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Seasonal forecasting

As a business owner, one of your main priorities is to manage the cashflow of your company to maximise profit in the busy times and make sure you have adequate financial resources for the slower times. So, wouldn’t it be great to know in advance when you can expect higher demand for some products or when demand falls away? Seasonal forecasting helps you to predict when these rises and falls occur so they can be incorporated into your business planning. You will be able to place your resources where and when they are most needed to maximise sales efficiently. Equally, if you know when the quiet times are likely to happen, you can improve the accuracy of your cashflow forecasting to make sure you have enough reserves to cover your outgoings.

If you are a new business owner, or you or your management team are struggling to understand financial terms such as seasonal forecasting, Mellor Financial Training courses are designed with you in mind. Our courses are run by experienced Chartered Management Accountants who understand what running a business is like in the real world. What’s more, they cut through the financial jargon to help you attain financial confidence. (Link to previous blog.) Why not talk to us today to see how our finance for non-financial managers course (Link to courses page) can help to bridge that finance skills gap?

What is seasonal forecasting?

Seasonal forecasting is an invaluable tool for businesses to take advantage of a predictable increase in demand because of seasonal events, for example, Christmas, Valentine’s Day, Bonfire Night, the barbecue season, summer holidays etc. Equally as important, you will be able to see when the down times are, so you can plan for those too. Using seasonal forecasting alongside cashflow forecasting helps business owners to work out in advance the periods where sales revenue may increase or decrease, and which products are most affected by seasonal demand. For some tips about best practice for cashflow forecasting you may like to read this article.

First on the list is to determine whether your business has seasonal fluctuations. The nature and intensity of these peaks and troughs can vary from business to business, depending on the industry. For example, for a Christmas shop, anyone can predict when sales are high, but the historical data will pinpoint with more accuracy when the busy time starts and when it falls away. There may also be other fluctuations that haven’t previously been considered. The trading patterns and which product lines are the most affected need to be determined from the data. Once this information is known, a detailed sales forecast can be included in business planning to ensure the business buys in or holds the right amount of stock at the right time.

Secondly, you need to understand the costs of your business and any fluctuations. A cost analysis will help you to understand when you incur the highest costs and the baseline of revenue needed to keep your business running. This knowledge is essential for being better prepared to handle cashflow difficulties so you can talk to your suppliers or obtain short-term finance if needed.

The third step is to understand revenues and again, know where the fluctuations are. A clear understanding of customers and their payment habits can establish who to chase for late payment and who can be offered different payment terms – instalments or discounts for prompt payment, for example. This can help to combat any fluctuations in revenue to make sure your baseline for effective business operations is always covered.

Business planning

Putting together all this information should reveal trading patterns, baseline costs and any seasonal changes. This detailed knowledge of a business means sales forecasts will be more accurate and financial planning can be employed to ensure the business runs efficiently with sufficient reserves to cover any gaps in revenue. You will be able to:

  • Adjust outgoing payments, so you pay more when your revenue is higher and less when sales are lower
  • Negotiate payment terms with your suppliers to pay their invoices quickly in busy periods but have longer to pay when business is slower
  • Determine areas where costs can be cut when demand is low without affecting your company’s ability to do business
  • Clearly see where additional resources may be required to meet seasonal increases in demand, for example stock investment, order fulfilment, extra customer service personnel
  • Order stocks of seasonal products in time for predicted busy periods
  • Keep tight control of stock so cash is not tied up in inventory or resources to manage excess stock when business slows down
  • Accurate seasonal forecasting avoids the selling off of surplus stock at the end of the season – discounting costs money!
  • Build up cash reserves during busy periods so there is a cushion to cover costs throughout the trading year, including slow business months
  • Identify areas to diversify to boost revenues in the off-season, without incurring an increase in costs

You can read more about how seasonal fluctuations in demand can affect your business here.

As a business owner, it is your responsibility to manage the cash flow of your company to ensure it survives the quieter times. We have all seen businesses fail during the pandemic, especially those who were not prepared for leaner times and had no cash reserves to help them through it. In other words, plan for the good and the bad times, just as you do in your personal finances, saving more when you have a higher disposable income and cutting household expenditure when times are leaner.

Using seasonal forecasting will highlight where and when you need to invest, cut costs, diversify or borrow to maximise sales revenues and ensures you have the capital to cover those baseline costs for efficient business operations throughout the year. I hope that this blog has helped you to understand how historical data can be incorporated into your financial planning to help you ride the ups and downs in trading patterns. However, if you feel you are not prepared or there are gaps in your financial knowledge, and you would like to know more, please get in touch to find out how Mellor Financial Management can help you get to grips with your business finances.

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