Many inexperienced entrepreneurs start their businesses on the assumption that they’ll be able to use the figures from one month or one quarter to set goals for and predict how the next month or the next quarter will go. This is a huge mistake, because it fails to take seasonal changes into account.
- Environmental factors outside of your control can seriously affect how well your business can run at different times of the month or year
- Identifying your business’ seasons and planning for how you’ll weather them is key to your long-term success
- The key issue with managing seasonal fluctuations is planning ahead to manage your financial partners, your cash flow, and your labour pool to keep everything running as efficiently as possible.
Read on: Master your game plan to weather the seasons
[Estimated reading time: 6 minutes]
What’s a season in business?
Seasons in business aren’t actually that different from seasons in terms of climate. Often the weather actually does play a significant role in how well your business will operate. For example, ice cream parlors will do much better in summer than in winter. The difference is that seasons in the context of business can be contingent on things other than just the weather.
Any condition that affects your business, your clients, your suppliers, or even the public in general can have an effect on your business. For example, if you’re working with American clients you’ll find that it can be difficult to get new contracts or to get paid on time early in the year, because budgets are always tight while clients try to finalise their taxes for the previous year. It’s a good idea to plan for restricted cash flow during that time period to avoid being blindsided by unforeseen payment issues.
Identifying and planning for your seasons
Because the success of any business relies on so many different factors, there’s no business we’ve ever seen that doesn’t deal with seasonal changes in cashflow and general efficacy. The key to ensuring that you can weather the storm, is to identify the seasons that affect your business, and to plan ahead for them.
Predicting your business’ seasons can be difficult to do perfectly, but you’ll be able to build a decent outline by examining two key factors: Direct, and indirect conditions.
Determine what context your business requires to operate, and work to figure out what predictable events can disrupt that context. Some likely culprits to think about might be:
- Shifts in climate and weather can halt outside work, interfere with shipping, or affect your equipment
- Major holidays like Christmas drive demand for a lot of related goods, but can also interfere with client communications and worker focus
- Flu season can interfere with productivity in crowded workplaces where viruses are easily spread
- Tourism season can bring in customers for related businesses, while also reducing demand for other services as local homeowners leave to go on their own vacations
- Large customers who demand extended payment terms, leading to relatively long ‘dry seasons’ between payments.
Indirect conditions are ones that interfere with your suppliers or your customers. Anything that gets in the way of someone related to your business can have a knock on effect on your own operation. Some things to watch out for might be:
- Suppliers facing seasonal production slow-downs might cause delays in deliveries
- Bad weather that discourages pedestrian traffic if you rely on walk-in customers
- Local bureaucratic issues that might affect an international customer.
Once you’ve figured out what to expect, you can start working to ensure that you’re prepared when trouble comes.
Seasonal fluctuations can positively or negatively affect your business; the problem is unreliable cash flow. To succeed as a small or medium sized business, you absolutely need to plan ahead. Once you have an idea of what seasons your business is affected by, you’ll be able to figure out why you’re having a particularly good or particularly bad month. Here are a few important ways to do so.
Work with your financial partners
Besides working with lenders, it’s important to communicate with suppliers, clients, accountants, banks, and the ATO (Australian Tax Office) or Inland Revenue Department (IRD) in New Zealand. These relationships can help you anticipate and potentially deal with financial issues without being forced to take out a loan by simply negotiating for an adapted and manageable payment schedule.
Open a line of credit
One good way to be prepared for seasonal cash flow issues that you can’t simply avoid is to get a serviceable line of credit. These work differently from regular bank loans, and offer a flexible means of providing the low-interest credit you need to keep the doors open in the short term.
In some cases your business might operate at a relatively low capacity throughout most of the year, and expect a massive spike in demand around a specific time of year. Taking proper advantage of this flush season means ensuring that you can quickly acquire adequately trained temporary labour for the duration, whether that means outsourcing, paying for overtime, or building a relationship with a temp agency. If you see it coming ahead of time, you can form the relationships you need with the appropriate contractors ahead of time, and ensure that the process goes smoothly when the time comes.
Keeping the doors open and your business growing in an inherently unstable environment can be tricky, but managing it well will ultimately make the difference between your business, and your less adaptive competitors.