Bookkeeping Essentials for Mastering Seasonal Business Finances

It is extremely challenging to operate a small or medium-sized business, and not all days are created equal.

For instance, about 20% of retail sales happen during the holiday season. Some businesses are wholly seasonal, such as snowboarding shops. But every business has peaks and valleys, whether it’s tax season for accountants or Valentine’s Day for florists.

Those busy times are often the core of business success. However, when the peaks and valleys are extreme, they present financial challenges for the business. A shop selling bait and fishing gear at a lake in New England may do most of its business between Memorial Day and Labor Day. However, its business loan may still be due the first of every month, whether or not anglers are lining up for lures and nightcrawlers.

These things are the same for seasonal businesses

While being a seasonal business sets a business apart from others, it’s still a business. It has to do all of the regular things any business does, such as:

1. Record sales so that it can measure total revenue.
2. Invoice customers to get them to pay and so the business can track what is owed (and when).
3. Note expenses to calculate profit or loss and to allow for deducting allowable expenses against taxes.

Related: How to Talk About Company Finances with Your Team

These things are different for seasonal businesses

Because income from a seasonal business happens over a limited period of time, it needs to be spread across time without income.

A skiing-related business such as a lodge, a ski shop or even an Uber taking skiers from a train station to a ski resort in season may have expenses that stretch all year long. The ski shop may have few customers in July (in the northern hemisphere, anyway), but it may still owe monthly rent or semi-annual property taxes. The Uber driver’s car payments happen every month, even if nobody is looking for a ride from the train station to the lodge.

Fluctuating cash flow is the key challenge for a seasonal business. Here are the things that this type of business has to manage:

1. Cash flow. Map out expected revenue by month. A business may need to do this by week if a more granular look at when cash comes in is helpful. If you’ve been in business a while, look at your historical figures. If you’re just starting out, make your best estimates. Setting aside funds for future expenses is always a good idea.
2. Budget. When you have your cash flow answers, you should build a budget. List your expenses, which could be everything from employees or contractors to insurance and utility use. Keep in mind all the cash you’ll bring in and when, then make sure you won’t exceed those figures. Ideally, you’ll have money left over to put back into the business or save.
3. Build more budgets. Build at least two others. One could be a worst-case scenario. Again, to visit the ski business, perhaps there’s a historically low amount of snow and people cancel their lodge reservations. The converse is that the snow season lasts an extra month and you generate additional revenue. Have a plan for what to do with that.

Related: 3 Ways to Shore Up Your Business Finances in a Tight Economy

Planning is the key

Because a business can’t rely on roughly the same income every month, it needs to be on top of all related expenses and be ready with a plan. You can move some activities to the off-season. That’s a good time for employee training or your budgeting process. The off-season is also a good time to make plans for advertising. Rates may be lower, and advertisers will be happy to have their future slots sold.

If you hire employees, make yourself familiar with IRS Form 941 for seasonal employers. This is how a seasonal employer reports income taxes, Social Security tax or Medicare tax withheld from employee’s paychecks and pays the employer’s portion of Social Security or Medicare tax.

If there are one or more quarters during the year that you won’t have employees, you won’t have to file for that quarter. Just remember to check the “seasonal employer” box on Form 941 for every quarter that you do file.

Related: The Basics of Using Credit Cards to Fund Your New Business

A Document Management System (DMS) helps order things in season and out

Document management systems capture all relevant financial data, read them through optical character recognition (OCR) and store the data in the cloud. Users can manipulate the data from their desktop or their mobile device on the road.

Use a DMS to:

1. Streamline financial record-keeping processes. Working with your data will be faster and more clear because you won’t need to paw through folders.
2. Improve organization and accessibility of financial documents. Your receipts will be easily available in your stored files. A good DMS will automatically assign your receipts, invoices and statements to the correct category.
3. Reduce the risk of errors. OCR captures data accurately, avoiding incorrectly entering information.
4. Monitor cash flow trends, compare revenue, expenses between seasons and make data-driven decisions.
5. Working during downtime or time away from your desk by taking advantage of cloud access to data.
6. Create and adjust budgets with stored financial records.
7. Generate financial reports with stored financial records. Use these to make key decisions such as when to open, when to acquire new equipment and when to hire.
8. Tracking payments on your invoices. Once entered into the DMS, utilize reminders to reach out to customers for prompt payment.
9. Integrate with your tax accountant. They’ll appreciate digital records instead of a box of receipts. That will also mean reduced billable time.

To make your seasonal business succeed so that you can enjoy the benefits of a low-pressure slow season, take the time to be accurate. That will ensure you know what needs to be paid when cash flow isn’t coming in.