If you run a business that makes the largest chunk of its money at specific times of the year, one of the challenges you face is managing fixed costs, which can come up at any time of year. While all expenses are part of doing business, there may be several things you can do to limit them during slower times of the year, when much of the money you make is “tide-you-over” money until the busy season starts up again.
Defining “fixed” and “variable” costs
Fixed costs are those that you’ll incur regardless of how busy or slow your operation is. Replacement equipment and new equipment are examples of fixed costs, as is most types of insurance and leasing or rental fees for the facility that houses your business. The money you pay to salaried employees is a fixed cost, whereas the money paid to hourly workers is usually considered variable. Other variable costs are those you incur only as sales are being made.
It’s impossible to be in business and not have to spend money. For seasonal businesses, the big question is should they stay open during slow periods and pay more expenses or shut down and cut out many variable expenses like some payroll, utilities, certain supplies and the like. Adjusting your business hours or days that you’re open vs. closed can benefit your bottom line, as long as you’ve reviewed past yearly income statements and know for sure when and how to make these moves.
For many businesses, payroll is one of the largest expenses. If you want your seasonal business to run at optimal profitability, you’ll have to adjust the number of personnel on the clock during slower times. In some cases, this can be done by maintaining a key “skeleton crew” during the off-season and hiring only “seasonal” employees to cover the necessary positions during the busy weeks or months.
Increased cash flow
It’s up to each owner of a seasonal business to decide when the business will be open and when it will be closed. If you’re getting trickle sales during slow periods in which you’re open, consider investigating ways to increase revenue in the off-season. Run some numbers and determine how much more cash flow you’ll need to justify keeping the OPEN sign in the door.
If your business is such that sales are only made during whatever season you focus on, closing down completely at certain times might be the smartest move if you aren’t able to initiate income-producing activities for the off-season.
Deciding how to manage fixed and variable costs in a seasonal business takes focus, knowledge, planning and creativity. As the monthly and yearly cycles move forward, your revenue statements will tell you if you’re making the best choices.
If you need professional assistance with accounting, payroll or other areas of your seasonal business, W. Cotton Mather of Pittsburgh is ready to supply the help you need. Speak with an experienced consultant about your needs and goals by calling (412) 931-1617.