We will soon be entering the optimum time of the year for home sales, home purchases, home renovations and remodels. As all small business owners know, however, whatever goes up will eventually come down.
Periods of intense activity usually are followed by lulls in which not much business comes your way. That holds true for economic cycles as well as for seasonal peaks and valleys. In order to ride out the slow times, you need to plan and prepare in advance.
Start by anticipating fluctuations in cash flow from month to month. Review receipts from the past two to three years to establish a history and baseline of incoming revenues. During what times of the year are you likely to experience revenue drops? For how long? Calculate your average monthly revenue for the year and identify where the peaks and valleys are.
Now, look at your expenses for each month. Some will stay the same from month to month. Others will vary due, for instance, to changes in the weather or the level of demand for your services. In what months are your revenues falling below your expenses? By how much? Determine how much you can set aside in the months when your revenues are highest to compensate for the months when revenues don’t meet expenses.
In addition, make a list of expenses that could be eliminated or postponed during slow periods to help reduce monthly outlays. For example, during the summer vacation period when business often falls off, it probably is not worth it to purchase paid advertising. Clients have their minds on other things and are not maintaining their normal reading or viewing habits. Instead, use the time to plan your marketing strategy for the fall and get a leg up on the competition.
Unlike some seasonal businesses, such as hotels, restaurants or retail, you cannot easily dismiss staff during the down times and hire them back when business picks up again. You may, however, be able to negotiate to scale back their hours somewhat.
The same holds for outsourced services. Knowing in advance when business is most likely to fall off can help you schedule other activities either for yourself or your staff at times that are more convenient, such as annual or quarterly administrative tasks, vacation time or professional development.
Assuming you have worked out your cash-flow forecast and budget for the year, consider how you can best make use of the time during lulls.
You could investigate new areas of business or new markets for your services, as well as devote time to building relationships with potential clients and/or persons who could refer clients to you. You may want to pursue other forms of income — from dealing in real estate to designing and producing products, to offering classes and writing books or articles, or pursuing a hobby — to bring additional revenue into the business.
Finally, it’s always a good idea to have a Plan B. Should you run into cash-flow problems because clients are slow in paying or business unexpectedly drops off due to circumstances beyond your control, know where you can turn to get a short-term loan to tide you over.
Don’t wait until you are in desperate need of funds. Talk with banks or other lenders in advance to know what your options and limits are, what information and documentation you will need to supply and how long it would take to process a loan request.
Your business will always experience highs and lows. But with some planning and preparation, you can maintain a level head and not be caught off guard when the down times come.