The real Christmas story for UK Business
The highs and lows of running a seasonal business
With Christmas just around the corner, many of us are starting to think about putting our feet up for a few days at least. But for some, Christmas is the busiest time of the year for the business. By the time the leaves fall in autumn, most retailers already have their eyes firmly on the festive season.
For those that are sourcing products and solutions from manufacturing plants overseas, seasons are sometimes planned more than two years in advance. And costs may be incurred 18 months or more before a sale is made. For business owners sourcing products locally, the problem is similar but different. They need to purchase or produce sufficient stock to meet demand over the Christmas period, whilst reducing the risks of overstocking, and the need to discount heavily from Boxing Day onwards. Surviving Black Friday and Cyber Monday is just the start.
The challenges of seasonal ups and downs are not unique to retail, however. From campsites to wedding photographers, many businesses have busy summers but quiet winters. And many business services find that there is a sudden lull over the Christmas period.
For some this may be a welcome break, but for others the impact on revenue and cash flow can be challenging. For a few it can be critical.
Tell me about the turkeys
Turkey farmers, for example, have spent the spring and summer nurturing birds, and require a significant influx of workers as they move towards Christmas, before a massive spike in sales, and then a lull.
We spoke with one highly successful Turkey Farm, Walters Turkeys in Berkshire, who have seen significant growth year on year.
“We now make a large proportion of sales online, with people paying a deposit well before Christmas”, says Helen Hurst of Walters Turkeys. “But most people will pay the balance on December 23rd, or on Christmas Eve, so we do see a massive dip in cash flow, followed by a huge spike”.
Walters Turkeys have come up with some ingenious approaches to help them manage this.
“We have strong relationships with lots of butchers, so we can plan well in advance. And because everything is computerised, we can predict extremely accurately how many turkeys of each size will be needed. We have two big product challenges, though. The first is when people want small turkeys: ours tend to be bigger because of the breeds we choose and the way we bring them on – almost all free range, and a smaller number in barns. And the second problem is when people want turkey breasts or crowns – we end up with an awful lot of turkey legs in the freezer!!”
We asked Helen how the business manages cash, with the extremes peaks and troughs they experience every year.
“One big development for us has been the trade in Thanksgiving turkeys which we provide to a number of venues and butchers, especially in London, where there is a large American population. This allows us to split sales over two peaks, rather than just one. We buy the Thanksgiving chicks before the Christmas ones, obviously, and they are brought on separately, so they are ready to sell six weeks earlier. This offers us an important cash injection to support the hike in staff costs, especially, in the run up to Christmas.
We also insist on deposits from our key customers, just like we do for retail customers. They appreciate our quality product and service, and it’s understood that we would not be able to offer the quality currently available, if we did not make an upfront charge”.
You can find out more about Walters Turkeys in this 2016 article from loveFOOD.
December – perhaps not the most profitable month
Sarah Munning, owner of Albert Fields hair salon, agrees that December is the most challenging month of the year.
“People think that because December gets booked up so far in advance, it’s a good month for us financially. But that’s not really the case. As well as people forgetting appointments booked long in advance, we also get people cancelling and not turning up at the last minute”.
The business closes for a week from Christmas Eve, so all of a sudden, that’s 25% of monthly revenues gone. Staff may also want to take extra holiday, so businesses like Sarah’s have to balance this out.
“If staff are taking busy or important days off, business owners should ensure that they work on a similarly busy day in return. They can’t swap a December Saturday for a January Tuesday”, Sarah continues.
“We pay product bonuses in December, and this year, we’ll be using the closedown period for a refurbishment: new chairs, new toilets, new wallpaper, and a move around of some of the equipment areas. We also have a VAT period ending 31st December, so I have a VAT bill to look forward to in January, to top it all off! All in all, it’s an expensive month for the business”.
Sarah will also pay staff early this Christmas. Something small like this can make a massive difference to workers – but for the business, it’s yet another factor that impacts cash. For businesses like Sarah’s with 20 staff or less, it’s one thing – but for a business wth 300 employees, this type of initiative could have a massive impact. Both on staff morale, and on cash flow.
Sarah – like many other business owners – has reserves, and plans for the December turmoil every year, with all the resulting pressures on cash flow. But for a new business, or one that has not built up a savings reserve, looking for finance options to support them can put added pressure on the business at this busy time.
15 tips to help you manage cash flow
The Business Finance Guide journey tool can help business owners discover a range of finance options to support the highs and lows that affect seasonal businesses.
Here are 15 tips to help you deal with the financial ups and downs of running a seasonal business:
- Save for a rainy day. It’s a sign of strength and maturity for a small business to have a cash reserve. It’s the smart thing to do.
- Work with your bank or other lenders to set up a line of credit. Debt options such as bonds, loans and overdrafts can provide a safety buffer. This can help business owners balance cash flow peaks and troughs.
- Take advantage of other tools and resources your bank has available to help you manage your cash. These include mobile deposits, and solutions for automating invoicing and bill payments online.
- Offer customers multiple payment options. Make it easy for people to pay you. You can use services like PayPal to accept credit cards.
- Offer incentives for early payment. What you sacrifice in profitability can be balanced by the improvements in your cash position.
- Use customer deposits to help with slow periods. A deposit can offset up-front costs or help you to purchase inventory.
- Consider alternative funding methods. There are options besides traditional lending institutions like temporary cash flow loans from online lenders, peer-to-peer lending, equity financing, and loans from friends and family.
- Reduce the time it takes to get paid. One of the easiest way to do this is with better invoicing. You need a process-driven way of collecting your cash and a systematic follow-up system.
- Negotiate with vendors. Ask vendors and suppliers for a discount or extended payment terms that better suit your business needs.
- Use asset-based finance. Consider options such as factoring, supply chain or invoice finance which, for a small % fee allow you to pay suppliers early, without impacting cash flow.
- Slow down payments. You don’t want to irritate your creditors and suppliers, but delaying payment keeps the money in your business longer, so decide what’s right for your situation.
- Lease instead of purchase. Although you’ll pay more in the end, leasing and hire-purchase can free up additional cash to run your business.
- Use your downtime for strategic planning. In the off-season create budgets that reflect seasonality. Market your business aggressively and look for additional opportunities to generate revenue.
- Diversify your product or service offering to help offset the effects of seasonality. Consider new ways to add to your primary streams of revenue during your off-season.
- Become more financially literate. You should be able to understand your balance sheet and do simple cash flow analysis. If you don’t know enough to do financial analysis, you owe it to yourself to build a better understanding, and your accountant or regional hubs can point you in the right direction.