19 Nov Budgeting Tips to Weather Seasonal Business Fluctuations
Budgeting for seasonal business fluctuations is key for just about every business. Retailers take in a huge portion of their revenue around the holiday shopping season. Landscapers tend to do their best business in spring and summer but can struggle in fall and winter. Businesses in construction or professional services can experience significant seasonal shifts in demand as well. Clearly, if budgeting for seasonal business fluctuations is ignored, it can be detrimental to your business. Here are some tips to help you do so effectively.
Track Your Budget
Businesses can use spreadsheets or basic accounting software to track their income and expenses throughout the year. If you’ve been in business for more than a year, you can look at this historic data to track typical seasonal patterns in spending. The more data you have, the better, but even a years’ worth of insights can be helpful. Some of the things you’ll want to consider here include:
• Comparing seasonal data across years to figure out if a down period is normal or extreme.
• Identifying thresholds when cash flow dips exceed what is normal.
• Figuring out if sales during a busy time of year will likely be sufficient to get you through the rest of the year.
For example, imagine you’re running a landscaping business and have tracked your budget carefully over the past few years. You use this data to figure out that an average busy season leaves you with $250,000 in profits. During an average down season, payroll, equipment repairs/replacement, and similar costs come to an average of $240,000. This year, you had a particularly profitable year, earning $280,000. However, you also need to replace expensive equipment. With historic data, you can project a $40,000 surplus and know the equipment you need will cost $80,000. You realize can use a working capital loan to cover the remaining small cost of the equipment or purchase the asset outright and get a short-term loan if you need it later on in the year.
Tracking your income and expenses over multiple years is one of the most essential budgeting tips to weather seasonal business fluctuations. Knowledge is power when it comes to cash flow management.
Develop a Clear Strategy
Having historic budget data gives you critical information as you work on budgeting for seasonal business fluctuations. With better data, you can then make cohesive, well-informed plans to help you navigate peaks and valleys in your cash flow. As you plan for seasonal cash flow shifts, you will need to consider:
• How different tactics will impact your long-term growth potential (i.e. spending more on marketing during a down period may hurt immediate cash flow, but lead to higher profits over time).
• Whether the extra time you have during down periods can be used to invest in your staff, technology, or training.
• If you can optimize your plans for different times of year to maximize cash generation during busy periods and put that money to work in slow times.
If you don’t have a clear, cohesive strategy for the year, you can find yourself struggling to handle the ebbs and flows of cash flow in a seasonal business. If you refine your strategies to take full advantage of different seasonal trends, you can better position yourself for long-term success. When handled well, budgeting for seasonal business fluctuations can help you get the most out of busy periods and put the extra time from down seasons to use in creating future value.
Consider Your Funding Options When Budgeting for Seasonal Business Fluctuations
Of course, creating a structured program for budgeting for seasonal business expenses will take some time and money. You may need to invest in software so you can gather and analyze sales and budget data more easily. Also, you may need to hire specialized staff members to support marketing or budget forecasting efforts. On top of that, you might need to replace equipment in bulk or hire more employees to make up for past issues.
Small business loans can simplify budgeting for seasonal business fluctuations. In cases when you need to play catch-up, a loan can help you put yourself in a better position for the future. When financial needs surpass your expectations, a loan can get you through a tough stretch. Whether your business slows unexpectedly or you have a great opportunity that requires more capital, the right loan can keep things running smoothly. Short-term small business loans are especially helpful when trying to maintain cash flow when budgeting for seasonal business fluctuations. These loans give you quick access to smaller amounts of cash as you need it.
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