In the classic 1954 movie “White Christmas,” a musical performance staged to attract visitors to a nearly bankrupt inn also reconciles old lovers, sparks new romance, and somehow convinces a thick blanket of snow to fall on the show’s Vermont setting. If only a little tap-dancing and singing could fix everything for real-life winter businesses!In much of the US, winter means activities like skiing, ice skating, and snowboarding. It heralds snowball fights, Christmas trees, and evenings spent drinking hot chocolate by a fireplace. Behind the scenes, it also means snow removal, furnace installation and repair, and chimney cleaning. Some businesses only operate during the winter months; others make a disproportionately large share of their income during this part of the year. A Constant Contact study reveals that about 75% of small and medium-sized businesses (SMBs) rely on the holiday season for at least 25% of their annual revenue. More than half — 58% — say that holiday customers are extremely important to the success of their businesses. Unique Risks for Winter-Based Seasonal SMBsSeasonal businesses face risks, including insufficient or unpredictable cash flow and inconsistent staffing. When a business can offer only a few months of employment every year, it’s more likely to have difficulty recruiting high-quality employees and is vulnerable to the possibility that its workers will find year-round jobs elsewhere. The business’ best people may or may not be available from year to year, so it’s more likely to begin every season with inexperienced workers than a nonseasonal business. Seasonal businesses have limited time to recover from setbacks. If a best-seller is out of stock, customers may turn to competitors or lose interest entirely once the season has passed. Winter businesses are also uniquely vulnerable to climate change. A warm winter means less snow and fewer opportunities for outdoor winter sports and all the restaurant meals and lodging that winter sports enthusiasts demand. Warm weather also means less customer interest in other cold-weather activities. Who wants to drink hot chocolate when it’s 70 degrees outside? How CFIs Can Help Winter Business CustomersCFIs can help their winter business customers weather the challenges of running a seasonal business in several different ways. Here are a few examples of how:
- Offering revolving credit lines. Rather than write a loan for a set amount that a business borrower repays over a term of years, CFIs can offer seasonal business customers a line of credit that lets them borrow up to a set limit. They can pay down the balance as they’re able and borrow again as necessary, depending on how much working capital they need. You might also add cash management features, such as a cash sweep that automatically pays down the line of credit.
- Providing asset-based lending. For most business loans, you would consider a firm’s cash flow and profitability to determine loan amounts. For a seasonable business, it could make more sense to make an asset-backed loan, advancing funds against accounts receivable and inventory value. Equipment, real estate, and intellectual property could also figure in the mix.
- Advice. Along with flexibility, personalized service, business knowledge, and an understanding of how a firm fits into a community, advice is one of the most valuable things a CFI can offer a seasonal business customer. For instance, a lender might have thoughts on how a winter business could branch out and sell products and services during more of the year. Many businesses in the Colorado Rocky Mountains have accomplished this, adding warm-weather activities to their traditional winter sports seasons to attract visitors all year long. Colorado ski areas use their lifts to deliver summer visitors to mountain-top picnic areas; they offer guided hikes, mountain biking, and music festivals.
“We actually have more visitors come in the summer than during the winter,” says Michael Brown, who is based in Glenwood Springs, CO and is Alpine Bank’s regional president for Eagle, Summit, and Routt counties. “The summer visitors might spend less than families or individuals coming during the winter, but both of those seasons are very important. So, if we have a bad winter, that may create some cash flow issues for our restaurants, retail and lodging clients, but they have the summer to try to alleviate that.”Winter-only seasonal businesses face unique risks, but CFIs can help address these concerns by offering thoughtful lending products and advice, tailored to their business model. CFIs might also work with these business owners to identify how they might sell products and services during more of the calendar year to improve their cash flow and make them less reliant on unpredictable factors, like weather.
