When it comes to growing your small business, it’s important to know how to prepare for and navigate through seasonality in order to see effective growth.
At ei Funding, we’re dedicated to helping small- to medium-sized businesses get the working capital needed to grow and become successful, especially during low and high times of seasonality.
Here are some tips for navigating seasonality so your business can grow and be the successful organization it’s meant to be.
Seasonal Factors to Consider When Starting a Business
The two biggest issues related to seasonality have to do with answers to the following two questions:
- Question #1: How much is enough to meet the expected sales demand? This question touches upon key decisions related to the quantity of labor, equipment, raw materials or finished product. It also touches on what current systems (sales, invoicing, warehousing, logistics, etc.) are present at your small business to handle expected demand.
- Question #2: Do I have adequate capital on hand to run my business as detailed by the answer to Question #1? Something to ask yourself is: do I have sufficient capital to pay for labor, raw materials, finished product, equipment and the cost of running the systems needed to handle seasonal sales?
How Businesses Can Address Seasonality
We believe seasonality can be addressed best with advanced planning — and that’s called forecasting. You have to find some metric, either by looking across your industry, your competition, market data or even past sales of your own, to forecast what your sales in a given period may be. Once you arrive at the forecasted sales number, you can then ramp up your business to meet that number.
How to Handle Low, High and Zero Demand
The reality is: every business is different. Each small business has different needs when it comes to staffing levels, equipment, product or inventory, etc. However, by putting flexible systems in place to accommodate either higher or lower demand, you allow your business to easily adjust to seasons of low, high and zero demand.
You may be asking: what are flexible systems? Flexible systems relate principally to labor and inventory levels that can be “flexed” up or down, depending on sales demand. For instance, can you hire temporary labor during a sales peak to manufacture or process more sales orders? Do you have access to additional warehousing where you can “flex” or expand to accommodate more product? Do you have adequate distribution channels that can handle more product if needed? Ideally, you want to maintain your business at a certain operating level to handle your basic demand, and then allow it to flex up or down, depending on seasonality and the unique needs of your small business.
How to Wisely Offset Low Peaks in Seasonality
Many small business owners believe lines of credit are their only option for offsetting costs during slow times of the season. However, a line of credit is just one type of financing tool that’s available when varying demands of seasonality kick in. There are many others, like purchase order financing (P.O. financing) or inventory financing for key vendors or suppliers, which allow small businesses to buy more product or inventory.
Additionally, factoring of accounts receivables is also a way to provide cash needed upfront to finance upticks in sales demand. But the one key point related to any type of financial tool used to offset demands brought on by seasonality is: as soon as the timeframe is over, it’s important to use the proceeds resulting from your uptick and completely settle the financial tool used. That way, when you need it again, it is there for your small business, and you’re in good standing with the provider of the financing (a factoring company, bank or alternative lender).
Want to Learn More About How to Grow Your Small Business?
Contact us today to learn more about how ei Funding can help you navigate seasonality and boost your business’s cash flow today.