Saying Goodbye to Summer: Best practices for closing down a seasonal business
Despite the lingering heat, many owners with small businesses tied to vacation and recreation are winding down operations before closing for the season. But that doesn’t mean they can put up their collective feet until next spring. Even if your doors are closed, your business is still “open” as far as the state in which you operate and creditors are concerned. So, it’s important to manage cash flow in those peak months to be able to cover expenses in the off-season. And you want to stay connected to those far-flung employees and customers, so they are more likely to come back when you re-open. “If you have a physical location that lies empty, the liabilities don’t stop during that five to six-month period,” cautions Tripp Watson, whose Birmingham, Alabama-based Watson Firm advises entrepreneurs on legal and contractual matters as well as on business strategy. “You have a legal duty to inspect and maintain the property. If someone is injured, even if they’re trespassing, you’re still legally liable.” Watson recommends investing in a monitored security system to help protect your business from litigation. “It always helps if there’s video of someone getting hurt or breaking in,” notes Watson. “Just factor it in as the cost of doing business.”
Beware the off-season budget busting expenses
Cash flow management is especially critical for seasonal businesses, as they may only have three to six months to generate enough revenue to cover expenses throughout the year. “Your costs don’t go down to zero when your doors are closed,” Watson points out. “You should map out expenses throughout the peak and off peak months as well as the off-season.” If it’s your first season, Watson advises doubling those costs. “Things you didn’t think about will crop up and can cut into your margins if you’re not prepared.”
For proof, just ask Tom Lawless and Tina Oddleifson. When this husband-and-wife team took over the Pilgrim’s Inn and Whale’s Rib Tavern on Deer Isle in Maine’s East Penobscot Bay in October 2005, they had to put in a new septic system right off the bat. “We were slapped with a big unexpected expense without having any revenue,” recalls Oddleifson. Thankfully, the pair had purchased the business when some late-season revenue was still coming in; coupling that with the working capital they started with, they were able to cover the cost of the repair and then replenish their coffers when they opened the next spring.
Typical off-season expenses for the inn and restaurant, though, are things like utilities and insurance payments. “Deposits, which start coming in January, help with cash flow during the months we’re closed,” she explains. And she also taps this early infusion of cash to fund renovations and repairs, which usually don’t happen until the spring.
Know your costs; watch every penny
When Duane Greenawalt, who runs his own CPA practice in Bennigton, Vermont, bought Hathaway’s Drive-in Theatre in North Hoosick, New York in 2009, he saw it as a vehicle to teach some life lessons to his children, all four of whom work there along with his wife. And while running this seasonal side business has been fun, it hasn’t been easy, he admits.
“Not only is it like running two distinct businesses, but we can only do business at night and when the weather is nice,” explains Greenawalt. “Cost control and knowing your margins are critical.” As they only bank a fraction of every ticket they sell after the film companies and state take their cut, Greenawalt instructed his eldest son on how to run a cost analysis to identify waste at the snack bar, which serves both hot and cold food. “Not unlike McDonald’s, which knows the cost of each French fry, everyone’s now more aware of the need to control portions.” Greenawalt points out. “Not that we’re giving our customers less, but we’re giving them what they pay for.”
Recruit staff for the long haul, and then stay in touch
Aside from the limited window to generate revenue, staffing is a major challenge for seasonal businesses. “A bad hiring decision can be costly,” cautions Watson. “Even if there are costs involved to maintain an employee from season to season, typically those costs are worth it when you factor in the costs of finding a replacement and training.”
“We have about an 80 to 90-percent return rate for the kitchen and 70 percent for the inn,” notes Oddleifson. “But it remains a challenge with our student staff, since our season overlaps with the academic year. My husband and I are putting in a lot of hours and juggling many roles during those months.” Oddleifson keeps in touch with employees during the off-season with periodic emails. “If people don’t know what’s happening with your business, rumors can start, especially in smaller communities,” cautions Oddleifson.
For Greenawalt, staffing is mostly a friends-and-family affair. His drive-in’s eight other employees are his children’s friends and siblings of the previous owner’s former employees. “While we lose some of the older kids when they go off to college, training usually takes no more than a week for most jobs in the snack bar, though there’s more of a learning curve for running the projector.”
Think strategically as the season’s end nears
Oddleifson has been able to structure the business’s mortgage and most ordering to pay during peak season. “We pay our biggest expenses when we’re making money,” Oddleifson points out. “By law, we have to pay for alcohol on delivery and we order food as we need it.” Then, as the season winds down, so does ordering for the restaurant. “We start paring down our wine list in the fall and don’t offer as extensive a list as our high season,” she explains. “We shorten our menu for the last two weeks we’re open and run lots of specials until the food is gone.” Any fresh goods left over are distributed among their employees and canned goods are stored. “We have become better at ending with very little inventory each season.”
As the drive-in officially closes after Labor Day weekend, Greenawalt begins winding down some purchases by mid-summer. “We have a lot of food inventory—you never know when you’re going to get hit with a big night,” says Greenawalt. “But you reach a certain point where the risk of running out is lower than the risk of getting stuck with inventory at the end of the season.” Greenawalt has typically stopped purchases for candy, popcorn, and ice cream by late July or early August, as the vendors require minimum purchase orders and he would have to buy a lot to get the reduced rate. “While we’re not going to run out of popcorn, we may run out of a few popular brands of ice cream and candy, though we offer a wide variety of both.”
For more info; http://smallbusinessonlinecommunity.bankofamerica.com/community/running-your-business/generalbusiness/blog/2012/09/05/saying-goodbye-to-summer-best-practices-for-closing-down-a-seasonal-business