Advice for seasonal businesses

Many businesses – such as those in the farming or tourist sectors and retailers selling Christmas merchandise – do the majority of their trading during a short period each year. The challenges faced by seasonal businesses are unique.

This guide outlines a range of advice for seasonal businesses starting with cashflow planning, which is particularly important as these types of businesses often have to use a short burst of revenue to cover their liabilities for an entire year.

The guide also looks at financing for seasonal businesses, as well as recruitment options, diversification and tax and benefits issues.

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How seasonal businesses can manage cashflow

There are many steps a business can take to manage its cashflow more effectively. These apply to businesses of all kinds, but they’re particularly important for seasonal businesses, which are more likely than others to face irregular cashflow patterns.

Plan ahead

By planning ahead, you can ensure you are able to cover any slow periods and avoid having to use quick but costly forms of finance such as credit cards.

A cashflow forecast will highlight times when you’re most likely to face financial pressure. This could simply involve drawing up two lists – for money flowing into and out of the business each month. Download our sample cashflow projection spreadsheet [opens in a new window].

For further advice about cashflow management, see our guides on cashflow management: the basics and how to identify potential cashflow problems.

Get paid more quickly

It pays to be organised about obtaining payment – this means sending out invoices promptly, chasing late payers and considering offering a discount for early payments. For more information about good credit management, see our guide on ensuring customers pay you on time.

Keep stock levels down

Carrying excess stock ties up money you could be using elsewhere. Keep records of stock levels so you can see patterns of what kind of stock you should build up – and when you need it. Estimate demand by asking your regular customers what their needs will be. Use sales or promotions to shift stock that hasn’t sold well. See our guide on stock control and inventory.

Tighten your purchasing policies

You can improve your cashflow by agreeing better terms when buying. This might involve looking for a bulk discount, agreeing a longer than usual payment period or arranging purchases on a sale and return basis. See our guide on how to manage your suppliers.

Put money aside

Resist the temptation to take money out of the business during your peak times – put money aside so you’ll be able to meet your commitments during quiet periods. It’s a good idea to set up a business savings account but do some research before you decide on a finance provider. Once you have signed up, regularly review this relationship and switch providers if a better offer is available. This will help you to get the best rate of interest on your savings.

For more information about managing your cashflow, see our guide on cashflow management: the basics.

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Finding suitable finance

Taking out finance to bridge shortfalls in cashflow during off-peak trading periods can be costly and is generally only advisable as a last resort. Before seeking further financing, take all the measures you can to ensure you maximise the money coming in and minimise expenses. See the page in this guide on how seasonal businesses can manage cashflow.

The right funding options can help seasonal businesses manage their irregular cashflow and operate more efficiently. These include:

• an overdraft facility – arrange this with your bank before you need it and agree on terms that suit your needs, eg the limit of your facility, a single fixed fee or interest only on what you use, a flexible period when the facility is available
• bank loan – aim for a loan that can be adjusted according to your seasonal sales to allow flexible repayments to match up with cashflow; ie larger repayments when trading is good
• asset finance – involves releasing cash tied up in physical assets of your business, such as equipment or vehicles, to improve cashflow – this facility type of finance can be tailored to the seasonality of a business to allow flexible repayments
• bad debt protection – is a type of insurance that guarantees 100 per cent payment on invoices from all credit approved customers – will usually help your invoice finance agreement – often involves risk assessment of new customers

Factoring and invoice discounting

Factoring and invoice discounting allow you to boost cashflow by raising finance against outstanding invoices. This may allow you to maintain a steady flow of income all year round. You will typically be able to borrow 80-85 per cent of the value of the invoice.

Whenever entering a contract with a factoring or invoice discounting company check the termination notice period.

See our guide on factoring and invoice discounting: the basics. You can also find information on factoring and invoice discounting on the Asset Based Finance Association (ABFA) website- Opens in a new window.

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Getting the right staffing levels

It is essential to plan ahead to ensure you have the right number of employees with the right skills to meet demand at peak times.

You can work out appropriate staffing levels by:

• Looking at sales information and data – this will help you to work out the amount of activity at peak times and the basic level of work that is constant throughout the rest of a year.
• Deciding on work that is crucial and needs to be consistent for the business to run on a daily basis throughout the year.
• Deciding on who is best to perform crucial work – ie will you use permanent employees or will you need to train temporary staff?
• Considering the local job market – is there an adequate temporary workforce available, and how quickly can new staff or previously hired staff be employed?
• Planning cover for absence, illness and holidays to maintain staffing levels. One way to do this is to look at how many days have been lost in the past and to know how many staff are necessary for the business to operate.

