How to Manage Finances of Seasonal Business

Oct 8

If you run a seasonal business, July can make you feel rich and February can make you feel broke, even when nothing about the business has changed. Most advice on seasonal business finances tells you to save a slice of summer revenue and live on it through the winter. I think that gets the order backwards.

Your reserve is set by what your slow months cost. You can only see that cost if your books are closed every month, winter included. I taught math before I kept books, and I'd put it to a class this way: a reserve is a subtraction problem, and you need both numbers.

Why your summer bank balance can't tell you what to save

A bank balance shows what's in the account today. It says nothing about what's already promised to someone else. The balance is a snapshot of liquidity, with no record of taxes coming due or money owed to suppliers.

That gap is widest at the end of a good season. In late August the account looks healthy, but part of it may already belong to sales tax, a supplier invoice still in the mail and final payroll for summer staff. Read that balance as profit and you'll set your reserve too high or too low. You won't know which until the winter tells you.

The percentage rules skip the step that matters

The usual advice is a percentage. Most guides tell you to set aside 20 to 30 percent of what you earn in peak season, or to hold three to six months of expenses. Neither figure knows what your rent is or how many months your business sits quiet.

Your own number takes three steps:

Find what each slow month costs you.
Subtract what that month brings in.
Add up those gaps from the end of this season to the start of the next.

To put numbers on it (these are invented), picture a shop that takes in $4,000 in January and spends $9,000. January's gap is $5,000. If every month from November to April runs about the same, that's roughly $30,000 to have saved before the cold weather starts. Add whatever May costs in stock and staff while you wait for customers to return.

Every number in that sum comes from your winter books. If January's transactions sit uncategorized until tax season, you don't have a January figure to subtract, only an estimate.

What closing the books in the off-season involves

Closing the books means finishing and checking a month's records so the totals can be trusted. In the slow season there's less to record, which is exactly why it gets skipped.

Reconciled accounts

Reconciling means matching your records line by line against your bank and credit card statements. Winter is when off-season costs tend to land on a card nobody checks often. If that card isn't reconciled, those expenses never reach your monthly totals.

Once-a-year bills

Insurance renewals, equipment storage, annual software plans and loan payments keep arriving whether or not customers do. Recorded in the month they hit, they show you which winter month is the expensive one.

Separate personal and business spending

When revenue stops, it's easy to pay a business bill from your personal account, or a personal one from the business. Each crossover blurs the month. Mix them all winter and you find out what the off-season really cost at filing time, far too late to plan with it.

If your winter months are the ones that never get closed, that's work you can hand to me. Our monthly bookkeeping covers categorizing transactions, reconciling accounts and a monthly report, so the winter numbers exist when you need them. Book a free consultation and we'll look at where your records stand.

Seasonal business finances in Cape May County run on a steeper curve

We are based in Cape May County and if your business is down the shore, the slow months weigh more here than almost anywhere else in the region.

Most shore counties get busier in summer. A December 2022 report for the Mid-Atlantic Regional Council on the Ocean measured by how much, counting leisure and hospitality jobs in summer and winter from New York down to Virginia. Along the Atlantic in New Jersey, Delaware and Virginia, summer jobs ran 45 to 120 percent higher than winter ones. Cape May County was in a different league, with 3.73 summer jobs for every winter job, the widest gap in the study.

That figure needs reading with care. It counts jobs rather than dollars, and it uses 2018 data, so it doesn't tell you your own revenue falls by the same amount. What it does show is a short, steep season, which the report puts at June through August with some extra activity in September. That leaves a long stretch where costs keep running and sales don't, and a rule written for a gentler curve won't size it for you.

Where monthly books won't give you the answer

Closed books describe the past, which gives them limits.

Your first year

You won't have a winter on record yet, so whatever you set aside is a guess. Use a percentage rule to start, then replace it with real figures once you've closed the books on a full off-season.

A mild slow season

A business that only dips for a quiet August in an otherwise steady year may not need monthly closes for this. Quarterly reviews may be enough.

A bad summer

Books can't see a weak season coming. When peak revenue falls short, the amount you can put away falls with it. Raise that with your accountant or lender while the season is still running, rather than once it's over.

Let someone else keep the winter books

Winter is your time to rest, or to fix whatever broke in July. That's exactly why the books slip, and it's also why you can hand them to someone else.

My prices are on the site. They start at $150 to $300 a month for businesses with fewer than 100 transactions. If last winter's records are already tangled, QuickBooks setup and cleanup service gets them current before anything else. If you hire seasonal staff, payroll processing puts them on the same books as the rest of the business.

Book a free consultation and we'll go through your last off-season together. By the end, you'll know what it really cost, and that's the number to build your reserve on.

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