For many businesses, revenue is not always consistent throughout the year. Seasonal revenue fluctuations can present challenges, particularly for small and medium-sized enterprises (SMEs) that heavily depend on specific periods for their income.
The Office for National Statistics noted that almost a third (30%) of UK trading businesses experienced a dip in turnover when comparing November 2022 to December 2022, highlighting the month-over-month variability.
In light of such variability, the role of a professional accountant becomes paramount. Their expertise is essential in devising strategies to stabilise these revenue tides.
1. Cash Flow Forecasting
UK-based small businesses generated 28% of their annual revenues in seasonal industries such as hospitality during the summer, compared to 22% during the winter with a lacklustre holiday season significantly impairing cash flow.
One of the primary roles of an accountant is to assist businesses in anticipating their financial future. By examining historical financial data and combining it with industry trends, an accountant can offer a realistic projection of monthly revenues allowing businesses to plan and prepare for leaner periods.
2. Budgeting and Expense Management
Managing expenses becomes even more critical when revenues are inconsistent. An accountant can assist in designing a budget that aligns with the company's seasonal income.
For instance, they might recommend deferring some non-essential expenses to months with higher revenue or negotiating terms with suppliers to even out payment obligations.
3. Tax Planning
Seasonal revenue fluctuations can impact a business's tax obligations. In the UK, where corporate tax rates are dependent on profit levels, a spike in income during peak months can significantly influence tax dues.
An accountant can strategize around these fluctuations, ensuring that businesses take advantage of tax reliefs available to them.
4. Diversification Strategies
Based on the insights from financial data, accountants can recommend diversification strategies to mitigate the effects of seasonal dips. A business predominantly operating in summer tourism might be advised to explore winter-related activities or other ventures that could generate income during off-peak months.
5. Securing Financing Options
36% of UK SMEs used personal funds to finance their business in the last 12 months. However, there might be times when, despite the best planning, businesses face liquidity challenges during off-peak seasons.
Accountants can guide businesses in securing lines of credit or loans that offer favourable terms, ensuring that they can navigate short-term financial challenges without compromising long-term growth.
6. Utilising Technology
With the advancement of technology, several financial tools and software can help businesses analyse and predict their financial performance. Accountants can introduce your business to these tools, ensuring you are equipped to manage and monitor your finances proactively.
7. Training and Advisory
Apart from the direct financial management aspect, accountants can also serve as valuable advisors, educating businesses on best practices to manage seasonal fluctuations.
The Final Word
Seasonal revenue fluctuations, while challenging, are not insurmountable. At Sanay, we can help businesses not only navigate these fluctuations but also turn them into opportunities for growth and diversification.