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The vast majority businesses experience cycles of high and low activity during the year at regular intervals. For some businesses, these fluctuations may only be minor but in other businesses they can be dramatic. The ability of a business to prosper (and even survive when the ebb and flow is extreme) will be dependent on the ability of the owners to manage these different periods of seasonality effectively. Critical to this process is ensuring that there is accurate financial information at hand as well as robust forecasts to manage the business into the future.

Many business owners engage with the team at Maddock’s Accounting & Advisory to assist them with managing and monitoring the business to ensure they are able to prosper in this environment. We have worked with many different businesses that have all experienced such fluctuations and have a range of tools and strategies to help owners not only overcome these issues but identify and take advantage of the opportunities that are available. Check out this great article from Inc.:

Most businesses experience some ebb and flow in business and in many cases these fluctuations correspond with the seasons. Seasonal business is a term that refers to the fluctuations in business that correspond to changes in season. Season can be understood in this context to include a) seasons of the year and their weather-related changes, b) holidays, and c) events like the summer school holiday, the fall return to school, or the Super Bowl. Although most businesses experience some seasonal business fluctuations, others experience severe seasonal fluctuations and may even limit their operations to particular seasons. Examples of such businesses include operators of vacation cottages, lawn care service businesses, and businesses that contract to do snow removal. Extremely seasonal businesses may close down completely for part of the year or drastically scale back operations during their off-season, managing only basic services such as accounts payable and/or maintenance work. Many retail businesses have a strong seasonal component and see the majority of their profits generated in one or two seasons of the year, the year-end or Christmas season being a typically busy period.

There are predictable events that can influence sales in every month of the year. These seasonal events affect different industries and businesses differently. For example, January is a good month for health club memberships as well as self-help books and programs. February is generally the slowest month of the year, but it does feature Valentine’s Day, which triggers a great deal of seasonal business. In March, attendance at church and other religious activities jumps 60 percent. April is the month to market household cleaners and other spring cleaning products, while May features the cash cow that is Mother’s Day. June features a lot of family activities, such as weddings, graduations, and vacations. July is the best month for all summer products. August is the busiest travel month of the year. September features back-to-school sales, while October is a marketing bonanza thanks to Halloween and the World Series. Finally, November and December are the biggest months of the year for almost every retailer because of the holidays—Thanksgiving, Hanukkah, Kwanza, Christmas, and New Year’s.

BUSINESSES BASED ON THE ACTUAL SEASONS

Throughout the business world, there are numerous types of businesses that operate on a strictly seasonal basis, while many others stay open year-round but make a significant portion of their annual profits in one, or possibly two, seasons. Examples include vacation resorts, which in some regions of the United States are only open for part of the year (spring and summer in the northern U.S., fall and winter in the southern half of the country); cross-country and downhill skiing facilities; youth summer camps; lawn care and landscaping firms; golf courses; and sports leagues, from amateur all the way to the top professional leagues. Smaller-scale examples include snow removal services, pool cleaning services (in the northern U.S.), ice cream stands, golf driving ranges, and drive-in movie theaters, just to name a few.

If it is feasible, a business that relies heavily on one season tries to at least make some money during the remaining months of the year. If it absolutely cannot turn a profit, then the business often closes during its off-season to avoid paying employees and to reduce the cost of supplies and overhead. For example, in the northern United States, ice cream shops other than those located inside shopping malls simply close for the winter once the temperature dips down to the freezing level. On the other hand, some lawn care businesses in the northern United States may attempt to put their equipment and machinery to use during their off-season by cultivating a snow removal service in the winter months.

The movie industry remains one of the largest industries in the world driven by seasonal buying habits. The two biggest seasons of the year for the movie industry are summer and winter. Movie theaters do not shut down like some other seasonal businesses, but they hire extra employees for those two seasons and create budgets that reflect the dominance of those two seasons. Each year, the movie studios’ most important releases are planned for those two times of year. High-budget, wide-appeal movies that have blockbuster potential are usually released in the summer, often at either the Memorial Day or Fourth of July holiday weekend. Around Christmas, the studios release serious pictures expected to gain Academy Award attention together with big-budget films that are aimed at the entire family.

