Most enterprises experience some ebb and flow, but for seasonal businesses, these fluctuations are more drastic. Seasonal companies must deliver most of the year’s business within a few months, before activity slows right down. This can present a challenge for managing working capital, since revenue generation is focused around a few months, while overhead costs must be met all year round.
This guide to managing working capital as a seasonal business will offer actionable advice for making this model work for you.
What is a seasonal business?
A seasonal business offers services or products for specific times of the year. These businesses may only be open for a certain number of months – for example, a summer camp provider, beachside café, ice cream van, or Christmas decorator.
The unique financial challenges of a seasonal business
“Running a seasonal business is a challenge financially at first, but with some careful planning you can really get ahead,” says Pia Modha, who set up a sustainable Christmas decorating company in 2019 and grew its income by 95% between 2020 and 2021.
A key challenge for seasonal business owners is the need to capitalise on driving maximum revenue throughout the busy season to ensure they can not only stay afloat during the quieter period, but also prepare effectively for it to start all over again during the next busy season. This requires lots of forward planning, not only around managing finance, but stock and supplies too.
“Stock and equipment need to be kept to a minimum as the ‘close’ season approaches, and some may have to be sold at a discount if it won’t last until the next season,” says finance director and author of The Profit Mindset, Andy Cristin.
Seasonal businesses can also have challenges with credit, Cristin says. Suppliers may not be keen to offer credit in the early years as no regular payment history has built up, while giving credit to clients means that they are not in the habit of paying you every month.
“Getting paid for the first time each year will be harder and require extra credit control work,” Cristin says.
Without a regular payment schedule, it can be hard to keep your cash flow steady. The American Express® Business Gold Card offers a payment period of up to 54 days¹, which gives you extra time to balance your incomings and outgoings. Plus, you earn 1 Membership Rewards® point for every £1 spent² – points you can redeem as statement credit to offset your expenses.
Managing your working capital as a seasonal business
Working capital is the cash your business needs to pay its bills and keep operating successfully. It takes into account liabilities and assets that will have an impact on your business across the financial year, so is a vital figure for a seasonal business to track.
“Year on year, the importance of managing working capital and cash flow as a seasonal business has grown in significance, especially as costs mount as the business grows,” says Modha.
“Some unpredictable expenses can occur throughout the year, such as needing to replenish dated stock and buy new technology,” she adds. “You also have to factor in rising costs like labour and petrol.”
While seasonal businesses come with unique financial challenges, the right strategy can set them up to run smoothly all round. Here are five ways to ensure you manage, or even grow your working capital.
1. Set aside a sum for next year
When it comes to the end of peak season, work out your profit and from that deduct a percentage that you will use as working capital to see you through the year. This figure not only needs to cover fixed costs (eg. staff salaries, rent, heating) but it may need to cover the cost of new inventory and preparation for the peak season.
Modha chooses to allocate 30% of the previous year’s profits for this purpose, having calculated that this should allow for any increase in storage costs, accounting costs or any stock breakages.
Much of the remainder of the profits are reinvested in new ideas, product innovation, new software such as CGI and new technology to assist with smoothing out processes, she adds.
2. Boost revenue in the slow season by broadening your horizons
One way to expand a seasonal business – and bring in income during traditionally quiet periods – is to develop a new product line or service that is complementary to the original offering. For example, a lawn maintenance company could consider offering snow removal services.
Modha has expanded into offering floral installations in the spring and summer months. “Not only does this help boost working capital, but it also keeps our brand visible outside of the Christmas period,” she says. “When we’re out in full uniform on a job, it often brings in new enquiries for our core offering.”
3. Forecast regularly
Modha relies heavily on her cash flow forecast to keep finances in check. “At the end of each Christmas season I prepare a forecast for the following year. This helps me understand at which point in the year the finances are being stretched. It also helps me work out when to ensure deposits are paid by.” The automatic reminder feature on her accounting software helps her chase outstanding invoice payments by automatically sending the client an email.
“Peaks and troughs in cash flow will usually follow a pattern, which will enable you to predict problems before they happen,” says Cristin. “You’ll then have time to arrange short-term finance or adjust your operation to manage the issues.”
4. Consider your operations and storage options and find the best rates
Why not use your downtime to prepare for when business is booming again? You might consider upskilling, recruiting new staff, doing market research or testing new processes to help things run smoother when the time comes.
Cristin advises taking deposits for future work, where possible, to advance cashflow. “Don’t over-order supplies and use the off-season wisely,” he adds. “Do repairs and renewals, recruitment and training then.”
Modha holds a large volume of stock and she used her downtime this year to move premises, managing to secure a larger space for the same price she was paying. “This means I can hold more stock for this year, and I could rent part of my storage space to another business if I need more working capital.”
5. Upsell when you’re at your busiest
It might sound obvious, but the point at which your business is gearing up for its busiest season is the right time to push promotions that can only be redeemed at specific times of the year. The more you can get out of the busy period, the easier it will be to manage your working capital for the remainder of the year.
To ensure a steady flow of income – and retain her clients – Modha offers the option of three-year contracts. This helps her budget for stock, equipment and seasonal workers.
“Clients can get a 20% discount for three years,” she says. “In exchange, I get the security of knowing there will be money coming in every six months.”
- If you'd prefer a Card with no annual fee, rewards or other features, an alternative option is available – the Business Basic Card.
- Membership Rewards points are earned on every full £1 spent and charged, per transaction. Terms and conditions apply.