7 Steps to Building a Seasonal Business Budget
Businesses experience seasonality for a number of reasons. Traditionally, this can be in the form of a beach boardwalk shop in a coastal town that generates most of its revenue when tourists visit in the summer. But as new businesses emerge in the SaaS and technology space, they too experience fluctuations in earnings throughout the year based on their industry or their buyer’s behaviors. These can be drastic but they can also be subtle and harder to detect.
If when building out your business budget you start noticing trends of highs and lows throughout the year, it’s time to adjust your financial strategy. Here are the 7 essential tips your business should use to compensate for seasonality:
Budget best practices seasonal business can rely on:
1. Create a baseline of basic expenses
Start with what you know you’ll be spending each month (your fixed assets). These costs—such as rent, insurance, or loan payments—will not change so you’ll know you need to budget to have enough to cover them.
You should also include the average amounts of variable or semi-variable costs (ones can fluctuate based on use) such as inventory, utility bills and routine fees. From there you can plan accordingly to cover at least this amount each month.
2. Plan a year in advance
This is important for two reasons: First, a seasonal business needs to think about performance on an annual level because it is harder to judge performance month over month. Second, because expenses you can anticipate throughout the year help you plan what you need to save during busy season.
3. Don’t get derailed from your budget during busy season
As I just mentioned, your busy season is not indicative of what you can expect year round. This is the time to be a saver and spend conservatively. Your budget should allow for smart spending when seasonality peaks and cushion to survive when it valleys. Give yourself something to look forward to in the off season when you’ll have time for identifying the absolute best way to spend your income.
4. Track, track, track as much as you can
Take advantage of tools like Excel and Quickbooks and start tracking each and every expense you incur. While it may feel like overkill, once you have documentation you can evaluate your spending and identify what recurring expenses you need to build into your budget.
Your slow season self will thank your busy season self for this attention and foresight!
5. Take advantage of your slow season
Don’t think about your slow season as a negative time, this is your opportunity to get ahead!
- Start planning for next year
- Pay attention to your buyers and see how you can engage with them in the off-season to instill customer loyalty
- Use this time to barter with vendors. You’ll be in a much better negotiation position when you don’t immediately need them than when you’re hoping to fulfill last minute orders.
Even seasonal businesses maintenance is a year-long process. The more you that can spend to get prepared during off-season, the more you’ll get to enjoy your busy times and reap all the revenue!
6. Build more than one budget
Every business should build at least three budgets. Your first is your baseline budget—everything you need to pay as covered in #1. The other two are known as your best and worst case budgets. One for how you will spend when you have excess and another for how you will save when you’re having trouble hitting your benchmarks. This way you can plan ahead while leaving yourself room to react to what actually happens.
7. Consider an alternative fiscal year
Seasonality is one of the primary reasons businesses trade the standard year (12-month period starting January 1 and ending December 31) for an alternative fiscal year or short tax year. Tax authorities like the IRS allow businesses that experience seasonality or are only in business for a portion of the year to change their tax return schedule and taxable time periods.
Learn more about fiscal and short years, how they affect your tax responsibilities, and which forms you’ll need to file here.
Your budget can be a sense of control in a world of chaos
The point of building a business budget is to make things as predictable as possible for your business. Doesn’t that sound nice?
This takes honest reflection and a knack for identifying trends. Business owners can find it painful to look back at finances—they may have a hard time facing spending mistakes or just hate numbers altogether. This reality check is the only way to identify your business’s financial health and set proper expectations into your year-round budget.