One of the most common factors a lot of businesses may face while building their budget is seasonality. If you are the owner of a small seasonal business, then the profit you make in your busy times will have to be enough to pay the bills the rest of the year. Naturally for those businesses, managing the budget becomes even more important. Proper planning and budgeting is crucial to ensure year-round profitability and understand what you can (and cannot) afford.
Here are a few budgeting tips to help you grow your seasonal business.
Budgeting Tips for Seasonal Businesses
Running a business costs money. Even the smallest startup with no overhead and very low cash burn rate needs to invest money in order to both sustain itself and grow. You also need to be prepared for unexpected situations. This is where budget becomes an indispensable part of any business. It acts as a blueprint when you are trying to build a complete financial plan. Therefore, your budget needs to be practical and useful.
1. Figure out Your Minimum Needs
This first step in determining a proper budget is to determine the bare necessities to sustain your business. The best time to do this is during your busiest season, as the chance of profitability is highest. Start by creating a baseline of your basic monthly expenses, including rent, insurance and any loan payments. These costs are set so need to be included in your budget. Also consider variable and semi-variable costs, such as routine fees, utility bills and inventory. By doing this, you get an idea of your monthly expenses.
2. Plan for the Whole Year in Advance
For non-seasonal businesses, budgeting means evaluating a monthly income and planning how to spend it. For seasonal businesses, however, things are not that simple since your cash flow does not follow a regular month-to-month pattern. Therefore, you need to judge your performance by looking at it from an annual point of view. Because it is difficult to judge your income in a month, anticipating your annual performance during both high and low seasons will give you a better idea of how much you need to save during the busy season.
3. Follow the Budget During Busy Season
During the busy season, your cash flow increases and business blooms. But that should not tempt you to deviate from your budget. The busy season is the peak time for your business but does not indicate the financial situation you will face throughout the rest of the year.
When your sales are going up, it may feel like you are on top of the world. It is possible that in one season your profits exceed your expectations. But don’t let that distract you from the reality of the rest of the year. As an entrepreneur, it is essential to stick to your budget and stay focussed on your goals to have something to look forward to the rest of the year.
4. Be Disciplined About Managing Cash
Cash must be managed proficiently in order to keep your business afloat during the off season. The key to proper cash management is discipline and skill with accurate bookkeeping. Many small business owners manage their own books. If that is the case, choose user-friendly cloud-based accounting software like QuickBooks, FreshBooks or other popular options. Do not spend unnecessarily during the slow months, as this can lead to a financial crunch until your next peak season. Short-term debts can be a good way to cope during slow months, provided you are diligent about paying them back when you have consistent cash flow.
5. Keep Track of Everything
To create a realistic budget, you must be thorough about recording every income and expense related to your business. Thoroughly maintaining your bookkeeping journal and accounts payable and receivable is the key to keeping track of cash and inventory.
Failing to record even the smallest expense can pose trouble later, leaving you unprepared to cover any emergency expenses. It is best to hire a reputable virtual bookkeeper so that your business expenses do not feel elusive. This will also leave you with enough free time so you can make the most of the slow months to plan different ways to grow your business and other core business-related works.
6. Try Alternate Business Ventures
Having a seasonal business means that some months will be slower than others. If you have the capital, invest in growing your business, not just sustaining it. Why not establish a second business venture for the slower months? This does not have to be an alternate business but can be a side job, to ensure consistent cash flow.
7. Have a Flexible Plan
Here’s a secret. The best budgets always have built-in scenarios. This is going to be especially helpful when you are planning one for your seasonal business.
A flexible budget consists of three different types:
- The baseline (refer to Number One)
- The best scenario
- The worst scenario
By considering all these factors, you are practically keeping a backup, if such situations arise. With a flexible budget, you can face any increasing demand and try out new, exciting things for your business.
Remember this! The whole point behind building a budget for your seasonal business is to minimize unpredictability. To do this efficiently, you need an honest reflection and a knack for detecting trends. The only way to know the financial health of your business and set up a proper budget is through harsh reality checks. And the best way to do this is through thorough bookkeeping, payroll and data entry.