How Do Businesses Deal with Seasonal Income?
Provided by Visa, Content Partner for the SME Toolkit
Spring, Summer, Winter... Fail?
When it comes to seasonal income, it's not so much a matter of getting paid on time—you already know with some certainty when you'll be paid—it's how to deal with the lack of income throughout the rest of the year. Obviously, you can't just close your store for nine months of the year—that would create some seriously nonproductive real estate. So how do businesses that earn 80% of their revenue in the last quarter manage to survive throughout the year?
If you make most of your money in the last quarter, you really need to control cash and costs for the year. One of your goals is to avoid carrying that seasonal inventory for the whole year. Another goal is to minimize your staffing expenses. The common approach is to add sales people and temps in that final quarter. In any event, you need to constantly review staffing costs. Another solution may be to consider product diversification.
Frank owns a nursery that generates almost all of its revenue during the second quarter of each year. Each year, Frank finds it harder to compete with national chains including home supply stores that offer a wide range of gardening and related products. Frank is also having difficulty paying fixed expenses—for example, rent, a few full-time employees—during the quarters when revenue is low. Should Frank borrow money from his father-in-law to bridge the gap during the slow months?
In general, Frank should be careful about borrowing since experts agree that it's best to avoid going into debt for seasonal needs. If you do borrow for seasonal requirements, seek short-term borrowing. That is, you should try to repay a loan like this quickly.
Can You Diversify
Diversification is an alternative. Every nursery needs year round products. They might not be enough to carry the store but they should be enough to pay most of your expenses and minimize off-season losses. Selling crafts, and home décor with some relationship to nursery, types of garden décor could be an option. A successful nursery will also have to cut costs as much as possible, and reduce staff to as a low as possible-perhaps rely on temp employees along with one key permanent employee like a store manager.
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