by Pat Gordon | December 12, 2017
To many Florida business owners, the months of November, December, January, February and March are the best time of the year. Our seasonal residents are back, the shops and restaurants are packed, and vacationers are here from around the world to escape their winter climates!
For many businesses, these four to five months generate 80 percent or more of their total annual revenues. This yearly wave of seasonal visitors is great, but it can certainly be accompanied by its share of challenges. Especially for newer businesses who don’t have a history of revenue swings throughout the year, it can be particularly challenging to project monthly sales and variable costs associated with those sales.
One great place to prepare for seasonal shifts is to know the breakeven point in your business. You can find your breakeven point in dollars, units sold or number of customers (using an average sale/customer). You need to add up all of your fixed expenses – those costs that pretty much stay the same every month of the year whether you have three customers a day or 300 a day. Costs includes items such as mortgage, rent, utilities, salaried personnel, loan payments, etc.
Once you know your total fixed expenses on a monthly basis, you need to estimate your gross margin percentage, or simply how much does it cost you to sell an item or provide a service. If your average customer spends $50 per visit and that visit (i.e. hair cut), costs your business $20 to provide, then your gross margin is $30 and your gross margin percentage is 60 percent.
Now you can determine that with $5,000 of monthly fixed costs, you will break even (cover all your fixed costs) after the 167th customer leaves your establishment. (167 x $30 = $5,010). Once you know this you can start estimating how many customers you need each month of the year – during season and throughout the off-season to cover your expenses.
A good business manager anticipating next summer’s slow season will put enough money aside in reserves to cover fixed expenses when the seasonal people and tourists have all left to return home. A really great business manager will put enough reserves aside during the high season to cover for emergencies during the slow season.
This past summer was especially challenging for a lot of business owners. As many of you know, Florida was declared a state of emergency on September 4 due to the anticipated devastation from Hurricane Irma.
Unfortunately, for many businesses, the timing could not have been worse. They were at the end of a long, hot summer and very low on cash reserves, just waiting for the snowbirds to return in a month or so. For those businesses that had let their cash reserves dwindle, they couldn’t afford two to three weeks of no sales. There wasn’t even enough money to cover their fixed expenses.
On a brighter note, the State of Florida provided the Bridge Loan Program to help businesses through those tough times, but not everyone qualified and in many cases, the maximum loan amount wasn’t enough to keep them above water.
As the seasons come and go, and tourists arrive and depart and hurricane seasons return, business owners need to spend time planning for what’s around the next corner.