Entrepreneurs: Batten down the hatches - winter is coming

Gugu Mjadu
If not prepared, seasonal fluctuations can wreak havoc in the world of small to medium enterprises (SMEs) and for those entrepreneurs that experience peak and low periods within their business.

Gugu Mjadu, spokesperson for the 2017 Entrepreneur of the Year® competition sponsored by Sanlam and BUSINESS/PARTNERS, says that often, only entrepreneurs operating within sectors that are impacted by the different seasons, such as tourism, think they are at risk of seasonal fluctuations, but this isn’t always the case.

“Almost all small businesses will experience seasonal fluctuations throughout the year as the business goes through its business cycle, and these peak and quiet periods will be determined by different factors depending on the sector within which the business operates and the market they service.

“If entrepreneurs don’t exercise vigilance year-round to this cycle, and plan accordingly for their so-called dry-season, the business can run into cash flow problems,” says Mjadu.

She points to the 2016 State of South African Small Business report, released by World Wide Worx, which revealed that 38% of small business owners reported experiencing unexpected cash flow issues. One of the reasons for this was attributed to an unforeseen slump in sales.

While an entrepreneur will from time to time experience a slowdown in their business for reasons out of their control, often trends can be identified in advance, and plans can be developed to minimise the impact of these slumps, says Mjadu.

“Similar to businesses, consumers are also impacted by seasonality and are prone to spend money more during specific times of the year. For instance, a retailer business will experience a peak in revenue leading up to Christmas, but less so at the start of the year while consumers recover from their spending hangover. Similarly, those offering business-to-business services will likely see a drop towards the end of the year as their clients go into holiday mode.

“By analysing and understanding a business’ seasonal cycle, as well as their customer’s behavioural and spending habits, can assist entrepreneurs in compiling a comprehensive cash flow forecast to match these identified patterns.”

When developing the cash flow forecast, an entrepreneur should record all incoming and outgoing funds. “The cash flow forecast should cover sales, payments on credit, inventory and any other effective items, such as debt repayment. In order for the forecast to be most accurate, it should be reviewed on a monthly basis as this will allow for the implementation of emergency contingency plans should the forecast look weak for the upcoming months,” concludes Mjadu.