How Can My Seasonal Business Budget for Revenue Changes?

All seasonal businesses experience revenue challenges during specific months of the year. As an owner of a seasonal business, you have one of the toughest entrepreneurial jobs. You work to market and promote your products or services year-round while generating the bulk of your income in three to six months.

A lot of seasonal companies depend on the weather. Pumpkin patches and Christmas tree farms are booming in the fall and winter, while golf courses and beachfront ice cream shops thrive during spring and summer.

No matter what business you’re in, you likely have the same question: How can you build a budget to withstand revenue changes and keep operations running smoothly no matter the season?

Start with Your Fixed Expenses

Every budget is made up of fixed and variable expenses. The first thing you’ll want to do when building your seasonal business budget is to identify your fixed costs.

Fixed expenses are things that cost your business the same month after month. They are bills that you can’t easily change and are typically paid every week, month, quarter, or year. Examples include your company’s:

  • Building mortgage payment
  • Office lease
  • Car payments
  • Life, car, or health insurance
  • Business loan payments

You may also want to add average amounts of costs that fluctuate based on use (variable expenses), including utility bills, standard fees, and inventory. Doing this will give you a start to identifying the amount of minimum working capital you’ll need to cover those costs each month.

Don’t Budget as a Seasonal Company

Most successful seasonal company owners don’t look at their companies as seasonal. Instead, they budget targeting crystal-clear long-term goals while shifting their focus during various times of the year. 

Plan your budget for at least a year out, though three to five years is better if possible. Thinking about your company on an annual level helps you better judge its performance month over month.

Planning and forecasting your budget far in advance helps give you a macro perspective of your firm, so you’re better prepared for unexpected expenses.

Avoid Derailing Your Budget During Your Peak Seasons

Since your business season is not indicative of what you can expect to bring in month after month, you need to spend conservatively and save during your peak seasons. That way, when sales taper off, your budget can cushion your bottom line until things pick up again. Use your off-season to decompress and identify the best way to spend your earnings.

You should also consider creating a reserve account to smooth over seasonal-related revenue shortages. This way, you can ensure working capital is accessible as you need it throughout the year.  

Track Your Expenses Carefully

Use expense management software like QuickBooks, Expensify, or Xero to track every incurred business expense. This practice will help you to identify recurring costs you may need to incorporate into your budget. 

Refine Your Forecasts Proactively

Establish a 12-month plan to make sure your revenue forecast stays on track and remains as accurate as possible. Commit to updating your prediction at the end of every month. Once a month has passed, add a new one to the end. This allows you to maintain a rolling forecast, giving you a complete picture of your firm’s financial health. 

By systematically updating your budget forecasts, you can spot cash flow deficiencies emerging on the horizon and profit from periods of higher revenue when you’re creating a cash surplus. 

Build More than One Budget

Every seasonal business should consider creating three budgets. The first is your baseline budget and covers your fixed and average variable expenses. Then draw up two more budget scenarios:

  • One with built-in flexibility that adjusts to higher-than-expected demand. It will inform you on how to spend your revenue when there’s excess.
  • Another with built-in contingencies to inform you on where to cut costs and save when you’re struggling to hit revenue benchmarks

Creating best- and worst-case budgeting scenarios will also give you a better idea of whether you need to apply for a business line of credit, a loan, or an alternative funding source like the Revenued Business Card.

Consider Using an Alternative Fiscal Year

Your fiscal year involves the 12 months that Your firm’s fiscal year is the time frame you have to budget your annual finances. 

Seasonality is the primary reason company owners exchange a standard January-December year for a short tax year or an alternative fiscal year. The IRS permits businesses that are only open part of the year or undergo seasonality to alter their taxable time periods and tax return schedule. There are two criteria for setting your year-end date:

  • Sole proprietorships and businesses taxed like a sole proprietorship (i.e., LLCs that are single-member) are required to match the owner’s tax year and use a December 31 fiscal year-end.  
  • If you own a company not taxed as a sole proprietorship, you can select the end of any quarter to serve as your fiscal year-end. You may choose to have your budgetary year-end at the end of the quarter following your busiest period because this simplifies things and allows you to understand better how your firm has done over the year.

Consult with your tax attorney or accountant for more information.

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