Handling the Risks of a Seasonal Business

Handling the Risks of a Seasonal Business
By KELLY K. SPORS July 8, 2007 Wall Street Journal

From ice-cream stands and landscapers to ski shops and hotels, many small businesses are seasonal -- meaning they rake in cash just a few months of the year.
But with this seasonality comes great risk: What if the weather during the peak season turns adverse, or a sharp surge in gasoline prices keeps customers at home? There's no opportunity to make up that business later in the year.

There are ways seasonal businesses can avert some of the risks of relying on one or two seasons for profitability. Here are some ways to make it work.
Manage Cash Carefully

Perhaps most daunting to seasonal business owners is cash management and control of spending, since the bulk of revenue -- sometimes all of it -- flows in during just a few months of the year.

Fighting the temptation to spend it when it's there, and saving enough for rainy days and off-peak periods, is an important aspect of keeping a seasonal business afloat.

"It's not like a year-round business where you have this constant flow of cash, so you always have money to spend," says Matt Roberge, the 28-year-old manager of Shallow Shaft Restaurant, an upscale eatery in the ski resort town of Alta, Utah, about 25 miles from Salt Lake City. The restaurant does 80% to 90% of its food sales during ski season, yet opens for part of the summer to serve hikers.

Mr. Roberge says that it's important for seasonal businesses to evaluate their cash situation constantly, and to always stash away a sizable sum for the off-season. He looks for ways to pinch pennies, in the unpredictable summer months, such as cutting inventory of foods that don't sell well and using a skeleton staff.

Work Year-Round

One issue for many seasonal businesses is that they lose visibility in the off-season. So part of the challenge is keeping customers connected, and using downtime as a time to regroup, re-evaluate the business plan and expand customer relations.
Bobbi and Jeff Griggs own the Beach Butlers, a concierge service for beach travelers in Rosemary Beach, Fla. The couple use the slow winter months to introduce themselves to upscale property owners who might want to suggest the business -- or even offer the concierge service as a courtesy -- to guest renters.

They also send holiday cards to the previous summer's customers in hopes they'll remember to call on their next vacation. "It's what brings me business before the onset of the busy season, and after the busy season," Ms. Griggs says.

Other businesses choose to stay open year-round by switching their focus to a different niche. Many ski shops, for instance, sell bicycling gear or kayaks in the summer. Not only does this supplement revenue, but it also hedges the risk since mild winters may inspire people to ride bikes.

Other seasonal entrepreneurs start a new business altogether in the off months. Nancy Swenson and Craig White, owners of Beach Farm Inn, a Wells, Maine, bed and breakfast, earn 75% of the $75,000 to $100,000 of the inn's annual revenue between the Fourth of July and Labor Day. A rainy summer, Ms. Swenson says, can take a sizable bite out of revenue.
While the couple offer various off-season promotions (like cooking-class weekends) to rev up the inn's guest numbers, they've started another venture in the winter months.

Mr. White a few years ago turned a woodworking hobby into a business making wooden furniture. He now makes $30,000 to $40,000 between December and March selling his handmade furniture -- or nearly half of the total revenue generated annually by the inn. He uses the inn to help market the furniture, since the rooms are furnished with many of his crafts.

"There are years where the weather is terrible or things happen in the world that you just can't control," Mr. White says. "Having that extra income...acts as a buffer."

Market Creatively

Some seasonal businesses are able to extend their season by finding creative ways to get customers interested in their offerings year-round.

Wayne Bronner, owner of Bronner's Christmas Wonderland, a Frankenmuth, Mich., Christmas decor store with 260 year-round employees, finds he can keep visitors buying Christmas goods all year by tying promotions and marketing to timely holidays and seasons throughout the year.
In the days leading up to Mother's Day, for instance, he decks out the front of the store with ornaments displaying messages for mothers.

In summer, the store plays up wedding-inspired gifts, such as Bronner's Newlywed's Ornament Collection, a gift set of 12 ornaments for newly married couples that sells for $67.99.
He also offers sales and discounts in the off-season to spur more sales. For Valentines Day, he has a "14-14" sale -- 14% off any item that costs more than $14.

The store uses quirky advertising like billboards to attract summer travelers who might be looking for a fun stopover.

The store "markets the novelty of shopping for Christmas decorations in July," Mr. Bronner says.

Mr. Roberge in Alta, Utah, says his restaurant has boosted its summer traffic by revamping the menu with lower-priced fare like burgers, salads and sandwiches that appeal to hikers rather than the steak-and-seafood crowd it attracts in the winter months.
Another advantage to staying open most of the year is you don't lose as many employees, who would otherwise leave at the end of high season.

Buy Protection
Another way to protect a seasonal business from bad weather surprises is buying insurance or insurance-like contracts.
WeatherBill.com and Horizon Weather Group are two companies that sell weather contracts. WeatherBill.com, launched in January, lets businesses price contracts online. A recent quote: A Vermont ski resort pays $15,421 upfront and, in return, gets a $5,000 payout a day for every day after 10 days between Dec. 1 and March 1 that the temperature reaches above 45 degrees Fahrenheit.