Transforming a Highly Seasonal Business: A Profit First Success Story
If you are new to our weekly entrepreneur newsletter, I want to first extend a warm welcome (it’s finally getting warm outside!). This week, we’re going to take a slightly different approach. We’d like to spotlight an amazing success story one of our clients recently experienced. We hope this can spread a bit of hope for struggling business owners and maybe even inspire you to take greater control of your business’ cash flow to achieve the same success in your business!
In This Issue:
- A Success Story: Transforming a Highly Seasonal Business
- Profit First and Seasonal Adjustments: How They Smoothed Cash Flow All Year
- The Impact on Personal Goals and Emotional Well-Being
In a bustling city known for summer events and tourism, a specialized hospitality business had operated successfully for several years, routinely surpassing $1.5 million in annual revenue. In 2023, they hit a record $2 million in sales. At first glance, you’d think the owner was living the dream—yet behind the scenes, the business faced an all-too-common issue for businesses that experience inconsistent cash flow (and don’t we all at times): their revenue flooded in heavily during the late spring and early summer, aligned with peak festival and wedding season, while the remaining months lagged.
Although their variable costs (materials and subcontractors etc.) moved up and down with the number of clients served, their fixed expenses remained the same year-round—rent, equipment leases, and most payroll costs had to be paid monthly, no matter how much (or how little) income arrived. With no concrete plan to handle the severe difference between Q2’s strong inflows and the slower rest of the year, their cash reserves dried up by fall—leading to a precipitous drop in profit and nerve-wracking debt obligations. Instead of relaxing during the holiday season, the owner was left battling insomnia and financial stress.
Enter Profit First
Earlier last year, before the busy season began, we started working together with them to implement the Profit First system and set up a cash-flow budget that would even out the highs and lows. We calculated a clear “Target Income for Allocation” (TIFA): the monthly amount of revenue needed to cover fixed expenses, taxes, owner’s pay, profit allocations, and any materials or subcontractor costs.
Armed with that TIFA figure, we devised a plan: once their busy season produced enough revenue to meet those budgeted needs each month, any additional cash flow would go into a seasonal adjustment account. During the lean months, when sales dipped and revenue wasn’t enough to fully cover expenses, the company would draw from this fund. Essentially, the summer spike funded the year’s quieter periods, sparing the owner from the dreaded “shortfall panic.”
A Smoother Ride and a Surplus on the Horizon
The results were striking. With strong early-season bookings—plus a disciplined approach—this company had fully set aside funds to handle fixed expenses, taxes, profit, and the owner’s compensation for the year already by the time they finished with their busy months. Within 2 months of starting their busy season, they even surpassed their annual TIFA goal based on realistic sales projections. That translates into a significant surplus by year’s end for every dollar earned above their annual budget—an incredible turnaround compared to last year’s cash crunch.
The owner recently asked, “What do I do with all that extra cash at year’s end?” That question is music to any advisor’s ears because it opens doors to achieving their long-term financial and personal goals:
- Paying down or completely eliminating debt
- Meeting tax obligations easily, without scrambling
- Enabling the owner to finally tackle postponed personal projects, like home upgrades or family vacations
More important than the bottom-line numbers is the new sense of calm and confidence the owner experiences daily. With business and personal finances on track—even during slower months—peace of mind has replaced the sleepless nights.
The Takeaway
This story proves how a strong cash-flow strategy can transform a business that’s profitable in peak times but falls short the rest of the year. By applying Profit First principles, calculating TIFA amounts, and creating a seasonal adjustment account, the company effectively eliminated the roller-coaster ride of feast-or-famine months.
If you’re dreading an upcoming slowdown or constantly chasing money after sales suddenly dip, remember there are proven methods to safeguard your cash flow and mental health. By planning ahead, allocating funds as they come in, and making your revenue work for you, you can avoid the trap of seasonal struggles—and finally find the freedom and confidence every business owner deserves.
Click here to schedule a free consult now!
See you next week!
Adam Litster
Certified Profit First Professional and Pumpkin Plan Strategist
(816) 500-5779
adam@betterbizinfo.com
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