Coping with the peaks and troughs of seasonal business

If your business cycle is determined by seasonal fluctuation, adopting flexible planning can provide the solution to see you through the lean periods
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Think of Christmas trees, fireworks, ice cream, ski-wear retailers or much of the tourism sector. If your business cycle is dictated by the calendar, how you cope with the challenges of seasonality isn't just a matter of business efficiency, it is about business survival.

Cash flow is perhaps the greatest challenge, as the expenditure pattern of seasonal businesses rarely matches their sales cycle. Sales might be condensed into a three month burst of frenetic madness, but staff and property costs, capital expenditure and stock costs, for example, will generally need paying all year round. The answer is in careful and flexible planning. If there is one advantage for seasonal businesses, it is that they know precisely when the peaks and troughs are coming.

"We used to do 85 per cent of our sales in a single six-week period from early November to mid-December," says Simone Nelson, who spent seven years running a smoked salmon business in Scotland. "We spent the rest of the year planning to make sure it went as smoothly as possibly."

In Nelson's case, that meant preparing the sales brochure, building relationships with suppliers, reviewing the previous years performance and, crucially, overhauling and updating the ordering system to make the process as efficient as possible.

"Smoked salmon obviously has a very limited shelf life, so we had to ensure that we had all the systems primed and ready to go so that we dispatch everything at the most opportune moment. If we missed even a day, the whole thing would be in jeopardy," she says.

So successfully did Nelson prepare her business, notably by investing in bespoke software, that when she sold it in 2003, she had increased turnover by 100 per cent in seven years. She put her experience to good use and now runs New Broom Software in Inverness, supplying bespoke software systems to other seasonal businesses.

Paul Chadney, head of the holiday and home park team at Barclays, says that businesses need to ensure that their financial commitments reflect their income cycle. A business that receives 90 per cent of its income in one month should avoid being tied into flat overdraft or loan repayments that stretch the entire year.

"I've got one client who receives £100,000 every April in advance pitch fees. As soon as he gets it, he spends £45,000 on paying off the year's loan and interest payments," he says.

Most banks will provide seasonal loan adjustment if asked. If they don't, suggests Chadney, then switch to a bank that does.

"If you can match your payments to your cash flow it makes a huge difference; but you have to ask the question. The bank may not offer it unless you push them," he says.

An obvious way to smooth out the seasonal variations is to try and beat the calendar by stretching out your sales cycle. Introduce out-of-season discounts or special offers, tap into new, less seasonal markets or bring in related, but less seasonally-sensitive, products.

Holiday company Hoseasons introduced hot tubs into some of its lodges to boost out of season bookings and saw demand rocket for romantic winter breaks. Or there's the camping shop which cleverly advertised its winter sales under the banner, "now is the winter of our discount tents".

Chadney says that the more innovative holiday parks offer "winterised" static caravans, with double glazing, central heating and video games to keep the children occupied on those rainy mornings.

"It is about trying to make the most of the shoulder months - the period immediately before and after your peak season. You might not get many January bookings, but your April or September figures should improve," he says.

And Chadney should now. Two months ago he decided to put his own advice to the test and he and his wife bought their own holiday park, the Barley Meadow Camping and Caravanning Park in Devon. Because after all, seasonal businesses may have their drawbacks, but they also have their advantages.

"When you know that the season is only a few weeks long, you can really stretch yourself to the limit, safe in the knowledge that you've got six months to get over it afterwards," sums up Simone Nelson.

'There was no quick fix to the seasonal problem'

An ice cream business in rural Dorset might sound as seasonal as it gets, but managing director Peter Hartle has expanded Purbeck Ice Cream into a year-round success.

He and his wife Hazel founded the business 18 years ago. In the early years he says that 50 per cent of the turnover came from largely local trade in August. That figure is now down to around 20 per cent.

"There was no quick fix to the seasonal problem and we struggled with it for the first few years. We tried mail order, but the nature of the product makes it difficult to do on any great scale," says Hartle.

His focus was on expanding out of the tourist heartland of Dorset and into less seasonal markets. And it worked. Today, Purbeck Ice Cream is sold in Kew Gardens, the MCC and Harvey Nicholls, as well as regional branches of Tesco, Asda, Somerfield and the Coop.

Seasonality is still an issue, though. He has an offset payment facility on his bank funding, so he can make larger repayments during the busier summer months. Storage can also be a problem. One of Purbeck's selling points is the freshness of its ice cream, which means that come the summer sales rush, space is at a premium. Hartle's answer is to either hire extra storage or set something temporary up on site. He also brings in temporary staff.

The strategy is an undeniable success. The company now employs 10 full-time staff and has increased turnover from £150,000 five years ago to a target of £1m next year.