The inherent seasonality of many small and medium enterprises (SMEs) across many sectors is perfectly illustrated by the way accommodation establishments take turns at “feast” and “famine” in South Africa.
For example, at certain times of the year, a great wave of bed and breakfast customers pushes inland as they travel to the economic hub of Gauteng on business, while coastal beds stand empty. But come holiday season, the wave rushes outwards and the coastal establishments get to feast while the Gauteng accommodation industry wonders how to survive the lean months.
This is according to David Morobe, Business Partners regional manager, who says that though seasonality in the tourism industry is particularly noticeable, many do not realise that it is a reality with which many businesses across various sectors in South Africa have to grapple. He says this seasonality could be a result of many factors, such as fluctuations of demand and in other cases because of supply. “An example is the supply of rainfall in the agricultural industry.”
Morobe says one of the marks of true entrepreneurship is how capably business owners adapt to, and even counter, seasonality in their industries. He supplies the following tips for SME owners on how to ride the roller coaster of seasonal fluctuations:
- Get to know the cycle in your industry and accept its reality. When you are new to an industry, rapid growth of a business may mask the normal seasonal fluctuation, fooling you into thinking that monthly sales figures will either remain stable or keep on rising. Make sure you base conclusions about the seasonality of your business on sales data from at least two or three years. If you have not been in business that long, find out from your peers and industry experts.
- The importance of planning in dealing with seasonality cannot be over emphasised. Business owners must keep their gaze at least six months ahead of the present and the only way to do that is through proper planning systems. Cash cushions need to be built during the busy months to carry the business over quieter periods. Everything from stock levels to staff levels must be carefully planned to avoid having cash tied up in quiet months, or waiting on supplies when business demand picks up again.
- Building alternative income streams to counteract the off season is a valid survival strategy, even if it takes your focus off your core business to a certain extent. For example, a ceramics workshop could give pottery lessons in the low sales months or a landscaping company could put its trucks to use for short-term transport contracts in the off season. Just be careful that the tail does not end up wagging the dog and once again, ensure careful planning ahead of time.
- Promotions need to be counter cyclical to a certain extent because if you start advertising only in the busy period, you have probably missed the bus. If you can reach your clientele before the peak, do it. Businesses should also shift promotions to suit the various seasons. An example of this is a tourism business offering specials to locals in the off season.
- Just because you do not see regular clients during the off season, it does not mean they have disappeared altogether. Try to find ways of staying in touch with them all year so as to ensure they are repeat customers when the season comes around again.
- Many businesses are so seasonal that the owner simply has no choice but to employ seasonal labour on short-term contracts, despite increasing opposition to the idea. The trick is to manage expectations of seasonal workers – be clear about the length of the job – and keep abreast of the tightening regulations around temporary work in South Africa.
- Consider borrowing, leasing or renting pieces of equipment for the peak season only, rather than buying them and having them stand idle for half the year. Some basic calculations can quickly tell you whether buying or renting will be cheaper.
- It helps to cultivate a relationship with a financier that understands the seasonality of your business. In some cases equity finance may be better suited than a loan to help the business overcome deep off season dips.
- Use slow months to prepare for the peak season. It is a good time to do staff training, planning, building inventory, repairing and maintaining equipment, and dry runs for new ideas.
Business Partners is a specialist risk finance company for formal SMEs in South Africa, and selected African countries. The company actively supports entrepreneurial growth by providing financing, specialist sectoral knowledge and added-value services for viable small and medium businesses.