A few years ago I was giving a presentation about budgeting and break-even analysis to a group of entrepreneurs. (You can find excerpts from that presentation here.)
At one point in the presentation, one of the audience members asked a question regarding seasonal businesses, such as lawn mowing services or snow-removal services. Can those businesses do breakeven analysis?
I answered yes, of course they can. The participant then spent the next several minutes arguing and pontificating that it’s “impossible” to do breakeven analysis, or budgeting for that matter, if a business is seasonal.
After that presentation, I put this topic on my list of things to blog about, and I’ve finally gotten to it.
So … can a seasonal business do a breakeven analysis or create a budget?
Even if a business is only open for 3 or 4 months out of the year, the business will have income and expenses during that timeframe. A business owner can estimate those numbers (budgeting!) and use those numbers to determine how many jobs need performed (lawns mowed, driveways cleared of snow, etc.) in order to at least break even.
Now, it IS hard for seasonal businesses to project income. If you’re a snow-removal business, you’re totally at the mercy of the weather. If it’s a mild winter, your income might literally be almost zero. If you’re in the lawn mowing business, and the weather is hot and dry, you might not get to mow very many lawns. You can’t predict the weather, but you CAN know your costs.
I would say it’s VITAL for seasonal businesses to budget. You have fixed costs that need covered. You need to know what your cash reserve is at the start of the season, so you know how much you can cover with what you’ve already got, or how much additional cash you might need to come up with to keep things afloat.
Joe runs a season business. His business bank account has $2,000 in it at the start of the season. He uses his budget to determine that his fixed costs during the season are $750 per month. Joe can keep the doors open for a little over 2 months even if he doesn’t bring in any income during that time.