Seasonal small business offers equal parts challenge and opportunity

Owners of seasonal small business are feeling cautiously optimistic this year.

Although some admit that the premature arrival of warmer temperatures caught them by surprise with an early influx of business, they're taking that as a sign of good things to come. "We weren't ready for this," one store owner told us, "but we'll take it" as she hurried to unpack inventory and change light bulbs. If you add to that early spring the encouraging upticks in the general economy, some seasonal entrepreneurs are thinking this may be one of the best years they've had recently.

But running a seasonal business comes with its own unique challenges. While their income may be limited to only five or six months, they have expenses for 12 months a year. They often repeat the hiring and training cycle every year, and their marketing budgets can fluctuate tremendously.

Here are some tips to make riding the seasonal business roller coaster a bit more predictable.

Finance

One of the most challenging aspects of managing a seasonal business is cash flow, particularly prior to arrival of customers and after the purchase of inventory. Short-term loans or lines of credit can help fill the gaps created by seasonal sales fluctuations.

One such program is the U.S. Small Business Administration's CAPLines program. It's designed to give business owners flexibility to hire workers and finance supplies and inventory so they can deliver on orders and contracts for work while awaiting payment. Under the CAPLines program, small businesses can pledge accounts receivable, inventory, contracts and purchase orders to secure an SBA revolving line of credit. The program was recently streamlined to make it easier for small business owners to get financing event if collateral is tight.

When making large sales, insist that you receive at least a portion of the payment for your product or service up front. Avoid invoicing for the entire amount. On the supplier side, try to negotiate longer payment terms so you spread the expenses over six to 12 months rather than having to pay for inventory before you have sold it. Some seasonal entrepreneurs avoid starting the season with completely full shelves and storerooms. Starting slowly is smart for two reasons: it's easier financially, and it allows you to see what is actually selling and what is not. Trends and tastes can change, and what flew off the shelf last year may be old news for this season. The best approach is to solidify your relationships with your vendors and suppliers so they will be responsive when you did need something, and then start slowly and ramp up as business dictates.

Accurate cash flow projections are essential. Having solid numbers will help alleviate the guesswork that typically plagues a seasonal business, and it will give you some ideas about how to conserve cash flow throughout the year. Plan your cash flow for 12 months, using historical data to predict your revenue, expenses, slowest and busiest months and estimated sales. Consider your fixed expenses and variable expenses and when the latter will hit your books. The result is a clear road map for the entire year.

Staffing

Staffing also presents its own unique challenges. Hiring seasonal employees does decrease costs throughout the year. On the flip side, seasonal businesses are then faced with the annual challenge of hiring and training those workers. The best solution for this dilemma is to encourage and offer incentives to your seasonal workers to return next year at the same time.

One entrepreneur told us that she keeps her seasonal employees close throughout the off-peak season with frequent emails, calls and even modest events, such as an employee lunch. It keeps her good workers connected to the company year-round. Another offers her workers a percentage of the next year's profits if they commit to returning. And yet a third offers his employees a 50 percent wage for portions of the off-season even if they are not working. He says it is clearly a savings in the long run, particularly when the cost of recruiting, interviewing and training new workers is factored in.

You must provide some employee benefits, including Social Security and workers' compensation, to all employees. Other benefits such as retirement and vacation time are optional "fringe" benefits. You may decide that you are not able to provide more than what is absolutely required by law, so just be clear with your seasonal workers about what benefits they will receive.

State laws will govern what you must provide in terms of unemployment compensation, so check with your state's department of labor regarding what you would be required to provide in the event of layoffs.

Even though it takes time, be sure you interview and select seasonal workers with the same care you would use in selecting a permanent employee. They will be representing your company during your busiest season, and although their tenure may not be lengthy, just one instance of poor customer service can be global news before nightfall. And, in one of the worst case scenarios, a temporary employee who knows he may be hard to track could easily commit fraud or theft and disappear forever when the busy season ends.

Marketing

It's always a challenge to reach your customers. It's also easy to simply rely on tried and true methods of promotion. But in today's rapidly changing environment, that can be a dangerous approach.

One strategy that many entrepreneurs find effective is to get out of the business to sponsor or at least participate in local festivals, fairs and markets. Look for the events in your area that are well-attended and long-standing, and create a presence for yourself. Or consider hosting a special event for Memorial Day, the 4th of July or Labor Day.

Partnering with local business groups, such as your chamber or downtown business association, offers the opportunity to cross-promote or collaborate on marketing. Work together to create advertising campaigns or group discounts.

The off-season is equally important in your marketing strategy. Stay in touch with your customers throughout the year. It's easier and less expensive to do that now with social media, email and interactive websites. Let your audience know about new products you offer, upcoming promotions and your plans for the season. Build a sense of anticipation. Shortly before the seasonal kick-off, provide your customers with coupons or offer a discount for pre-seasonal sales. The "early" revenue will help you tremendously.

Seasonal companies can benefit from adding other services during the slower months. While providing landscaping services in the summer, one entrepreneur offered discount coupons to his customers for snow removal and home and window washing. He broadened his brand from landscape services to home maintenance.

Another vacation rental realty company told us it updates its Facebook page several times each week, even during the winter months, to show that their location is beautiful, even with snow on the ground. "Just imagine how nice it will be in June," they say. "Make your reservations now."

And in general ...

The owner of one retail shop told us that she starts planning for the next spring the day after she closes her doors in the fall. The quiet months are the best time for budgeting for the coming season, going to trade shows, studying what your competition is doing and learning about the latest innovations in your industry. Of course it's also the perfect time for physical renovations, maintenance and updating of equipment and supplies.

Although you may want to simply "unplug" and get away from it all, it's never too soon to start researching your market and any changes that are anticipated. Re-opening a business that has been dormant for many months may be a bit like opening a new start-up. One good strategy is to examine what drives your customers' purchases during the season and then look for ways that pattern of purchasing behavior could benefit your business in the slower months.

Just because your business is seasonal, it does not mean your regulatory paperwork is. Try working ahead. If you own a restaurant that gets particularly busy during tourist season, get your licenses and inspections done in the down time, and check to ensure that your insurance, payroll paperwork and tax filings are up to date. That way, when the season comes early, as it did this year, you're ready to go and not waiting on a license or inspector to make it to your place.

As always, feel free to contact your local Small Business & Technology Development Centers for assistance on these and many other issues regarding running a seasonal business. To find the center closest to you, go to www.missouribusiness.net/sbtdc/centers.asp.

This story was featured in the June 2012 newsletter