Many of Connecticut’s small businesses revolve around seasonality. We have food trucks selling to hungry beach goers in the summer, boutiques and stores attracting holiday shoppers in the fall, ski lodges opening their doors in the winter, and tailors fitting high schoolers for prom attire in the spring. The list goes on and on! For these businesses, seasonality is relatively predictable in terms of what times of year they need to ramp up or taper off, but allocating business budget to compensate for just HOW busy or slow the season will be can be a tricky process. With proper planning, your seasonal budget can weather all the unforeseen ups and downs that are a regular part of small business ownership. Keep these four pieces of advice in mind as you start budgeting for 2017:
Plan for the whole year, not just a season
When it comes to seasonal budget planning, it’s important to keep a popular saying in mind: “Don’t lose sight of the forest for the trees.” In other words, don’t focus too much on budgeting for your busy season and neglecting your off seasons. When you budget season by season, you’re leaving all of your planning to the last minute, which might cause your business to be unprepared for situations that can cause an unexpected bump in expenses or a hit to your revenue. To plan for the unexpected, make sure to map out your entire year, starting with fixed costs before moving to variable costs. You can build a baseline for your budget by accounting for the fixed expenses you’ll have to pay regularly, such as lease, credit card or loan payments. These are the costs that you know will be relatively the same amount every month, and once you have them established you can start planning for variable expenses, such as hourly wages for temporary help, that can change depending on how demanding your busy season is. By planning out your entire year, you’re giving yourself a framework to build off should you need to reallocate funds for unexpected costs. You can also use your yearly plan to track results over time, giving you the tried-and-true data you need to better predict how future busy and slow seasons will play out in the years to come.
Build two plans to account for best and worst case scenarios
Let’s go back to variable expenses for a moment. The whole point of variable expenses is that they vary depending on factors such as how much business you’re doing, how many seasonal temps you’re hiring and how much product you need to produce. How many times have you made spot-on predictions as to how many employees or supplies you would need to successfully fulfill customer demand in a given season? More likely than not, you’ve been caught unprepared and had to stretch yourself a little too thin during busy seasons, or worse you were stuck twiddling your thumbs when your usual stream of customers unexpectedly shrank to a trickle. Even if your last few seasonal rushes have been relatively predictable, it’s a good practice to lay out two budgets: one for best case scenarios where you need a little flexibility to meet higher than expected demand, and one for worst case scenarios where you need a little cushion to get by. After you’ve outlined these two situations, you can investigate whether you’ll need any additional lines of credit to keep working capital flowing at the proper rate. Either way, planning out two different budgets can give you the versatility you need to keep your business running through any curve balls the season might throw at you.
Use your slow season wisely
If your business philosophy is simply to cut all expenses once your busy season has wrapped up, you might find yourself losing out on some opportunities. Is there an adjacent market you’d like to grow your business into? Use the slow season to investigate opening a second location. Are you unhappy with your current suppliers? Negotiate a better deal with your current vendors or research doing business with new ones. You can also use your slow season to build your team. If there’s a conference, workshop or training that could improve your staff’s skills, consider having them attend now while you can afford to have them away for a few days. You might end up paying a little more than you’d like to during your slow season, but the result could be a team of superstars that brings in even more revenue for you during the next busy season.
Consider changing your fiscal year
Most businesses stick to the normal calendar year when it comes to filing taxes. In other words, your fiscal year ends on December 31, and your taxes are due a few months later on March 15. However, if your business revenue revolves around income you make during specific times of the year, then it might make sense to structure your fiscal year around that seasonality. This will allow you to account for all of your major income in one period so you can better plan for how much you’ll need to pay in taxes at the end of your fiscal year. However, there are some regulations in place that restrict certain types of businesses from altering their fiscal year from the calendar year. For example, if you don’t have bookkeeping records or an annual accounting period then you must use the calendar year as your fiscal year. Flow-through entities, such as LLCs or S corporations, are also required to use a calendar fiscal year. After you’ve determined if your business isn’t required to use a calendar fiscal year, you can investigate whether altering it would simplify your tax returns.
Once you’ve planned out everything for the year, it’s vital that you carefully track how your actual performance compares to what you budgeted. You’ll be able to use these metrics to get a better idea for how future busy and slow seasons may play out. In time, you’ll become an ace at budgeting for seasonality to keep your seasonal business’s profit margins steady and reliable.
Written by Melissa R. MacCaull
Director of Marketing, Union Savings Bank