You need to find the right balance between permanent employees – the core of your staff who work all year – and temporary staff or staff on fixed term contracts who only work during the peak periods. Your core of permanent staff should be able to keep the business ticking over and make sure that everything is in place for busy periods.

If it is difficult to predict how busy you will be, you can use a recruitment agency to take on suitable, temporary staff at short notice.

There are other employment options that you can use to meet seasonal business needs, such as:

• family and friends who may be able to help out at weekends and during school or college breaks
• part-time workers who may be able to ease the pressure at particularly busy times
• outsourcing some business activities

For more information about employment options, see our guides on taking on staff – the options and outsourcing.

It can also be a challenge to recruit and retain quality seasonal staff, but there are solutions that can help, for example:

• provide schedules well in advance so staff can plan their lives around them
• keep people informed about when the busiest periods will be
• offer incentives such as overtime payments or productivity bonuses
• reward success and hold team events to keep morale high

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Boost your business all year round

All seasonal businesses experience slow periods. You need to think creatively to get through these. Look for areas where small changes might keep your business active outside peak seasonal times.

Diversify your business

Most businesses can branch out from their core activity. If your business is seasonal, this may be essential to avoid inactivity during off-peak months.

For example, a business making wedding dresses might make most of its sales during the spring – but by using its skills and equipment to make other special occasion dresses it might be able to move into a market that is busy in the autumn and winter months.

Another example would be a business specialising in school stationery supplies adapting some of its product lines for the less seasonal office stationery market. Or a summer-focused outdoor adventure centre might begin to sell team-building weekend packages to a new business market.

You could consider expanding into international markets with opposite seasonal trends. This will create opportunities for you to counter the slump of seasonal sales through export sales, thus maintaining consistent production and profitability all year round. See our guide on exporting – an overview

Market your business so it stays active longer

Another strategy for seasonal businesses is to develop a marketing plan that makes sure the busy season lasts as long as possible. For example, discounts, sales and promotions can be used to bring customers in during off-peak months – this is the way many tourist accommodation businesses price the rooms they rent out. You may find ideas by looking at what your competitors do. See our guide on how to understand your competitors.

Off-peak times also allow you to put your marketing plans in place for the next peak season. This is one of a range of tasks that can be completed out of season. See the page in this guide on how to make the best use of quieter periods.

You should also look at the media you use for your marketing. The internet can be a very cost-effective way of helping people to discover your business – see our guide on how to generate business from your e-marketing plan.

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Make the best use of quieter periods

It’s important to take advantage of off-peak periods to consolidate your business. While some owner-managers may take a second job to tide them over, many use the extra time to focus on aspects of their business for which there’s little or no time during peak periods.

Maintenance

Maintenance is often top of the list. For example, a caravan park owner might close at the end of October and spend the next few months repairing broken equipment, renewing facilities such as the laundry room and carrying out necessary landscaping.

Marketing plans

The extra time may also come in useful for devising new marketing plans and sales initiatives. For example, the caravan park owner might add details of that season’s guests to a customer database. They could then devise a direct mail campaign targeting existing customers in January, when many people are planning to book holidays.

See our guides on direct marketing: the basics and how to manage your customer database.

Stocktaking and ordering

Quieter periods also offer an opportunity to tackle time-consuming essentials such as stocktaking and ordering. Look at the stock you have in and compare it with the amounts you ordered over the year. Can you order smaller quantities in the future? Or could you place one large order for certain supplies rather than several small ones – perhaps benefiting from a bulk discount in the process? See our guide on stock control and inventory.

Check whether you’re getting the best deal from your suppliers. Shop around and get alternative quotes. Once you are happy with your supplier, invest time in building up a strong relationship. You could dramatically save on costs and you may also benefit from volume discounts. See our guide on choosing the right suppliers.

Try to include a holiday in your plans if possible. Having worked long hours through your peak period, it’s important to take a break if you’re to remain productive and keep stress levels under control.

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Tax and benefits issues for seasonal businesses

Careful financial planning and choosing the right VAT scheme for your business can ease the pressures faced by seasonal businesses. To make sure you maximise the benefit to your business while fulfilling all your legal requirements, you should seek professional advice.

Year-end date

Choose your year-end date to fit the nature and cashflow cycle of your business. When choosing the most suitable date to submit your annual accounts, you should aim for a date that will allow you to:

• make the most of any allowances and reliefs available
• make your first payment of tax on account at a time appropriate to your cash inflow
• avoid having to prepare accounts during a busy period

This can be a complicated area so you should seek professional advice before making any changes. See our guides on how to choose and work with an accountant and change your accounting date.

