Riding the roller coaster of seasonal fluctuations
The inherent seasonality of some businesses is neatly illustrated by the way accommodation establishments take turns at feast and famine in South Africa. At certain times of the year, a great wave of bed-and-breakfast customers pushes inland as they travel to the economic hub of Gauteng on business while coastal beds stand empty. But come holiday season, the wave rushes outwards and the coastal establishments get to feast while the Gauteng accommodation industry wonders how to survive the lean months.
Seasonality in the tourism industry is particularly marked, but it is a reality that many businesses have to grapple with, sometimes because of the fluctuations of demand and in other cases because of supply, for example of rainfall in the horticultural industries, says David Morobe, Business Partners regional manager.
For Morobe, one of the marks of true entrepreneurship is how ably business owners adapt to and even counter seasonality in their industries. He gives the following tips on how to ride the roller coaster of seasonal fluctuations:
- Get to know the cycle in your industry and accept its reality. When you are new to an industry, rapid growth of your business may mask the normal seasonal fluctuation, fooling you into thinking that monthly sales figures will either remain stable or keep on rising. “Growth often has a sting in its tail that business owners must watch out for,” says Morobe. Make sure that you base your conclusions about the seasonality of your business on sales data from at least two or three years. If you have not been in business that long, find out from your peers and industry experts.
- The importance of planning in dealing with seasonality cannot be overemphasised. Business owners must keep their gaze at least six months ahead of the present and the only way to do that is through proper planning systems. Cash cushions need to be built during the fat months to carry the business over the lean ones. Everything from stock levels to staff levels must be carefully planned to avoid having cash tied up in lean months or waiting on supplies when business picks up again.
- Building alternative income streams to counteract the off-season is a valid survival strategy, even if it takes your focus off your core business to a certain extent. A ceramics workshop could give pottery lessons in the low-sales months or a landscaping company can put its trucks to use for short-term transport contracts in the off season. “Just be careful that the tail does not end up wagging the dog,” says Morobe. Once again the answer lies in careful planning.
- Your promotions need to be counter-cyclical to a certain extent. “If you start advertising only in the boom time, ‘you’ve probably missed the bus’,” says Morobe. If you can reach your clientele before the peak, do it. Shift your promotions to suit the seasons. A tourism business could offer specials to locals in the off-season, for example.
- Just because you do not see your regular clients during the off season, it does not mean they have disappeared altogether. Try to find ways of staying in touch with them all year so as to ensure they are repeat customers when the season comes around again.
- Many businesses are so seasonal that the owner simply has no choice but to employ seasonal labour on short-term contracts, despite increasing opposition to the idea. The trick is to manage expectations of seasonal workers – be clear about the length of the job – and keep abreast of the tightening regulations around temporary work in South Africa.
- Consider borrowing, leasing or renting pieces of equipment for the peak season only, rather than buying them and having them stand idle for half the year. Some basic calculations can quickly tell you whether buying or renting will be cheaper.
- It helps to cultivate a relationship with a financier that understands the seasonality of your business. In some cases equity finance may be better suited than a loan to help the business overcome deep off-season dips.
- Use slow months to prepare for the peak season. It is a good time to do staff training, planning, building inventory, repairing and maintaining equipment, and dry runs for new ideas.
- Finally, if you have been disciplined enough to squirrel away some savings to carry you over the quiet months, why not take a break during that time? You deserve it.