All businesses face highs and lows during their journey. However, some businesses experience such fluctuations more frequently than others. While poor management is to blame in some cases, seasonality is often the main culprit.
From a business management perspective, the fluctuations in metrics like sales, revenue, or new customer acquisitions resulting from the climate, holidays, or important cultural events are referred to as seasonality. These business metrics can significantly impact business profitability. Hence, it is important you consider them when preparing the upcoming year's budget.
Seasonal budgets are particularly beneficial for businesses whose revenue stream changes throughout the year because of the traffic they receive during certain seasons.
Here are certain vital points that will help you manage your seasonal business expenses and budget accordingly.
Incorporating Seasonality
A lot of seasonal companies depend on the weather or holidays. For instance, pumpkin patches and Christmas tree farms see the most sales in fall and winter, while ice cream shops and golf courses thrive during spring and summer.
However, one essential point to keep in mind when it comes to seasonal budget planning is that you should plan for the whole year instead of just a season. If you focus only on the busy season and neglect your off-season, or when you budget season by season, you are leaving all the planning to the last minute. Meaning, that when it's time to act, you will be unprepared for the situation.
Drawing a Baseline
Ensure you plan for the unexpected and map out your budget for the entire year, starting with fixed expenses and then moving on to variable costs. Draw a baseline for your budget by adding all the fixed expenses you will have to pay regardless of the season, like lease, credit card, or loan payments. Once that's established, start planning for variable costs, such as wages for temporary help.
With a solid budget planned out for the entire year, you have a framework to reallocate funds in case of unexpected costs. Furthermore, you can leverage your previous yearly budget plans to predict how busy or slow the seasons will turn out in the future.
The Season to Save or Spend
By factoring in seasonality in your business expenses and costs, businesses can better protect themselves from drops throughout the year and make the most of busy periods. At this point, if you are confused about seasonal budgeting for your business, here are a few best practices to follow to know when to save or spend, depending on your industry or niche.
Don't Get Derailed From Your Budget
When your sales are booming, it is pretty easy to get detached from the reality that is the off-season and the rest of the year. Instead, consider the busy season a time to make and save more money than you have already budgeted. This will help you with an extra cushion to lean back on during the slower times or allow you the opportunity to research the best way to spend it in the long run.
Take Advantage of the Slow Season
Don't let the off-season stop you from promoting and growing your business. Most often, business owners make budget cuts during slow seasons to save as much as possible. While you should keep expenses to a minimum, don't be afraid to seize this opportunity to invest in strategies that can help your business grow.
Use the off-season to plan for the next year, negotiate with vendors, strike long-term relationships, and engage with your customers to instill customer loyalty. In addition, you can hand out branding and marketing products like a drawstring bag with your business logo and slogan to customers to enhance your business exposure in a practical way.
Build a Flexible Budget
The best yearly budgets contain built-in scenarios. This is particularly beneficial when planning for seasonality. To ensure your budget is flexible, include three different budgets in it-first, your baseline, and second and third, the best- and worst-case scenarios your business might experience.
By planning your budget this way, you can be sure you have room to react to what happens in reality when a season strikes. You should come up with the best possible outcome that allows spending to meet the rising demand or take new strategies to market your business. The other will act as rainy-day outcomes to lean on when your business is underperforming and you need to make cutbacks.
Create a Realistic Budget
A business budget makes it easier to deal with seasonal fluctuations. However, when building a budget, take honesty and reflection. Chances are, you will look back and regret some of your spending choices.
Additionally, you will sometimes experience denial when you have to stick to the budget yet want to invest in a new marketing method. Whatever the scenario, performing a financial evaluation will help you set proper expectations and build a seasonal survival strategy that will help your business avoid more damage in the end.
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