Seasonal businesses are a fantastic alternative to the traditional business model that operates throughout the year. You have a particular season when your business receives clients and customers. Once the season ends, your business is dormant till the next season. As this is vastly different from a conventional business model, there are some financial aspects to consider.
Today, we will explore a number of seasonal business financing strategies, along with other aspects that you need to consider to survive and thrive.
The World of Seasonal Businesses
What Are Seasonal Businesses?
If you’ve taken a vacation in winter, you’ve probably seen restaurants, ice cream shops, and rental services shuttered or empty. Those are perfect examples of seasonal businesses. During the summer months, they probably see hundreds of customers every day.
The success of these businesses depends on certain seasons. So, businesses like ski lodges and snow removal services have their season in winter, while lawn care businesses and ice cream trucks have theirs in summer.
Even autumn and spring have their own specific seasonal businesses like Halloween stores and tax preparation services.
Advantages of Starting a Seasonal Business
One of the best things about running a seasonal business is the amount of freedom you enjoy. You are looking at a lot of free time in the off-season that can be spent either for leisure or expanding and growing your business.
What’s more, the operational costs of running a seasonal business can easily be lower than those of traditional businesses. This is relevant later when you need to think about seasonal business financial strategies.
The lower operational costs allow for more freedom and also give you the ability to test out niche business ideas without too much risk. So if you wish to change up your ice-cream shop to start offering coffee and soft-serve, it’s far easier than a traditional business model where you have no downtime to change equipment and hire or let go of staff.
Income Scope and Growth Potential of Seasonal Businesses
How Profitable are Seasonal Businesses?
Seasonal businesses can be surprisingly profitable, and some can even surpass traditional businesses. The determining factor is going to be your niche and demand. Similarly, the less bloat you have in your operations, the better your profits.
If you manage to align the stars perfectly, you might even be able to make 80% – 90% of your annual income within a few months. With a little effort, you make enough to outweigh your off-season lull, gain some financial stability, and still turn a profit after that.
What Kind of Funding and Investments Can You Look For?
There are many funding sources that seasonal businesses can consider. For instance, microloans are incredibly popular. These are small loans that are usually under $50,000. Most of the time, these are taken by entrepreneurs who don’t qualify for traditional bank loans. (Of course, even with microloans, ensure you are always negotiating good terms.)
You could also look into SBA seasonal working capital loans. These are offered by the U.S. Small Business Administration under the broader SBA 7(a) program. You can also look into specialized lenders like Fast Business Financial, who have a history of working with entrepreneurs from diverse backgrounds.
Lastly, crowdfunding is a great option that you can consider as an add-on. It’s hit or miss, but with seasonal businesses, every extra dollar you earn matters.
Managing Finances During The Off-Season
Every entrepreneur in this line of business needs to spend some time on planning and preparation. The on-season will end faster than you know it, and if you haven’t planned out your finances properly, the off-season can be brutal.
Too many people make the mistake of feeling like they don’t need to worry, as they made enough money to cover the off-season. However, some of your profit has to be reinvested in inventory or payments to prepare for the next season.
Thankfully, there are several strategies you can consider.
Reserve Funds: Every business needs to ensure that a good portion of profits goes into a reserve fund. This is what you use to cover expenses like insurance, storage, and any important marketing.
Alternative Operations: Out of many seasonal business financing strategies, alternative operations can be incredibly helpful. All that’s required is to find a way to use your equipment or service in the off-season. So, if you run a summer landscaping business, you could pivot to snow plowing in the winter.
Rolling Budgets: A common mistake that seasonal businesses make is budgeting like a normal business. Planning on a month-to-month basis will make things difficult for you in the long run. Instead, try to zoom out and take a bird’s-eye view of things where your plans cover several months ahead (or even the entire year).
Passive Income: This is similar to alternative operations but more passive. For instance, if you run a food stall near a tourist site, you could rent out the space for temporary storage during the off-season. Doing so would open up additional revenue streams, which is critical for seasonal businesses.
Loans or Lines of Credit: What Is Better for Seasonal Businesses?
This is one of the tricky choices related to seasonal business financial strategies. Choosing between loans and lines of credit highly depends on your needs. For instance, if your income lacks stability, then you benefit far more from lines of credit.
On the other hand, short-term loans are better for those one-time investments like a new piece of equipment that you’ve been eyeing. The fundamental principle for both types of funding is not to wait till you are desperate. Instead, invest in foresight, and if it looks like finances will be tough three months later, apply today.
Frequently Asked Questions
How can seasonal businesses manage expenses when cash flow is slow?
Building a reserve fund during your peak months and following a rolling business model is your best shot. Likewise, passive income can also help with regular cash flow into your account.
When should seasonal businesses apply for financing?
Ideally, during or just after your busy season. This is when your finances are the best, which makes your business attractive to lenders.
What are the best financing options for seasonal businesses?
As we covered, lines of credit, loans such as microloans, short-term loans, and SBA Seasonal Working capital loans are great options. You can also look into crowdfunding if your niche suits it.
Can a new seasonal business qualify for financing?
Yes, but as with any other financing, lenders will want to look at your personal credit and collateral. Even if those aren’t in the best places, you might still have options like grants.
Should seasonal businesses buy, lease, or finance equipment?
In almost every situation, leasing or short-term financing tends to be the most sensible option. Only buy if you have enough capital and are 100% confident that the financial hit won’t affect operations down the line.
Seasonal Businesses Can Be Highly Rewarding
All in all, there are many seasonal business financing strategies that you can look at when thinking about a seasonal business. Your main takeaways should be that financial wisdom is the number one priority.
You only have one season to generate enough revenue for the entire year. Thus, make good financial decisions, and if you’re applying for loans and assistance, do so well in advance so that cash flow is never interrupted.
Take the First Step Toward Starting Your Own Seasonal Business
We can help you secure quick funding to build a business that thrives despite being seasonal. Our simple application process makes financing easier than you imagine.