At present, around a quarter of British businesses fail to plan ahead financially in order to see them through seasonal disruptions. Six per cent of businesses rely on credit cards to manage their seasonal fluctuations, while four per cent use business loans and 17 per cent increase or decrease staff numbers.
Regardless of industry, the majority of businesses can expect to experience seasonal highs and lows throughout the working year. But although a boost in revenue at certain times of the year might sound like a blessing, many companies struggle to service unpredictable demand effectively.
Seasonal imbalances can affect businesses at any time of year. Whilst during busy periods, many find themselves struggling to meet the demand placed upon them, during quieter seasons when capital is running low, meeting the day-to-day running costs can become tricky.
However, there are ways to minimise the impact of seasonality.
Get to know your seasonal cycle
When first starting out, it’s not always easy for SMEs to determine when they’ll experience fluctuations – or how much these will affect trading. Over time, however, with the help of financial records, many will start to recognise a ‘seasonal cycle’. It’s unlikely that each year will be identical to the last, but companies can still base business decisions on data from recent years.
Many hands make light work
Once familiar with the trading cycle, decisions related to investing in resource, such as whether to employ new members of staff or rely on temporary staff members, will become clearer. Building a solid database of reliable freelancers or flexible workers, can help ensure there’s resource to call on to see out the seasonal peaks when required.
Encourage sales with seasonal promotions
Likewise, knowing when seasonal dips are likely to strike can help with planning promotional activity. Offering discounts and deals during the quieter periods can help consumer-facing businesses especially, to stay fresh in the minds of current customers while also attracting new business.
Don’t forget that quiet time doesn’t necessarily equate to down-time. If you know when the troughs are likely to occur, why not plan your marketing strategy during that time or focus on new product development.
Manage cash flow
Eighteen per cent of businesses suffer a cash flow crisis at least once a month, and seasonality is one of the biggest causes. Effective planning is the easiest way to keep cash flowing, and this can be achieved with regular cash flow forecasting. Although it’s easier said than done, encouraging clients to pay on time is a great way of preventing cash flow problems. Where possible, try to negotiate a percentage of the payment up front to minimise the impact of any delays.
If a lack of cash flow is a recurring issue, there are alternative finance solutions like invoice factoring that allows companies to unlock cash capital from unpaid invoices.
If you’re finding it hard to keep business running smoothly due to seasonal fluctuations, you’re not alone. But by planning ahead and acting upon your own data as well as that of industry experts, you can protect your business from seasonal variations.
Damon Walford is managing director of invoice finance at Aldermore Bank.