In business, seasonal factors can have an enormous impact on your levels of revenue. Depending on your industry, you will likely experience periods of the year where the money is rolling in, and others that are frustratingly lean in comparison. The tourism industry is a particularly good example of this seasonality in action; there is inevitably a huge spike in business during the summer months, while things tend to wind down in the winter. This is where travel agents and tour operators have to get creative, offering city breaks or pushing cheap deals in parts of the world that are still warm.
Of course, tourism is quite a literal example; fortunes in business are not always tied so explicitly to actual seasons. Temporal changes in various factors can – and do – have a significant impact all through the year, and nearly all businesses will face a "low season" at some point during that period.
Unfortunately, these low seasons can be harder to navigate if your business is new or small. If you are not able to identify and prepare for them, then such fluctuations can catch you by surprise in the crucial early years of your organisation.
Hence, it is vital for every entrepreneur to understand the various seasonal factors that affect business in general. Further, it is also important to identify the "high" and "low" seasons inherent in your chosen field of business, which we will illustrate below.
The Impact of Seasonality
All business activities revolve around the dynamics of market demand and supply. If consumers are more active, then there is increased demand. This spurs firms to produce more goods and services, increasing sales and eventually profits as well.
Ideally, all businesses would love to possess an annual chart that shows consumer activity heading continuously in one direction – up. But in real life, things are far more complicated. Some essential products will have relatively stable demand throughout the year; for others, a lot will depend on the time of the year and relative level of consumer activity.
For instance, November and December are usually the peak season for consumer goods and electronics, as people purchase presents for the holidays. In contrast, textbook and stationery manufacturers may see significantly increased demand at the start of the school and college academic years. Then there are niche businesses, such as the aforementioned tourist resorts, that often have just one highly active season each year.
Identifying many of these factors involves a degree of common sense, and you should have explored the variance of such peaks and troughs in your initial market research. Established businesses are also able to pinpoint exact trends, as they will have an in-depth collection of sales data that can allow them to accurately project earnings and identify so-called 'quiet' and 'busy' months.
Ultimately, though, seasonality is highly contextual in business. Some sectors see significant changes in demand with a change in seasons, or at particular phases of the year. Others are less affected. Regardless of the intensity of seasonal changes, any change in consumer activity will have a domino effect on other aspects of your business, as seen below:
Cash flow is crucial for the survival of a small business. Seasonal changes in consumer demand can have a significant effect on both your liquidity and working capital if you have not prepared in advance for the off-season. You will be spending a lot of your working capital before or during the peak seasons to keep up with the demand.
Granted, your firm may make tons of cash in those seasons. But if you spend most of it, your business will be left high and dry when the off-season hits. This can lead to disaster, especially if you are unable to raise any lines of credit to cover for fixed overhead costs.
This is an extreme scenario, but it can happen, especially in the case of small businesses in their first year. Seasonality forces businesses to be cautious and conservative when planning the budget for their upcoming financial year.
2. Staffing and Labour
Encountering a busy season may affect your levels of staffing, too. In agriculture, for instance, there is an extremely high demand for temporary labour in the harvesting season. Similarly, some sectors, such as retail, require extra short-term staff to deal with Christmas and New Year shopping.
In these examples, the burden is eased by the fact that unskilled workers are easier to attract and integrate on temporary contracts, and require little training. For firms with a more settled workplace and skilled staff, though, things can be a little more complex. That said, off-seasons can be a great time for incorporating new skills or retraining your workforce, while it is also a safe time to hire and train new employees in anticipation of the next peak season.
3. Your Supply Chain
This point is relatively easy to understand; your vendors and suppliers also have seasonal changes in their production. If you unexpectedly run out of raw materials during peak season, you could be in for a rough time.
Your firm might be asked to pay a premium, or even face a disruption in your supply chain. As a result, your supply chain management and purchasing strategies also have to take into account the impact of seasonal factors on your business.
Knowledge and understanding of your company's seasonal peaks and troughs also enable you to maximise your marketing budget, which is especially important for small businesses. For instance, if you know that your best month is June and your worst month is December, then it makes no sense to spend the same monthly amount on marketing throughout the year.
Instead, you can go big in the period just before and during June – a significant portion of your annual marketing budget – and then scale back your campaigns in the quiet periods where ROI will be poor.
5. Resource Management
As a business leader, you only have 24 hours to work with each day, regardless of the fluctuations in seasonal factors. How you utilise the extra hours you get during the off-season can make a significant impact on your organisation.
In some cases, you might even be able to consider diversifying into other sectors. This is particularly true in the case of businesses that are heavily dependent on particular seasons. If you run a resort that receives visitors only in summer, you might be better off starting another business during the off-season, or looking at different markets that you can attract, such as corporate clients.
Alternatively, if your peak seasons happen to be long and taxing, you can consider taking a break or learning new skills. As for the firm's resources, idle working capital can be utilised in the acquisition of new assets, the testing of new products, or even the preparation and build-up of marketing campaigns ready for the next busy period.
Seasonality in Performance Analysis
Accurate performance analysis is a crucial part of business management. Regular reviews of your financial strength, sales performance, and other metrics will give you a clear picture of the overall state of your business.
If you are blind about the seasonal aspect, however, you will be dealing with inaccurate data. What looks like an abysmal monthly performance on the surface may actually be a decent return in a season of low consumer demand. Conversely, a hugely successful summer might lead you to grossly overestimate the forecast for your next quarter. Therefore, you should always account for seasonal factors when reviewing your performance.
Seasonality is a core part of business, and knowledge of the factors that affect it is vital to any entrepreneur. While a lot of this know-how is gained through experience, you can also learn much from studying the local market and looking at the performances of other firms that work in the same sector.
When effectively harnessed, this knowledge can be used to make your business more resilient. It can also pay massive dividends by leading to better utilisation of your idle resources during the off-season, as well as enabling better forecasts and resource management moving forward.
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