Corporation Tax

Most companies pay Corporation Tax nine months and one day after the end of their accounting year. Seasonal businesses might find it useful to calculate their year-end date so that payment is due when cashflow is buoyant.

VAT Accounting Schemes

Seasonal businesses might also find it beneficial to use one of the VAT Accounting Schemes.

The Cash Accounting Scheme helps with cashflow as you only pay VAT to HM Revenue & Customs (HMRC) when your customer pays you. You are not liable for the VAT if you don’t receive payment from the customer. You are eligible for this scheme if your estimated VAT taxable turnover during the next financial year is not more than £1.35 million. You can continue to use cash accounting until your VAT taxable turnover exceeds £1.6 million.

The Annual Accounting Scheme allows you to make monthly or quarterly payments towards your annual VAT bill. Paying in instalments helps you to manage your cashflow as you know when and how much your payments will be. Completing only one VAT return a year helps reduce the time you spend on VAT. You can use this scheme if your estimated VAT taxable turnover for the next year is not more than £1.35 million.

The Flat Rate Scheme allows you to calculate VAT as a flat rate percentage of your total turnover. This scheme helps your business by saving time spent on record keeping and in working out the VAT you have to pay. You are eligible to join the Flat Rate Scheme if your VAT taxable turnover – excluding VAT – in the following year is expected to be £150,000 or less.

You can see our section on accounting schemes to simplify your VAT.

If you are a farmer there is a separate Agricultural Flat Rate Scheme, which is an alternative to registering for VAT. For more information on the Agricultural Flat Rate for Farmers, see the page on Farmers, florists and barristers and the Flat Rate Scheme in our guide on Flat rate scheme for VAT.

There are also VAT schemes for retailers, margin schemes for second-hand goods, art, antiques, collectibles and a Tour Operators’ Margin Scheme. For further information see our guide on VAT accounting schemes: the basics.

Eligibility for benefits and tax credits

Owners of seasonal businesses that shut down for certain periods cannot claim unemployment benefits or Jobseekers’ Allowance. However, National Insurance contributions must continue to be paid. If your annual income is low, you may be able to claim tax credits. Applying early for these is important – any claims can only be backdated by three months. Find out if you qualify for tax credits on the HMRC website- Opens in a new window.

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CASE STUDY

Here’s how I made my seasonal business successful

The Christmas Shop is situated between two tourist landmarks – London Bridge and Tower Bridge – and sells everything you need to make Christmas go with a bang, from crackers to nativity sets and Christmas trees to tree-top angels. Most of its sales come in the last three months of the year. Here’s how owner David Thompson made it work.

WHAT I DiD

Tightly budget and forecast

“For a business like this, budgeting and forecasting is very important. About half of our sales come in October, November and December, so we need to carefully balance our sales against costs in the earlier parts of the year.

“It’s been a bit easier to forecast accurately for the past few years, with the business being pretty much consistent in the crucial months of November and December.

“It’s only really experience that has taught us this – there’s no magic formula. But without accurate planning, or understanding our customers, the first ten months of the year could be much more difficult for us in cashflow terms than they are.”

Diversify the offer during quieter periods

“While we get customers who live and work in the area buying throughout the year so they can spread the cost of Christmas, we need to make the most of the tourist trade that kicks off in earnest at the beginning of July, to keep sales up during the off-season months.

“Some tourists buy Christmas-related items because they don’t think they’ll be able to get them at home, but we also stock a range of cards, gift wrapping and general giftware so that tourists and passing trade can buy from us, whatever the time of year. We mainly concentrate on strong, traditional British brands like Royal Doulton and Royal Worcester, with the tourist trade particularly in mind.”

Build a strong relationship with suppliers

“We’ve also managed to build excellent relationships with key suppliers. It’s taken us time, but it’s been well worth it.

“Like most retailers, we do the bulk of our ordering in January and February. But where we’re different is that we’ll take the stock immediately, rather than early September. As we help suppliers save warehousing and storage costs, we’ve negotiated some pretty long payment terms.

“It’s obviously good for us – but it’s good for the suppliers too. We can only do it because we’ve built up a relationship and a reputation for paying on time and building mutual trust.”

WHAT I’d do differently

Build additional channels earlier

“If I had my time again, I would probably have found a way to diversify earlier to minimise the cashflow peaks and troughs. I thought about importing and wholesaling Christmas-related products at one stage, but I missed the right time to do it really.

“We’ve opened an online shop and that’s generated valuable additional trade from right across the world, all year round. If I had known it was going to be successful, I’d have done that earlier too.”

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