We are now most of way through summer and no doubt certain industries have felt the heat! Seasonality affects most business’s supply chain, whether it is revenue, staffing, customer demand, advertising expenses or inventory. How can you break the cycle?
Some industries feel the heat more than others in Australia given many people take longer breaks over our summer holiday period. However, businesses that experience seasonality typically fall into two categories: those that need to find alternative ways to manage cash flow in the non-peak season, and those that can easily be shut down in the off-season. If you fall into either category, take a look at these tips on managing seasonal demand and turning your business into a year-round success.
Understand your business cycles
It takes time to understand your business cycles, but this is the first step towards managing your cash flow and business volatility. The most effective way to do this is through analysing financial trends and data such as sales, inventory, COS, overheads, cash and profit. It is ideal to analyse at least three to four years’ of historical data, however if you are a new business, seek information from peers and industry sources.
Plan and budget for the 12 months ahead
Once you understand the fluctuations of your business’s performance, you can create a business plan. Using the results of your trend analysis, you can forecast cash flow levels based on the timing of anticipated sales in order to manage recurrent and known expenditure for 12 months of the year.
Create alternative revenue streams
Research other products or activities that could generate revenue streams during your off season. Other revenue sources can result in the retention of staff, heightened customer awareness, and an increase in market share whilst maintaining a strong cash flow position. The key to introducing alternative sources of revenue is not to divert too much focus away from the primary business activity so it is at risk of being jeopardised or neglected.
Keep busy in the off season
If you forecast and budget for expenditure in the slower times of the year, the off season is a great time to complete required maintenance and repairs, as well as undertake staff training and marketing for the busy period ahead. It also allows you to take the time to show some love to your best customers and also put some effort into finding new ones.
Manage the impact on staff
When planning for periods of recruitment, allow for training to commence prior to the peak season. This will ensure that optimal productivity, efficiency and skill can be achieved in the busy season, with staff feeling confident and motivated to achieve KPI’s and targets.
Review inventory levels
Make sure you are aware of supplier lead times during your peak season through regular discussions with suppliers. It’s a good idea to review your safety stock levels with historic seasonal data to ensure you are holding enough stock, without over allocating resources to a point where your profit margin may be damaged or too much cash is tied up in stock.
Strengthen relationships with partners
Frequent communication with both upstream and downstream partners is important. This can mean better delivery times and pricing, and may lead to mutual benefits in the future. Times can be tough in a cyclical business, however with the right management and approach, you can create a successful business model.
Accru can assist you to understand the drivers of your business and the management approach required to run a profitable business all year around. Please contact your local Accru office for advice.
By Tessa Gray, Accru Melbourne