Out of Season
Strategies for surviving the downtime in a cyclical business
Next month, Matt Kersten will be up to his neck in Christmas cards. The founder of Kersten Cards, a Scottsdale, Ariz., greeting card company, says 80 percent of his 4,000 orders per year are Christmas cards, which typically hit between July and early December. That leaves fully half of the year with minimal orders--and scant new revenue.
"It's definitely tough, but we do it," he says. "It's important to manage costs, and you constantly have to reinvest in your business. You can't stay stagnant."
That balancing act is one that most seasonal businesses face, says Dexter P. Morgan II, founder of MFS Consulting, a Newport News, Va., management consulting firm specializing in small businesses. "The seasonal business, regardless of size, needs to save money and resist the urge to spend when flush with cash," he says.
Other actions that can help:
Line up credit. Credit markets are tough, but not impossible to crack. Kersten has a line of credit he uses conservatively when cash is tight. "We usually don't need it, but it's comforting that it's there," he says. The bank took a rigorous look at his personal finances before renewing the line, he says, something it didn't do when it established the line in 2009.
Create a calendar-based budget. Often, seasonal businesses have the most expenses just before the season starts, which is when money is typically tightest. Morgan advises his clients to plot out everything--from when sales typically hit to the best time to purchase materials and hire staff. Then allocate the cash accordingly.
Negotiate terms. Work with suppliers to establish favorable credit terms or to modify contracts. Kersten was able to change some of his annual advertising contracts to seasonal contracts, saving him thousands of dollars. Morgan says suppliers may be willing to grant seasonal businesses extended payment terms or make other accommodations.
Develop new products. Kersten has also developed invitations and other holiday-themed cards to extend his selling season. Morgan approves, advising seasonal businesses to offer products and services that complement what they already do, but which may carry them into other seasons.