Seasonal Budgeting for Small Businesses

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Just as the weather turns crisp and the trees shed their leaves, small businesses face changing seasons. You will need to anticipate these changes and start budgeting for seasonal trends.

Seasonal budgeting is an unfortunate necessity as a small business owner. Not only do you need to anticipate the tides of customer demand, but you also have to maintain your costs. Having highs and lows during the running of a business is normal – what really matters is how you prepare to face them.

The biggest secret when it comes to preparing for low points in businesses is refining your budget. Small business financing can help you offset the lows and take advantage of the highs during your seasonal changes—but first you need to know when to expect them.

Let’s look at things to consider when creating your seasonal budget:

Plan for Your Business Lows

In order to create an accurate seasonal budget, take a look at your sales data and cash flow trends to fine business lows.

Once you know when to expect your business lows, start planning how to cut costs or generate extra cash so that you’re covered during those periods. You don’t have to panic – merely strategize about how to spend when periods are slow.

You may want to create a list of expenses that you have to meet to keep your business up and running. This list may include costs such as:

Spreadsheets and statements are okay, but it’s time consuming to track and forecast manually. It also leaves room for human error. Track your historical trends digitally and automatically. This data combined with your budget will allow you to prepare for healthy finances during slow periods.

Budget Cuts During the Off Season

Now that you know when your business lows are, you can start making some cuts to your budget. The goal here is to save as much money as possible so that you can reinvest it back into your business during the high season.

Here are a few ways you can cut costs during your off season:

  • Reduce inventory levels – During your off season, you may not need to order as much inventory. This could help you save on storage costs or maintain a healthy cash balance..
  • Cut back on staff hours – If you have part-time or seasonal employees, this is the time to cut their hours back. If there isn’t as much demand, you don’t need as many workers.
  • Reduce marketing spend – Take this advice with a grain of salt. If your sales cycles are long, it may not apply. But if marketing investment is tied to immediate revenue, it’s worth making adjustments. For example, as cold weather approaches, it may not be the time for golf course or vacation rental ads. Instead, focus on more cost-effective, evergreen methods like content marketing.
  • Review your fixed and variable costs – Make sure you know what expenses are necessary and which ones can be cut back on, if needed.

The down time could also be a good time for remodels or other add ons that could increase your sales later on. Don’t make drastic cuts without weighing your outcomes. If there are constant expenses that you need to maintain, position yourself in advance for small business loans that can help cover some down time costs.

By making strategic cuts to your budget during the off season, you’ll be able to reinvest that money back into your business when things pick back up.

Plan for Your Business Highs

As much as all small business owners dread the lows, the highs come with their own challenges. While they’re certainly more fun, they’re also busier and potentially more expensive.

The best way to prepare for your highs is to save during your lows. Cash flow can still be an issue when business is booming due to upfront labor and inventory costs. By saving during the slower times, you’ll be able to afford the increased expenses associated with your business highs.

When preparing for the highs, you can plan a list of typical business expenses that you will have to cover before the sales boom. All of these things cost money, so it’s important to have a plan in place for when demand is high. You can also take into account what expenses you will have to make during those booming months.

This list can include expenses for a business such as:

You should also have a plan for what you will do with the extra revenue. Will you reinvest it back into your business? Save it for a rainy day? Use it to pay off debt? Knowing how you’ll use the extra money will help you make the most of your business highs. This will help you keep your business afloat during the slow times and take advantage of the busy times.

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Small Business Financing Options

Assuming there is enough cash to cover your expenses and an increased amount coming in, these tips work great. Of course, that is not always the case, especially with small businesses. Investigate the most advantageous small business financing options for your business in advance so you’re positioned to secure favorable terms and interest rates. Here are some starter options for financing your seasonal budget.

Term Loans

A term loan is a lump sum of cash that you borrow and repay over a set period of time with fixed payments. The repayment schedule is determined when you take out the loan, so you’ll know exactly how much you need to pay each month. This type of loan can be used for a variety of purposes, including seasonal inventory costs, hiring additional staff, or marketing campaigns.

Term loans create some of the lowest interest rates. It also incorporates flexible repayment terms. Term loans can be your best friend if your business does not need immediate cash and has good credit.

Invoice Factoring

Invoice factoring refers to a variant of financing that lets you sell your unpaid invoices to a lender. You will receive cash in kind. After this, the lender will collect payment from your customer and you will then repay the loan, along with other fees and interest.

If you have customers who take a long while to pay their invoices, this type of financing is helpful. By selling your invoices, you can get the cash you need right away without having to wait for your customers to pay.

Factoring can help your company when it has a lot of longer term outstanding invoices. Be careful to weigh these benefits with the impact on your customer relationships.

Invoice Financing

Invoice financing is similar to invoice factoring, but instead of selling your invoices, you use them as collateral for a loan. The lender will give you a loan based on the value of your invoices and you’ll repay the loan, plus interest and fees, when your customers pay their invoices.

If your business has a lot of receivables, credit-worthy customers, and need cash immediately for operating expenses or growth opportunities, this type of financing could be your match. Explore invoice financing for small businesses especially if you cannot wait for other forms of financing.

Revolving Line of Credit

A revolving line of credit is a type of loan that allows you to borrow and repay funds as needed. You will be granted a credit limit and will be able to borrow up to the stipulated amount. Repaying the borrowing funds will make them available to you again.

This type of financing can be helpful if you have unpredictable or seasonal expenses. You can borrow the cash you need when you need it and repay it when your business is doing well.

One thing to keep in mind with a revolving line of credit is that it typically has higher interest rates than other types of loans. But, if you have good credit, you may be able to qualify for a lower rate.

Merchant Cash Advance

A merchant cash advance is a type of financing that allows you to sell a portion of your future credit card sales in exchange for cash. The lender will then collect a percentage of your credit card sales until the loan is repaid.

This type of financing can be helpful if you have a lot of credit card sales. By selling a portion of your future sales, you can get the cash you need right away.

Be careful— merchant cash advance loans follow an annual percentage rate that can go beyond what you would be paying if you selected another option. Make sure you’ve been operating over six months and have a good credit score before selecting this option.

Extra Tips for your Seasonal Budget

Know your historical sales patterns – This is key in forecasting what to expect in the future and will help you plan inventory, staff, and marketing efforts accordingly.

  1. Know your historical sales patterns – This is key in forecasting what to expect in the future and will help you plan inventory, staff, and marketing efforts accordingly.
  2. Look at industry trends – Keeping tabs on what’s going on in your industry will give you a good idea of what to expect seasonally. For example, if you sell products that are popular gifts, you know to expect a spike in sales during the holidays.
  3. Plan for the unexpected – As much as you plan and prepare, there will always be things that come up that you didn’t plan for. Make sure to have a buffer in your budget for these types of things. Stay flexible!
  4. Plan for big events – If there are any big events happening in your industry or community (think trade shows, conventions, etc.), be sure to factor those into your budget as well!
  5. Plan for changes in customer demand. Just because last year was slow doesn’t mean this year will be the same. Be prepared for both ups and downs.

By following these tips, you’ll be on your way to creating a strong seasonal budget for your small business! If you need help, our team at Viably is here for you! Sign up today!

Seasonal budgeting can be a challenge, but it’s important to be prepared for the ups and downs of running a small business. By knowing when your business’ lows and highs are, you can make strategic decisions about how to spend your money.

Happy budgeting!!

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