Q: My wife and I are thinking of buying an ice cream parlor and antiques shop in our downtown historic district, but we're worried about how we're going to cover our costs in the winter when business is slow. Any advice?
A: The toughest part of running a seasonal business is managing your cash flow. Whether you're selling ice cream, pool supplies or landscaping services, you've got to plan ahead for the months when bills are due and there's little cash coming in to cover them.
That's why Joseph Fulvio of Third Coast Partners, a Doylestown, Pa., consulting firm that specializes in working with emerging businesses, advises entrepreneurs who are considering launching seasonal operations to put together a financial forecast based on the company's historical revenues, cash flow, capital purchases and "downtime." This, he says, will help close the gap between income and expenses during the business' off-season. He offers this example: a snow cone shop in a vacation destination will often close for the winter while a children's clothing retailer may simply find business soft in, say, February or June.
It's also important to figure out which expenses will continue during the off-season (for example, insurance, an employee or two, and possibly rent) and which others (the cost of making the product, staffing the store and keeping the lights on) will decline or even disappear.
Now that you know what you're up against, what's the solution to evening out your cash flow? "Assuming some flexibility in cash needs and/or delivery schedules, spreading out payments from customers might make sense for both parties," Fulvio says. "Longer-term purchase agreements with suppliers often allow you to lock in more favorable pricing." The best way to cope with your business' seasonality, he advises, is to create new lines of business that leverage your location, customer base and marketing to generate revenue in the off-peak months. Some suburban Dunkin' Donuts franchises, for instance, have an adjoining Baskin-Robbins ice cream parlor, Fulvio notes, and others have a sandwich and wrap carry-out squeezed in to boot. Similarly, landscapers who mulch their customers' flower beds in the spring and fall often plough out their customers' driveways in the winter, and nurseries sell Christmas trees in addition to flats of spring flowers. You can also use your storefront to market services that you can deliver any time of year such as birthday parties and art classes.
But no matter how much advance planning you do, you still need to prepare yourself financially to survive the off-season when sales are slow. Now that banks have started making credit available to small businesses again, it may be a good idea to talk to your lender about putting a credit line in place so that you can cover your costs until the weather gets warm and customers start coming back with their kids.
"While your revenue may be seasonal," says Fulvio, "the challenge of running your business is not."
Rosalind Resnick, the founder and CEO of Axxess Business Consulting, a New York consulting firm that advises start-ups and small businesses, is co-author of The Vest Pocket Consultant's Secrets of Small Business Success. She can be reached by email at firstname.lastname@example.org or through her Web site at http://www.abcbizhelp.com