Almost all industries have seasonal fluctuations in revenue. The travel industry sees an increase during the summer months. As an accounting firm our busiest season is January-April. The Construction industry and landscapers generally see a major decline in revenue during the winter. So how do you deal with seasonality in business to survive the slow months? Well, that’s the beauty of Profit First! It solves the problem for us.
The Profit First cash flow system is based on percentages. With Profit First you are allocating a percentage of your income twice a month to at least five separate bank accounts. Which means your dollar amounts will fluctuate up or down depending on your season, but the percentages remain constant. You are always putting something into your accounts.
With that in mind, you have two options to prepare for those slower months.
- Use Smaller Plates
Our human nature is to “fill our plates”, so in order to eat smaller portions and still feel satisfied, use a smaller plate. That same idea applies to cash flow management, which is why Profit First has owners open multiple bank accounts that will be used for specific purposes. If you had just the one big bank account with all your money there during the busy season, you will most likely spend it. Then when your slower months come you don’t have enough cash to cover your expenses. Don’t fill your plate!
With Profit First, your PROFIT, OWNER’S PAY, and OPERATING EXPENSE (OPEX) Accounts all become holding buckets. During your busy months, the balance in these accounts increases. Then when your slow season comes and you have little to no revenue, you have a buffer that is already in these other accounts because you set it aside when the revenue was good.
- Remove the Temptation
Profit First professionals teach, “When in doubt, add an account”.
If you feel you are easily tempted to fill your plate you could open a separate SLOW SEASON Account and allocate a certain percentage to it throughout the year. This way, you are not tempted to spend the extra funds during your higher income months. When your slower season comes, you can pay your expenses directly from that account.
Here’s John, your very own Profit First Expert, explaining these principles in a quick video.
If you are using the Profit First system and it’s working for you, you can “share the wealth” at Amazon Review – Profit First for Microgyms.
Smooth out the bumps of seasonality in business by talking with a Profit First Expert on the best way to get started.
Follow us on…