Seasonal demand: can you handle the heat?
Summer has finally arrived and for businesses that can mean the quietest or busiest time of the year. We talk a lot about seasonal demand at MarketFinance because it’s a challenge many of our customers face. Although pinch points or fertile months are never quite the same for any two businesses, the advice we give to help manage the effects rarely changes.
Many of our funding solutions, like invoice finance, are great tools to help combat the issue by boosting your cash flow. But there are other things business owners can do to even out performance between high and low seasons. Below we’ll run through the main tools you can rely on if you experience dips in your revenue, however deep they may be.
Unless you sell bananas to monkeys, it’s likely that you see quieter weeks or months at certain points of the year. Seasonal demand can refer to real seasons, major events or holidays, and even end of the month panic. You’re certainly not alone.
If you’re a brand new startup and haven’t managed to collect much research data, you might not be on top of exactly when you need extra support. But for most business owners, chances are you already know when your busiest moments are. There are likely to be two main issues that seasonal demand creates for a business:
- Not enough cash in the ‘down time’ to keep the cogs moving (i.e. paying salaries, rent or other operational costs)
- Not enough supply or staff in the busy moments to match demand
Broadly speaking, these are both things that healthy, managed cash flow can cure. So how do you keep things positive, whatever the weather?
Data is key. If you want to understand the fluctuations in your business performance then you need to understand your customers. You don’t want to just react to the market. Look at the trends that have influenced your revenue and base your cash flow forecast on those. Does order size change at any point, or do the products or services your customers buy switch? When do you pick up most new business?
You may not have control over customer behaviour, but understanding exactly when and why it changes will help you plan. Once you’ve collected your data you can analyse the trends and patterns. In general, changes are predictable and repetitive, so once you’ve been operating for a couple of years you should have a clear picture of when to prepare. And unlike the weather forecast, you’re more likely to get it right in advance.
More business is great, right? It’s a sign that your product or service is desirable and an encouraging indicator of the growth you could achieve. However, matching demand with supply is not always as straightforward as simply making or buying it. Deciding how much to purchase – and when – is crucial to success.
You’ll want to make sure you’ve got enough stock to make the most of increased demand. But you don’t want to over promise to your customers and risk losing potential or repeat business. There’s a fine line between making sure you have a buffer of ‘safety stock’ to manage a surge and spending too much of your cash.
To avoid being unable to pay wages or cover other operating costs, you’ll need to carefully work out exactly what you can afford to hold. If you experience an increase in demand that you can’t match, you may end up turning away business and losing out in the long term from repeat custom. For more thorough restocks, your finances will need to be carefully managed.
We all know the saying “cash is king”, and that couldn’t be more true for businesses affected by seasonal demand. If your business sells barbecues, for example, you’re likely to sell more during the summer months. However, to stock up in advance you’ll need to pay your suppliers and logistics companies a long time before you see any money from a customer.
To bridge this cash flow gap (which can go on for months) you either need a lot of savings that you can comfortably dip into or a reliable funding facility. For some businesses this might be a business loan to cover the costs of materials and manufacturing or a smaller facility you can dip in and out of like our flex loan. For others, an invoice finance facility that lets you access the cash tied up in your invoices instantly is ideal. Our new flex loan And if your busy periods rely on extra machinery or equipment then asset finance could be the perfect tool.
Always speak to your accountant or a finance broker to work out what would work best for your business. Alternatively, if you’re interested in a loan or invoice finance head to our website and get in touch.
What are your supplier relationships like? When you’re managing seasonal demand these relationships benefit from being as open as possible. By giving your supplier a clear indication of when you expect you’ll be putting in larger orders, they can prepare ahead too. It’s also a good opportunity to negotiate discounts based on scale.
Similarly, if you’re a supplier or manufacturer then make sure you’re getting those conversations in with your customers. Knowing when they’re inundated with orders lets you prepare ahead of theirs.
It might sound counterintuitive, but quiet periods can be great for your business. You’ve got more bandwidth to think about the direction your business is going in and what you need to do to get there. Making the most of this time can help boost your profits overall, which in turn can make seasonal demand easier to manage.
Lower sales mean less pressure and less energy focused on fulfilling orders or winning new business. Use this downtime to:
- Develop new products or services to diversify your revenue streams
- Iron out any existing issues in your CRM
- Work out which positions you’ll need to hire
- Train or upskill staff to prepare for the busy season
- Plan effective marketing campaigns
- Organise partnerships with other businesses
Managing a truly seasonal business isn’t easy, but it’s definitely possible. You’ll need to make sure your planning is thorough and informed by as much data as possible. Managing your inventory stock, staffing and other resources is a fine balance but one that is made possible with strong cash flow.
Think about where you can save and how quiet times can strengthen your business when you’re selling more. Finding balance across the whole year is what you need to aim for. If you'd like to find out more about how our solutions can help support your seasonal demand then head to our website here.