Seasonality is an inherent characteristic of all markets. However, some markets are affected by this variability to a much greater extent.
For example, when selling items such as nougat, skis, swimming pools, laptops, or grills, it’s difficult to sell the same volume year-round.
In these cases, you can implement alternative business strategies to achieve this, but it’s no easy task. That said, it’s essential to make sound business financing decisions. Otherwise, liquidity problems will put an end to your business.
Market seasonality is caused by factors external to your business that are tied to the calendar.
Seasonal sales are those that experience surges, peaks, lulls, and slowdowns during certain times of the year.
These most commonly occur in summer and winter. Thus, there are items associated with hot and cold weather that are difficult to sell at other times of the year.
This reality requires taking significant measures, such as business financing, since the business’s revenue stream is not continuous. There are times when you have very high revenue, but also long periods of low sales.
Let’s go back to the example of selling polvorones. Outside of the Christmas season, your revenue will be very minimal or even nonexistent. During the holidays and in the weeks leading up to them, you need to generate enough profit to sustain the rest of the year.
It’s similar to what happens in certain hospitality establishments. Did you know that many rural businesses rely on tourist seasons and local festivals for their income?
However, having no income for part of the year does not exempt you from paying your regular fixed expenses. For this reason, business management and financing play a decisive strategic role.
The main cause for concern is that the flow of expenses is independent of the flow of sales. For this reason, factoring and other similar tools take on great importance.
If 90% of your sales are generated in six months of the year, does that mean 90% of your expenses are concentrated in those same six months? The answer is no. Variable expenses do depend on sales, but fixed expenses are a separate matter.
For this reason, the financial situation and funding needs of businesses in these markets must be analyzed in as much detail as possible.
It’s essential to ensure continuous liquidity to cover all payments. Consider, among other things, payroll and your business loan payments.
Although there aren’t many ways to counteract market seasonality, here are the four main business strategies:
– Boost sales at other times of the year. Perhaps we can try selling ice cream aimed at gourmet cuisine during the rest of the year.
– Tap into new markets. Is there a chance to sell fishing rods during the winter months? Perhaps, if you can export them to warmer countries.
– Expand the product lineup. At your ice cream shop, you might also serve coffee, hot chocolate, cookies, and churros.
– Cut fixed costs. The alternative is to close the business when business slows down. In reality, this isn’t always possible: sometimes, reopening is more expensive than staying open.
Business strategies can help, but they won’t solve liquidity problems. Therefore, financing policies for businesses play a crucial role; they are the key to survival.
Applying for factoring in a timely manner, utilizing appropriate sources of alternative financing, and managing liquidity effectively are key decisions.
Careful financial planning for your business is the most valuable tactic. We also encourage you to avoid routine solutions for financing. Banks offer loans and lines of credit that can be helpful, but they aren’t the only option—and, what’s more, the paperwork is tedious and time-consuming.
In this context of market seasonality, financial creativity is an asset. As a manager, you must be able to stay one step ahead, anticipate what’s to come, and fully understand how supply and demand work in your market. But most importantly, monitor your expenses and revenue regularly and opt for alternative financing when necessary.
Discounted promissory notes, factoring lines, private investors, and alternative lines of credit are excellent options.
If you act sensibly and with financial discipline, market seasonality won’t be a problem for you.
At Workcapital, we’re delighted to help you solve your liquidity problems, so:
get in touch with us!