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Preparing Your Seasonal Business for Decreased Demand

Human Resources
Article
10/16/2019

Any small business owner who operates a seasonal business knows about decreased demand. Seasonal demand forecasting is part of the job; anticipating and preparing for fluctuations in sales volumes and their subsequent effects on overhead expenses and cash flow.

Other challenges of seasonal businesses include cultivating and maintaining customer loyalty throughout the year — and doing much the same with your hard-to-find (but all-important) seasonal workforce. Inventory management can be difficult as well.

How can seasonal businesses survive? Here's a look at some critical success factors.

What is a seasonal business?

Much as the name implies, a seasonal business operates during a specific time of year (or primarily so), generally selling products or services in use during that season. Examples of such businesses include:

  • Snow removal services
  • Gardeners and lawn care businesses
  • Halloween retailers
  • Tour operators
  • Christmas suppliers
  • Outdoor excursion/adventure guides

Although some seasonal companies remain open for business throughout the year (but focus their biggest efforts during "high season"), others remain open for business during just peak selling times.

Benefits of running a seasonal business

For an entrepreneur with the right temperament, there are plenty of advantages to be found in running a seasonal business. These can include:

  • Greater flexibility with scheduling
  • Improved work/life balance
  • Extensive time in the off-season for breaks or other pursuits
  • Creative stimulation
  • Capability for advanced preparation

Having an off-season can free you from dealing with day-to-day business operations and allows you to focus instead on:

  • Strategic planning, including seasonal demand forecasting
  • Crafting the right marketing campaign
  • Catching up with paperwork
  • Exploring new avenues for staffing
  • Networking with peers, vendors, industry, and trade associations

Having an off-season also offers the chance to pursue professional development and become better at what you do. Conduct some competitive research, for example, so you're prepared for what competitors might do during the peak season.

Common challenges of operating seasonal businesses

Of course, seasonal business owners face challenges as well, examples of which may include:

  1. Managing cash flow. Seasonal businesses differ, but virtually all must contend with keeping a positive cash flow in place. Seasonal demand forecasting is key to the process, a means by which you track cash coming in and going out, so it's possible to predict what's available month by month for the following year.
  2. Inventory management during low and high demand periods. Seasonal fluctuations can have a big impact on inventory. High demand periods generally see a flurry of sales, when it may be hard to keep products in stock. Then, as the season fades, customer demand can slowly dwindle off or vanish completely.
  3. Hiring and training seasonal staff. Depending on the type of seasonal business, your hiring needs can vary (sometimes widely). The challenge for these businesses can be recruiting and hiring the right seasonal staff — individuals capable of assuming responsibility and, where appropriate, interacting in a favorable way with customers.
  4. Maintaining customer loyalty. No business can rely with complete certainty on customers they have served in past years. During the off-season, think of ways to entice the former customers back while working hard to engineer strategies that attract new business.

How to prepare your seasonal business for decreased demand

So, how do seasonal businesses survive? Advanced planning is critical. It's important to prepare your business for decreased seasonal demand. Here are steps to take:

Analyze monthly sales cycles

As part of your seasonal demand forecasting, review data from past seasons to estimate how long your off-season will last and how factors beyond your control (e.g., bad weather, local events, and changing trends and regulations) can affect the business. In addition to evaluating how long you may need to sustain decreased sales volume, understanding your business's unique sales cycles can help you optimize the number of employees on payroll, relative to demand, and structure marketing promotions based on the inventory on hand as peak season nears its end.

Estimate how much cash is needed to sustain low demand

Some seasonal business expenses may decrease as you downsize inventory and operations in the off-season. Other overhead expenses, like rent for office or warehouse space, basic utility costs, and business insurance remain throughout the year. Project the total costs of these expenses during your down cycles and prepare to have cash on hand to cover them, in light of decreased sales volume.

Secure access to funds

If you don't have an account to cover off-season expenses, form a plan to ensure that you have access to cash reserves:

  • Outsource assets. Does your business have dedicated parking, office space, or equipment that goes unused during the off-season? Consider renting them to another local business to generate additional income to pay for baseline operating expenses.
  • Research funding options. Many alternative-business funding providers specialize in helping small businesses leverage their assets (which may include equipment, accounts receivables, or daily sales) to obtain access to cash when they need it. Research various options for which you may qualify, based on your business's financial history and specific needs, to ensure you're financially prepared before your sales decrease.

Prepare for seasonal inventory changes due to decreased demand

One of the biggest challenges faced by seasonal business owners is managing fluctuations in inventory. To be adequately prepared for such fluctuations, it's important to:

  1. Analyze historical supply cycles. Look back at the history of your business's sales and purchase information. What was the typical monthly sales volume? Did particular holidays or special events generate a dramatic uptick in sales or a significant decrease in product demand? A good inventory management system should provide answers to these and related historical supply cycle questions, leading to improved inventory control.
  2. Categorize products by their life cycle. Effective inventory management includes noting the difference between products that are exclusively seasonal (like Halloween costumes or Thanksgiving decorations) from those that see increased demand. Knowing which products have a more abbreviated shelf life can minimize the risk of being stuck with residual supplies that are expensive to store.
  3. Diversify to offset seasonal decline. Look for ways to diversify your products or services and minimize the impact of a decline in seasonal sales. For example, if your business focuses on Easter eggs and other related items, there might be a way to translate this into specialized gift items for other times of the year (such as birthdays or anniversaries).
  4. Remove slow-moving products. No seasonal business wants to get stuck with products that aren't selling. Fortunately, there are strategies to generate new interest among consumers. These include:
  • An everything-must-go sale.
  • A specific product sale (with advertising aimed at a niche target audience).
  • Moving slow-selling products to a different part of the store or come up with new keywords in your online product title and description.
  • Bundling several products together and set a sales price somewhat lower than what these products would go for individually.

Manage the impact of seasonality on employees

You have invested significant time, energy, and resources into hiring and training seasonal staff. Maximize the return on your investment by proactively building lasting relationships with the employees you hope to hire back every peak season. Here's how:

  • Provide advance notice of staffing changes. Notify seasonal employees of your expectations for staffing changes as soon as you have a sense that you need to reduce the size of your team. Employees will appreciate having time to adequately prepare for the changes this brings to their lives.
  • Cross-train seasonal employees. Train seasonal employees on other tasks, such as working the sales floor, supporting inventory, or contributing to marketing or service operations. This way, you increase the return on your human resources investment and give seasonal employees the opportunity to remain on your payroll well after the season winds down.
  • Allow flexibility. While seasonal workers may file for unemployment once the season ends, it's still important to be flexible with scheduling to suit their needs. They may need the time to interview and secure another job before your peak season ends. 

Minimize marketing expenses during the off-season

Customer loyalty and brand awareness require constant engagement. The more you proactively work to build your customer email list and encourage customers to connect with you during your peak season, the better equipped you can be to execute low-cost marketing efforts like automated email marketing campaigns and scheduled social media activity. With some groundwork, you can help your brand stay top of mind throughout the year.

Facing the challenges of seasonal businesses requires patience, attention to detail, and advanced planning. Part of planning for decreased seasonal demand involves finding the right people to staff your business at the right time. Learn more about hiring a great part-time employee for help any time of the year.

This website contains articles posted for informational and educational value. Paychex is not responsible for information contained within any of these materials. Any opinions expressed within materials are not necessarily the opinion of, or supported by, Paychex. The information in these materials should not be considered legal or accounting advice, and it should not substitute for legal, accounting, and other professional advice where the facts and circumstances warrant.