staff training and marketing for the busy period ahead. It also allows you to take the time to show some love to your best customers and also put some effort into finding new ones. It’s the perfect opportunity to work ‘on’, rather than ‘in’, your business.
While you’re at it, take photos and video! This content is perfect for social media marketing, and can help create personal interest in your brand.
Time for a discount
No one wants to lower their prices, but sales are a tried and true method of bringing in existing and new customers. During these quieter seasons, it may be smart to advertise discounts on existing products and services, and tease updates for the future. Piquing interest, and even offering early bird discounts. If cash flow is a major challenge, consider early payment discounts or incentives.
Manage the impact on staff
When planning for periods of recruitment, allow for training to commence prior to the peak season. This will ensure that optimal productivity, efficiency and skill can be achieved in the busy season, with staff feeling confident and motivated to achieve KPIs and targets.
Review inventory levels
Make sure you are aware of supplier lead times during your peak season through regular discussions with suppliers. It’s a good idea to review your safety stock levels with historic seasonal data to ensure you are holding enough stock, without over allocating resources to a point where your profit margin may be damaged or too much cash is tied up in stock.
Strengthen relationships with partners
Frequent communication with both upstream and downstream partners is important. This can mean better delivery times and pricing, and may lead to mutual benefits in the future. Times can be tough in a cyclical business, however with the right management and approach, you can create a successful business model.
Accru can assist you to understand the drivers of your business and the management approach required to run a profitable business all year around.
Contact the Accru Melbourne office for advice today or call (03) 9835 8200