Plan to fail or fail to plan?… Where do you sit for 2018?… And what do your cash reserves allow?

A recent enquiry from a successful retail business based in Essex highlighted an interesting concern that many businesses experience, and don’t quite know how to resolve, something that can fester within the business quite easily over many years and causes a lot of resentment and frustration, a £30,000 annual seasonal cash injection from the directors of the business. Seasonality is something all of us in business experience, and it can be difficult to find a resolution to, especially maintaining a positive cash flow during the leaner months.

Whether you’re a hospitality business in January, a heating engineering company in June, a wedding dress retailer in December or a manufacturing company in August, if you are dependent on the forthcoming seasonal period, or your busy months, to be profitable enough to survive the seasonal lows, this can prove to be quite a demoralising cycle, especially if one of your survival strategies is not to pay yourself, or to relinquish dividends, having paid premiums and bonuses to your staff over the festive period.

With Christmas approaching many businesses are experiencing the positive impact of seasonality, so probably aren’t necessarily thinking about the seasonal lows to come. However, it is probably now too late to strategically think about, and plan for, and those that haven’t may well be on the casualty list next year. Invariably the quieter trading period will start in the New Year, and it was important to plan on how to boost revenues six months ago through seasonal promotions, reducing overheads, preventative maintenance, training, reducing stocks, maximisation of staff holidays to name a few ideas. It is important for any business that experiences seasonality to make the busy months exceptional and the tradtionally quieter months to become great months.

Typically, seasonal businesses will fall into one of two categories. Firstly, those that completely shut the business down during the off season, secondly those that maintain the businesses operations on skeleton staff and reduced overheads, with the emphasis on trying to maintain a positive cash flow, or at least minimise losses, and a lot of effort put into planning and business development. The latter can be associated with most businesses. Quite ironically, where retailers and the hospitality industry are experiencing their busiest period of the year, professional service based industries are entering their fallow period and must maintain cashflow to cover overheads. Notwithstanding, the additional loss of revenue from the long shut down period over the festivities, and the extended payment terms all businesses seem to maximise owing to bank closures. It is very easy to see a positive bank balance dwindle quickly when dealing with seasonal traits, whatever the business model and industry.

So how can you plan for such an eventuality?...

Firstly, with a seasonal business you need to budget and cash flow very carefully. Costs can quickly spiral during the busy periods, so diligently controlling costs provides cash for investment to maintain and develop the business during quieter periods. Seasonality is something most of us have no control over because of the industry we trade in. Having the cash flow to invest within that period to boost trade, and further more to maximise trade in the busy period is crucial to the success of the business. It isn’t just about making enough to last through the quieter times, it is about generating enough cash, through retained profits, to develop the quieter times, and to exploit the opportunities during the busy periods. You have to think well beyond the next season, and indeed lay down your plans for the full year at the very least! Personally I always advise clients to think in three year cycles.

Cash to invest for next season and beyond

Credit facilities are another important consideration for seasonal businesses. Sometimes you have to fund the quieter periods, and a good credit rating is paramount to not only carry you through the lean periods, but also a huge help when looking to invest into boosting the busy times, think stock control. You cannot change the seasons, so you have to change how you influence them from a cash flow point of view.

Seasonal pricing structures are another aspect to consider. When you are in demand, which is typically the busy times, you should consider boosting your margins and indeed your prices as much as possible. Consider the premiums holiday companies charge when the schools are off.

Restaurant businesses are very typical of this, but with a condensed form of seasonality, which is experienced on a weekly basis. A restaurant will naturally try to open as much as possible, and as a business it has to understand the overheads, cost of sales, and how many covers it needs to break even. A restaurant owner will know that weekends tend to be busy periods, and very often the profits generated at the weekend will subsidise the mid week trade. The restaurant owner will endeavour to maximise weekend profits, but also boost the level of covers sold throughout the week with specific targeted promotions. They will utilise loyalty reward schemes, and other specific marketing and sales initiatives, such as happy hours and pre-theatre dinners to create additional income within the quieter periods. This isn’t a seasonal effect, but it is a weekly version of business adaptation and flexibility.

As a seasonal business, you can only control the process annually, whereas the restaurant owner can experiment with new ideas to attract more customers on a monthly basis. For the restaurant owner, a promotion that didn’t work last month, can be adapted the next. An extremely seasonal business doesn’t have that luxury, implementing a swift change to their marketing and promotions to capture more business could prove detrimental, because they need to plan and promote well in advance.

Planning in advance of the seasons, and putting in place structures and initiatives that will carry the business safely and profitably through the seasons is absolutely crucial.

As a coach I question, listen and formulate extensive bespoke tools for my clients that help them analyse and plan for the future, controlling costs and boosting profits. A small uplift in profitability and cash in the busy periods can make a huge difference to the sustainability and development of a business going forward. Not only investing in marketing for the quieter periods, but also building reserves for the future. The latter is the key fundamental to running a successful seasonal business, and having a strong level of cash reserves enables business owners to take full control over their seasonal fluctuations. They can invest confidently and benefit hugely from the rewards.

Building those cash reserves

The recent news of low productivity and investment, and growth harder to come by, will demonstrate that the businesses who build strong cash reserves can act decisively to maximise opportunities, enabling them to flourish in 2018.

Typically, successful retailers who are experiencing their strongest season now will have already set funds aside, allocating expenditure into areas which will boost the post New Year period where they want to continue to maximise sales. If they have retained profits, built a robust cash flow and maximised reserves, they can afford that investment!

Seasonal business trends are probably something that affects all of us. Some will be experiencing the extremes of seasonality, and others will recognise specific months or quarters where business and incomes are naturally lower. The reality is you need to analyse your business trends, identify opportunities, act on those opportunities, understand how to unlock the profits, be confident in your pricing structures, and look to maintain profitability at all times to build the cash reserves of the future

If you would like to generate more cash, overcome the seasonal fluctuations and become a stronger business within your market sector, I would like to help you through that process. Cash is king, so let me help you to generate more of it in 2018.

No Comments Yet.

Leave a comment