For those who live in the Midwest, the mere mention of the word seasonality instinctively suggests to-do lists. Whether it’s winterizing your home before the onset of a harsh winter or testing your sprinkler system before a hot summer, seasonal preparation is critical for avoiding larger, more expensive problems.
Owners of many small businesses in the entrepreneurial hotbed of Illinois also need to grasp the importance of planning to navigate the seasonal ebbs and flows of revenue successfully. Just as seasonality connotes drastic swings in temperature and weather patterns, a similar definition applies to the owners of seasonal businesses.
“From a business owner’s perspective, seasonality is just when a time of year has a disproportionate amount of your revenues,” says Stephen Ball, Senior Vice President and Head of Business Banking at Byline Bank. “Obviously, anyone who has driven in Illinois knows that summers are busier than winters for construction while snowplow operators see their revenues rise in winter.”
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Regardless of when a company’s revenues are highest on a calendar, business owners need to understand that their ability to take full advantage of periods of robust demand depends on the planning and prep work done during downtimes. In fact, fully leveraging those expected periods of slow business activity can provide a rarely recognized competitive advantage. “If you’re a seasonal business, you’re not planning or strategizing mid-season,” Ball says. “You’re doing and executing. Planning during your downtime creates a competitive advantage because you come into your busy season well prepared.”
The question for business owners, of course, is how to make the best use of their downtime. The answer will vary based on the type of business, but here are three ways to make the most of your offseason.
Every seasonal business has building blocks that must be in place to be successful. For example, an ice cream store must order a large enough quantity of ice cream to meet demand during a hot summer weekend. “During downtime is when you check with your suppliers and supply chain to ensure you are prepared for the busy time. It’s also the best time to figure out your pricing and your margins so you can be confident that your prices are competitive and you’re making enough money,” Ball says.
Supply chain and inventory confidence heading into a busy season must also be accompanied by the assurance that any business-critical equipment is ready for heavy usage. For example, that means taking advantage of low seasonal demand to perform maintenance on the freezer in an ice cream shop or the trucks in a snowplow fleet.
One of the hardest things for any small business owner is delegating. Owners of companies earning the bulk of their revenue during specific seasons will be incredibly resistant to delegating when demand is high; they’re both too busy, and the downsides of any mistakes are too acute. But there are many compelling reasons to use your company’s slow season to train workers to take over responsibilities you would usually shoulder alone. One big reason is that devoting time to training employees sends the unmistakable message that you care about their career development. This helps bolster retention rates and lowers the cost and time needed to hire new workers.
Training staff to do more delivers additional value to your business. Sticking with the ice cream store example, imagine what it means if an employee who once scooped ice cream exclusively can now run the register and account for inventory at the end of the day. Those added responsibilities will help the workers feel more engaged in their job and free up time for them to learn skills that will make them better owners or managers.
Business owners should be committed to continuing education for themselves, including grasping software that provides insights into your business. “A lot of small business owners are relying on their accountants for everything, so they don’t even know how much their business makes,” Ball says. “It’s amazing how just a rudimentary knowledge of Excel can make you such a better business owner.”
Part of retraining staff can also include assessing how you approach treasury management. Are you the only person at your company who can see and access business accounts? Would it save you time if an employee was trained to make deposits and perform other financial transactions? If the answer is yes, there are tools that can relieve some of your workload while also safeguarding your company from fraud. “Employees don’t have to see all the balances. Employees can initiate an ACH, but you can still be the only one who can approve it,” Ball says. “If you can delegate some of those black-and-white tasks, it gives you time to think strategically.”
Expanding the skills of workers and ensuring you have adequate inventory are challenges that the owners of seasonal businesses can solve with good planning. But the most consequential challenge seasonal companies must navigate is managing cash flow. “If you don’t have that game plan set during your downtime, you come into that busy time in a bad position,” Ball says. The challenges of cash flow management for seasonal businesses include saving enough money during peak earning times to pay fixed expenses throughout the rest of the year, including employee salaries, insurance, rent and taxes.
Effective cash management is only possible when business owners have a clear view of their monthly expenses and revenues. The more accurate your view of costs and revenues from month to month, the better you’ll be able to plan. “If you don’t know what you’re making and if you don’t know what your costs are, it’s tough to plan,” Ball says. “You’re always going to be trying to build the plane as you’re flying it.”
Part of optimized cash flow is also eliminating the risk that you’ll experience a cash shortfall at any point during the year. This can be accomplished by setting up a line of credit. “It’s really cash flow insurance,” Ball says. “The last thing you want to be doing during your busy time is trying to get a loan. Thinking ahead and using your downtime for cash flow optimization and other ways to improve your business will get you ready for the seasons that bring in the most revenue.”
Every business owner should set aside time to develop strategies to position their company to succeed over the long term. In some ways, the challenges for owners of seasonal businesses are more acute because revenues fluctuate so much. However, the inevitable downtime of seasonal businesses also provides the advantage of time to train employees and craft plans to be ready for any business development. It’s up to business owners to take full advantage of that time to do the planning needed to flourish in all seasons.
At Byline, we take the time to get to know your business. Whether you’d like to improve cash flow, expand operations or update equipment, our team can customize financing and treasury solutions to help. Get in touch.