September is the month when a lot of seasonal businesses will transform and either see a surge in profits as, for instance, retailers and booksellers hit their Christmas stride, or prepare for winter hibernation, such as travel agents and tour operators and low cost flight operators.
Knowing when a seasonal business is running at its peak is important to help you gauge its potential and, equally, judge whether the founders have the time to address your business angel questions and issues.
For instance, if a business is about to go into its quiet period then this is a good time to assess the business and see how it has done during its peak season. Conversely if a business is about to go into its busy period you may want to hold back and see if all the preparation it has made during its quiet season is about to pay off.
So, what should a seasonal business be doing to make it investment worthy? Here are our 4 tips for business angel investors.
1. Correct Staffing
Seasonal businesses will require seasonal staff. If a business which is only profitable for a few months a year has too many full time staff then it will be wasting a lot of money during the quiet months.
This is a sign that the business is not making the best use of its funds; funds that you could potentially be supplying. Seasonal businesses that are achieving a correct employee balance will likely be using recruitment services and using established employees to train these temporary staff. They may even have agreements in place with Universities to take on seasonal workers.
2. Correct Opening Hours
Seasonal businesses should be saving costs on overheads by limiting the business hoursof any showrooms, shops or contact centres they own during the quieter periods of the year; and the same is true in reverse; so any business that is about to get busier should be open as often as possible.
Take The Economy Radiator Company as an example; because they sell electric radiators their busy period is about to begin, so their MD Michael Wood has taken the decision to open their telephone sales department on a Saturday because “Call volumes between September to January are six times higher than during the rest of the year”. Any seasonal business worth investing in will make similar changes to their business hours to adapt to changes in the market.
Does you potential investment target recognise the seasonal opportunity and are they able to take advantage before the best sales opportunities pass?
3. Cash Flow Management
How a seasonal business optimises profit during its quiet period is perhaps more important than how profitable it is during its peak season.
There are several methods of selling products despite them being out of season. Think about businesses that offer luxury seasonal items, such as summer holidays or Christmas hampers, these businesses offer savings schemes so people can buy the products more conveniently next season. Or, just look at how the need for a winter product has lead tour operators a drive to promote winter sun and ski holidays.
Increasingly, low-cost airlines are becoming seasonal businesses shutting down large parts of their flight network during the winter months. How effective is this action at preserving cash?
Or consider shops that offer discounted prices on left-over stock?
A business that has developed creative methods of bringing in money whilst their product is out of season is likely to succeed and be worthy of investment.
A smart seasonal business will have all their marketing organised during their quiet period. Some profit from the peak season should be set aside to fund the marketing push for next year.
There should also be some marketing geared towards the previous seasons customers to remind them to buy the same products or use the same services the following year; this can be achieved by taking customer contact details at the point of sale and constructing a direct marketing campaign via email, post and phone.
Seasonal businesses are a little trickier to get right than a business that can expect a steady revenue stream right throughout the year but with careful planning and a bit of creativity they can be perfect investment opportunities.
And of course, the bigger management challenge for seasonal businesses means you’ll want to check out the leadership team a bit more closely – and there is nothing like a quiet season to see how they have fared and how they are prepared for the next season.