Planning is the only antidote to painful reality of seasonal swings
Seasonality in business is never as pronounced as it is over the festive season, when large swathes of the economy shut down and others light up.
Holiday establishments along the coast run on all cylinders while their Gauteng bed-and-breakfast cousins twiddle their thumbs waiting for business travellers to return in the new year. The entire building industry has an official holiday. Many factories shut down, while industrial maintenance companies start up their engines to service the machines that run during the rest of the year.
For many retailers it is truly a silly season, with the biggest boom just before Christmas, only to fall immediately after that to the lowest slump of the year.
Strangely enough, business owners at opposite ends of this dichotomy may have something in common: envy of the other’s experience. A shop owner running out of stock as the customer queues grow may wish he were rather in the shoes of the workshop owner staring at an empty order book, and vice versa. But of course they should not, because both are arguably equally stressed.
Seasonality is one of the most uncomfortable aspects of any business, says Byron Jeacocks, regional general manager for Business Partners. No matter how much you try to smooth it out, it is part of the reality of most businesses that you simply have to accept.
Acceptance does not mean you cannot do anything about it. On the contrary, acceptance implies acknowledgement of the reality of the cycle and a commitment to plan for it carefully.
It starts with knowing the cycle – how long the boom or the slump normally lasts and how severe it tends to be. This is a major challenge for new businesses, but it also requires a watchfulness on the part of existing businesses, who need to consider year-on-year changes – a new entrance to your business, a decrease in parking space, a marketing campaign, a natural slow-down in your growth, a competitor opening up down the road and of course macro-economic conditions can all influence the intensity of your seasonal fluctuations.
Jeacocks illustrates the importance of knowing your business cycle by relating his experience with a business owner who had set up a very established franchised restaurant in an upmarket area. In the first few months things were humming, as it was high season. But it also happened to be a particularly hot season, and the owner unwisely invested in two expensive air conditioners for his restaurant.
A month or two later sales began to slow, and by the time the business owner figured out that this was an annual occurrence it was too late. The business was in the vice grip of a cash flow crunch, which sapped the focus and energy of the owner. The stress put staff relations under strain and a vicious circle ensued that lasted a painful two years before he threw in the towel.
Today, another owner is running the same franchise in exactly the same place, and the business is thriving.
Jeacocks believes the slow demise of the business under the previous owner could all be traced back to that one fatal mistake. Had he known about the coming quiet months, he would have put off the purchase of the air conditioners, or at least bought only one.
The only antidote to a business cycle is planning. Short-term, day-to-day thinking may get you through one season, but, as Jeacocks’s story illustrates, a badly planned season can have fatal consequences in the longer term.
All the well-developed tools of business management are therefore so much more important in intensely seasonal businesses: cash-flow forecasting, stock purchasing, production planning and project management.
Holistic, multi-year planning is just as crucial for businesses that experience an annual boom as it is for those that experience a slump. A business can rarely ease itself into an annual boom, and hope that the extra business will take care of the adjustments.
First, while your own business may be pumping over the holiday period, your suppliers may have taken a break – if not your main stockists, then your IT support, or your fridge repair service provider. Unexpected problems are normally twice as difficult to solve over the holiday season than during the rest of the year. Only careful planning, including contingency measures, can help you avoid these pitfalls.
Second, the boom has to pay for quiet periods later on in the year. Once again only careful planning and spending constraint will allow your business to survive seasonal fluctuations.
Jeacocks points to a particularly painful problem for businesses with strong annual swings: labour. It is often impossible for a business to keep all its staff permanently employed when there is only a strong two-month boom in the year. Very often a business has no choice but to employ staff on short-term contracts.
Non-permanent staff is a management headache. They generally have less loyalty to your business than well trained and motivated permanent employees. They are not entirely incapable of enthusiasm and motivation, but it requires extra effort and sometimes a different management approach.
Apart from this, it has become increasingly difficult, legally speaking, to employ casual labour. Business owners have to keep up to date with the latest developments around labour brokers and questions such as when employment is deemed to be permanent even if you have a written contract stipulating temporary employment.
Get good labour-law advice, says Jeacocks, and avoid temporary employment as far as you can.