EVEN DURING BUSY SEASONS, THINGS CAN FLUCTUATE

For truly seasonal businesses, there are often situations beyond the business’s control that cause sales to fluctuate wildly each year, with almost no way to predict what will happen in any given year. Perhaps the best example of this, in cold climates, is the amount of snow that falls. Snowfall levels can affect any number of businesses, from ski resorts to hardware stores that sell snowblowers, salt, and chemical de-icers. (The reverse of this situation for summer resorts is a summer that is colder and rainier than usual.) One winter can be extremely snowy, while the next can see almost no snowfall, with very little chance of consistently predicting which way a winter will turn out in advance.

Some businesses use this uncertainty to their advantage, offering unique sales pitches revolving around the snow, or lack of it. For example, it is not unusual for a creative hardware store to run a special on snowblowers late in the fall. As a gimmick to lure buyers, the store offers to refund the entire purchase price of a new snowblowers if a certain amount of snow does not fall that winter. If the snow does fall, then all sales are final, and the merchant was able to sell all his snowblowers at full price.

If the snow does not fall, then the merchant normally has taken out a special insurance policy that will cover most of his or her losses from the special sale, which has now turned out to be a worst-case scenario. Businesses that offer this kind of seasonal gimmick usually do their homework before they make what seems to be an outlandish offer. For example, the hardware store owner might know from studying statistical data that only twice in the last 100 years has the designated amount of snow not fallen, and therefore his odds of having to pay for the customers’ snowblowers are extremely slim.

SUCCEEDING AT A TRULY SEASONAL BUSINESSES

In a business that is truly driven by the seasons, there are steps that can be taken to ensure greater success. The two most important factors are managing cash flow and hiring the right employees. Cash flow management is important to any business but for companies whose cash flow fluctuates dramatically from one period to the next this task is especially critical. Cash flow management does not need to be mysterious or complex. Cash flow management is, quite simply, all about timing cash inflows and outflows. Since a seasonal business can anticipate the inflows being heavier during one period than in others the key is to match the outflows to the same period as much as possible and create reserves to use during the off-season.

Finding and keeping good employees is another key to succeeding in a seasonal business. Paying well and creating a positive work environment are obvious ways to gain good employees, but there are other tactics a small business owner can use. Keeping employees informed of how the seasonal shift affects the company is a good idea, as the employees feel as if they matter more and are an important part of the business. It also helps employees identify the best time to take a vacation. When hiring new employees, two sources of good seasonal employees should be kept foremost in mind—students and retirees. Students are perfect for summer jobs because their time off from school matches the business’s busy season perfectly, and most students need to earn money in the summer to pay for school in the fall. Retirees tend to make good employees because they may have years of experience in their field, but they no longer desire to work full time. Therefore, a job that lasts a few months each year is perfect.

One other tactic that seasonal business owners can use to succeed is to expand their business to include a new product line that is seasonal in the opposite way as their original line. For example, a lawn and garden company that sells lawn mowers and offers mowing and landscaping services can add snowblowers to their product mix and offer snow removal services to complement their landscaping services. The new product should be similar to the existing product so that an owner does not have to learn a brand new business or invest a great deal of money.

EVENT-OR HOLIDAY-BASED SEASONAL BUSINESS

The retail sector is one that tends to be very sensitive to seasonal fluctuations. This type of seasonal business is driven by holidays or events that greatly influence consumer spending. Christmas is by far the largest holiday that creates seasonal shopping. In fact, it is not unusual for many retail businesses to see sales rise by 15 percent above normal monthly sales in December and then drop 30 percent below normal monthly sales in January each year. Other examples of event- or holiday-based seasonal periods include Halloween, Mother’s Day, graduation, and back-to-school. These events are held at the same time each year, which makes it easy for a businessperson to establish an annual schedule.

Contact the Maddock’s Accounting & Advisory team here to find out how we can help.

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