Although some food and beverage establishments enjoy crowds year-round, many businesses struggle with seasonality in some form.
For some, it can be extreme seasonal swings, says Stephen Zagor, a restaurant consultant, former restaurateur and current dean of culinary business and industry studies at The Institute of Culinary Education in New York City. For example, at beachfront restaurants in the Northeast, there may be a high season of three to five months, then a stark drop-off as vacationers leave town, Zagor says. Other areas, such as ski destinations, may have waves of seasonality with plenty of guests in winter and summer, but few in between. Then there’s urban seasonality, Zagor says, which can happen in spots like New York City when locals go on vacation.
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1. Learn your area’s seasonality
First and foremost, it’s vital to do your homework and understand the seasonality of your area, preferably before you lease or buy the property, Zagor says. Avoiding such surprises and knowing how to plan for seasonal dips is key to your bottom line’s health.
2. Understand and manage cash flow
Don’t just hope for the best. Setting up systems to manage cash flow is key for businesses affected by seasonality, says Andrew Rigie, executive director of NYC Hospitality Alliance, a trade organization advocating for restaurants, bars and boutique hotels. “When it comes to seasonality, it’s important for business owners to understand the nature and operations of their business to determine how they’ll hopefully stay cash-flow positive throughout slower periods.”
3. Stockpile savings
Your peak seasons are the time to put money aside if possible, Rigie says. This can take the pressure off and carry you through a slow period. Mark Verespy opened The Killarney in Ludlow, Vermont, in 2005. His pub is located at the base of a mountain in a ski town, so Verespy says he aims to set aside 10% of gross annual earnings to help him get through the low season.
4. Know and control your fixed costs
The trick to surviving seasonality is maintaining fixed costs, such as rent, utilities and payroll, Zagor says. This makes it important to know exactly how much money you have to spend even if nobody walks in the door, he explains. Unexpected restaurant costs can pile up, so figure out what you can and can’t cut. Moreover, learn how little you can get by on without damaging the business or needing to close (for example, don’t get rid of your famous burger if it’s what brings guests, Zagor says).
5. Reduce labor costs
Speaking of payroll, managing labor costs is a must for seasonal businesses, Rigie says. “Labor is a high percentage of expenditures at a restaurant, so you don’t want to have too many people working during slow periods,” he says. For instance, Verespy’s staffing at The Killarney jumps from four to 50 employees during peak season.
6. Adjust your menu and optimize inventory
“During slower periods, address your menu items to make sure they’re attractive cuisine for the season,” Rigie recommends. He also suggests reducing highly perishable products you’re purchasing, since they’re often more expensive and have a shorter shelf life. This may mean tweaking your menu until the slow season passes.
Verespy buys in bulk during the peak season, but in slower times, he says it’s better to focus on managing inventory closely and avoiding overbuying.
7. Offer new promotions
Experiment with new promotions that may increase sales in the offseason. “There’s greater margins on alcohol than food products, so [try] drink specials or having happy hours — ways to attract new and repeat guests,” Rigie says.
Specials and promotions should be planned well in advance, Zagor says, which can be a challenge for busy restaurateurs. So have a game plan before the slow season hits. For example, Zagor says, if you run a clam bar on a beach and the off season is approaching, start promoting a 50-cent clam night before the lull.
Also, do what you can to attract repeat customers, Rigie says. One way is to find out when customers are celebrating special occasions like birthdays or anniversaries, and try to bring them back in to mark them at your establishment.
8. Market yourself wisely
Although promotions can be helpful, “be very careful about spending too much money to bring in too little business,” Zagor says. Struggling businesses often throw money at every marketing opportunity rather than focusing on what actually works. Most restaurants draw 80% of their customers from the surrounding neighborhood, so focus on reaching those nearby, he says. Social media can be an effective tool, but don’t rely on it completely. Using it without a plan for how it will attract customers doesn’t deliver results, Zagor says.
It’s helpful to find a story to market your business during the offseason, Verespy says. For example, he knows his customers care about having fresh, local ingredients, so he shops at farmers markets and shares pictures of the produce on social media to entice farm-to-table-minded guests.
9. Manage hours carefully
You may need to experiment to find your optimal offseason hours. Verespy discovered it doesn’t always make sense to close during the lull. “We thought in the beginning that managing hours meant shutting down to save more money, but we’re in such a rural area — we found that if people came and we weren’t open, they weren’t ever coming back,” Verespy says. Instead of reducing hours, maintaining consistent hours worked better. His pub is guaranteed to be open 365 days a year from 3 p.m. to 11 p.m., and if it’s busier, he’ll stay open later.
10. Expand offerings
One way to drive revenue is to add new offerings, such as introducing a delivery service. You can get creative: Rigie says in New York City, some restaurants began delivering food to people sunbathing in Central Park.
Consider other improvements to attract new or repeat guests. Rigie points out that in warm months, many guests prefer to eat outside. If you don’t have outdoor seating and summers are slow, add a sidewalk cafe to be more competitive.
11. Obtain small-business financing
Taking out small-business loans should be a last resort if you can’t get by on savings or cutting costs, Rigie says. If your business can’t sustain itself during the low season, Zagor suggests closing for a month or two to stop the financial drain. But if you need money now and closing isn’t an option, consider seeking financial help.
Restaurateurs with investors should first turn to them to see if they can financially support you through the slow period, Zagor says. The investors may prefer to originate a loan rather than you obtaining one elsewhere, Zagor says, since they have an equity stake. He also suggests looking at Accion, a microlender with a nationwide network that helps some food-industry businesses at reasonable interest rates. If you have a good relationship with your bank, it also may be willing to lend you capital.
When Verespy encountered his first slow season and needed help surviving, he was rejected by banks. So he turned to merchant cash advance, a form of financing that takes an advance on your future sales but comes with high interest rates. He now occasionally uses it for expansion capital.
If you need short-term funds, though, other alternatives from online lenders exist, such as term loans or lines of credit. Interest rates may be higher with alternative lenders than with banks, but credit criteria are typically more lenient than those of traditional lenders.
To get more information about funding options and compare them for your small business, visit NerdWallet’s best business loans page. For free, personalized answers to questions about financing your business, visit the Small Business section of NerdWallet’s Ask an Advisor page.
Images via iStock and The Killarney.