Basics for Seasonal Business Owners

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The other strategy—cutting prices—is riskier. "Discounting can be effective," says Bill Carroll, senior lecturer at the Cornell University School of Hotel Administration. "But you have to make sure you don't damage the perceived value of your product." It's important to do a thorough analysis of how lowering prices will affect your bottom line. Your objective may simply be to offset your slack-season expenses, enabling you to break even and keep your key employees on payroll all year.

After careful consideration, Eric Fenmore, owner of Front Porch Creations, decided he could afford to cut prices 10% during the off-season, if it meant he wouldn't lose about 20 of his core employees—trained craftsmen who build barbeques, patios, and outdoor fireplaces. Even though Fenmore is located in Corona Del Mar, Calif., his $3 million business still slows during the cooler, wetter winter months. During that time, he figures, he needs to make about $50,000 a month in gross profits. To bring in work, he sends e-mail blasts out to acquaintances and friends, letting them know discounts are available for work done in the next month. "I just want to cover my overhead and keep my employees working, since they are my most important asset," says Fenmore. He says it has not put pressure on his peak-season business, because people understand he has a slow period.

WHERE CREDIT'S DUE

A seasonal company's erratic cash flow can be a terrible headache. The business needs to have sufficient money to get through the slow season and still have enough on hand when business picks up to fund it properly. After all, the only thing worse than a slump in sales is a cash crunch that limits your ability to make the most of booming demand.

So after the busy season ends, sit down and do a projection for the rest of the year. Set aside cash for capital improvements, ongoing operating expenses, and startup costs for the next season. That last figure depends on how quickly the business ramps up, how long it takes to collect from customers, and how quickly you need to pay expenses such as salaries. If you take out too much cash for your own compensation, says David Rothenbuehler, senior vice-president at Pacific Mercantile Bank (PMBC) in Costa Mesa, Calif., "you may run into massive problems when the season kicks off."

A bank line of credit is also a good idea. Typically, it should cover one or two months' worth of peak expenses. Maria Coyne, executive vice-president at Cleveland's KeyBank, says seasonal businesses trying to get a line of credit need to show their banker detailed records of how cash flow fluctuates during the year. "It shows the banker you know exactly where the peaks and valleys are and what your cash needs are," Coyne says.

J. Allen Carnes, president and co-owner of Winter Garden Produce, a $10 million harvester and packager of broccoli, cabbage, and onions, needs about $300,000 to cover labor and other expenses when the season kicks off in October. Carnes' company has 10 year-round employees. But every October, he brings about 80 contract laborers on board his Uvalde (Tex.) operation. By the time the May and June crunch hits and Winter Garden is harvesting and packaging onions, Carnes has about 400 contractors working for him. Those two months account for about half of his sales and the bulk of his profits, so there's not much margin for error. Carnes makes certain that he has a cash cushion each summer, as well as funds for capital improvements, before paying bonuses to his salespeople. And Carnes maintains a $500,000 line of credit, which he has dipped into during 7 of the past 10 years. "We generally have tapped into it in April, when our expenses are far above what they run the rest of the year," Carnes says.

COUNTING HEADS

When the peak season hits, execution is everything. It's important to track how the business is doing on a weekly, daily, or even hourly basis compared with the same period for the previous year. That allows for crucial changes, such as hiring more staff if demand is exceeding expectations or running specials or discounts if business is down.

At Back Harbor Marine, Jeffrey Stewart Jr., who is manager and captain, tracks passenger counts weekly. Last June he and his father saw those numbers weren't keeping up with the prior year. They moved quickly, distributing about 20,000 brochures to hotels, motels, and campgrounds from Atlantic City to Cape May. Once they got the word out, things picked up. "It's a short season," the younger Stewart says. "You have to make it when you can."

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Barrett is a senior correspondent for BusinessWeek SmallBiz.