In an ideal world, businesses can expect and predict their cash flow in and out of the company. However, when it comes to common cash flow problems, businesses with seasonal operations often go through challenges of managing resources during peak seasons and off-peak periods. One moment you’re running around to get products out to customers as quickly as possible, and the next you’re left with unsold stock and decreased demand.
There are different approaches you can take to manage your stock and cash flow during the off-season. Learn how to come up with a financial strategy to weather seasonal demand fluctuations.
What Are Seasonal Demand Fluctuations?
Seasonal demand is when some products or services are more sought-after during specific times. Seasonality refers to expected changes that happen over a one-year period for any organization. It can refer to real seasons (summer and winter), major events (a sports world cup), special occasions (Valentine’s Day) or holiday seasons. Most businesses experience seasonal cycles where some weeks or months are quiet, which impacts sales and cash flow.
Even though most fluctuations are predictable for established companies, seasonality in business can pose significant challenges to anyone’s long-term growth and stability. Without proper market research and following trends, your business will either not be able to keep up with demand, or you will not have enough work to pay the bills. The key is knowing how to manage and predict these seasons so you can keep your market share and customer loyalty.
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Types of Seasonality
Some seasonal variations can be self-explanatory, while others may only be more obvious in certain industries. Seasonality of demand can normally be divided into two categories:
Seasonality Caused by External Factors
In this case, external human-made factors create demand fluctuations. Some examples include:
- Economic factors: During economic uncertainty or recessions, customers spend less on non-essential items.
- Sports events: Stores sometimes sell out on branded merchandise and items during major events. It’s easy to follow predictable international trends, such as the Olympic Games, FIFA World Cup and Wimbledon.
- Tax season: Although these professionals operate the whole year, there is an increased demand for accountants and tax practitioners when it’s tax season.
- Wedding season: While many couples opt for getting married during off-peak season, many service providers, such as photographers, venues, caterers and beauty salons, experience an increase in business during a typical wedding season.
Natural seasonality is brought on by the change of seasons. Fluctuating temperatures cause shifts in the demand for specific items and services based on which season it is:
- Holiday seasons: For example, the holiday season increases the demand for custom packaging, gift suppliers, Christmas-themed decorations and ingredients for festive recipes.
- Special occasions: Customers anticipate special dates on the calendar, like Valentine’s Day and Mother’s Day, and businesses can plan for this surge in business.
- Weather conditions: Many brands sell swimwear, outdoor gear and patio furniture during the summer months and winter apparel, snow gear and heating equipment during winter. Certain businesses only operate for a limited period of time, like water parks and snow removers.
The Importance of Cash Flow During Off-Peak Periods
Now that we better understand how seasonal demand fluctuations happen, we’ll consider how off-peak periods can impact your business and how these affect cash flow on business operations. One way to prepare for seasonality is by building a cash flow forecast to optimize your receivables for the whole year. When you see where the money goes, it will be easier to find ways to minimize these business expenses.
Unmanaged cash flow problems could leave you with difficult financial decisions, including:
- Borrowing money from the bank.
- Not able to stock a full inventory.
- Dealing with storage and spoilage costs.
- Delaying payments on existing debt.
- Laying off staff.
- Considering bankruptcy.
Tips For Managing Seasonality in Business
How do you deal with seasonality and fluctuating demand? We recommend following these tips to address seasonal fluctuations in seasonality.
Analyze Historical Data
It’s important to set aside some time to research market trends and strategize:
- Maintain records: Retain all your point of sale (POS) records and invoices to help you create a trend analysis.
- Trend analysis: Analysing past orders will give you an idea of what to expect and when to expect it.
- Plan ahead: Once you know your trends, you can manage your resources and establish reorder points.
- Follow economic trends: If there’s a significant dive in the economy, consider cutting back on your inventory if your products or services are non-essential.
Adapt Your Inventory and Resources
Businesses have to get creative in how they manage their resources without closing down:
- Scale down in quiet seasons: You could close parts of the business or consider other cost-cutting measures.
- Diversify your offerings: Look for other opportunities and launch new products or services to keep you going during off-peak periods.
- Expand to other locations: Consider opening pop-up stores in other regions or moving parts of your business online to sell to larger areas.
- Leverage industry contacts: Partner with complementary businesses or sub-contract and supply to larger companies with longer seasons.
- Reduce surplus stock: When you do have stock left, find creative ways of selling it.
- Outsource: Manage peak periods by contracting parts of your business to third parties, sourcing backup suppliers and hiring seasonal staff.
Plan Your Marketing and Promotions
Don’t forget to keep in touch with your customers and create a strong online presence through:
- Year-long marketing: Advertise your products and services to keep your business top of mind.
- Off-season sales: Sell surplus stock with markdowns and clearance sales without losing money.
- Local events: Take advantage of local sports or cultural events to support your community.
- Create events: Partner up with other organizations to generate demand and create awareness of your business.
- Target different markets: Expand your target market to different areas and include other demographics.
Save Funds For a Rainy Day
Sometimes, it’s necessary to weather-proof your business with the help of extra funding:
- Offer incentives: You can create customer loyalty by offering monthly payment plans or incentives for signing up during off-seasons in turn for funds coming in throughout the year.
- Budget: Plan and prepare for the slower seasons by setting aside profits received during peak times.
- Get funding: Increase your working capital by finding a service provider to help with a loan or financing plan.
Weather Seasonality Demand with Porter Capital
Porter Capital provides flexible funding options for all types of businesses. With our easy application process and quick approvals, you can get funding in as little as 24 hours, making it easy to get financial help when your business needs it most. Manage your resources during off-peak periods with working capital loans or other financing solutions.