The café took £31,000 in December. It took £11,400 in January. Rent, rates, wages and the coffee account did not move at all, and the VAT for the quarter that included December fell due on 7 February.
That is not a failing business. That is an ordinary British café having an ordinary British January, and the only thing that distinguishes the ones that survive it is whether somebody planned for it in October.
Almost every British trade has a shape
Seasonality is not confined to seaside towns and Christmas shops. Most trades have a shape, and it is usually sharper than owners expect until they see two or three years of monthly figures side by side.
Hospitality and retail peak in December and collapse in January and February, with a partial recovery at Easter that depends entirely on when Easter falls. Garden centres, landscapers and roofers front-load spring and summer and go quiet from November. Accountants and bookkeepers are buried from November to the end of January and quiet in the summer. Gyms and health businesses have a January that is the opposite of everyone else's, and a September that is nearly as good. Wedding suppliers work May to September. Heating engineers are unemployed in July and cannot answer the phone in December.
Work out your own shape properly. Take three years of monthly turnover, express each month as a percentage of the annual total, and average them. You will find your business is not twelve months of 8.3%. It is more likely to be four months carrying eight, and the useful planning question is which four.
December pays for February, if you let it
The mistake is not having a bad January. It is treating December's bank balance as December's result.
In a seasonal business, the peak months generate the surplus that funds the trough months. That is the whole design. What goes wrong is that the surplus is spent while it is visible: a new van in January because the account looked healthy, a bonus, a piece of equipment, an extended Christmas for the owner who worked seven weeks without a day off and had every reason to feel entitled to it.
Then February arrives and the money has gone.
The structural fix is to move the surplus out of the operating account as it arrives. A second account, a standing transfer, a percentage of takings in the peak weeks. Treat the trough as a known, budgeted, funded period rather than as a shock. It is the same discipline as reserving for tax and it is harder, because nobody sends you a demand for February.
Some businesses go further and smooth the costs to match. Ask your energy supplier about a fixed monthly payment across the year rather than seasonal billing. Ask the council to spread business rates over twelve monthly instalments rather than the default ten, which you are entitled to request in England and which cuts the monthly figure by a sixth. Consider the VAT Annual Accounting Scheme, open to businesses with taxable turnover up to £1.35 million, which replaces quarterly returns with nine monthly or three quarterly instalments and a balancing payment, so that a VAT bill never lands in your worst month.
Staffing a trough is the hardest part
The temptation in a quiet month is to cut hours. It works arithmetically and it often costs more than it saves, because the staff you send home in February are the staff you need in April and they have spent March finding a job with a rota.
The alternatives are not costless either, but they are usually cheaper. Annualised hours contracts, where a fixed salary covers a set number of hours across the year worked unevenly, are lawful and common in seasonal trades, though they need to be drafted properly and must not take anyone below the National Minimum Wage when averaged in the way the regulations require, which is calculated by pay reference period rather than across the whole year. Take advice before adopting one.
Fixed-term seasonal contracts for the peak are straightforward, as long as you are clear at the point of hiring and you remember that fixed-term employees have a statutory right not to be treated less favourably than comparable permanent staff.
Using the trough productively is the other option: training, maintenance, the fit-out you cannot do in season, the marketing for the year ahead. Paying people to do useful work in February is a better use of money than paying them to stand about, and much better than replacing them in April.
What you should not do is rely on zero hours arrangements to absorb the whole swing. They shift risk onto people who cannot carry it, and legislation has been moving towards guaranteed hours based on actual working patterns, so the position is changing.
Build the buffer while it is easy
Two numbers are worth writing down in autumn.
- Your monthly fixed cost floor: rent, rates, insurance, loan repayments, the salaries you will pay whatever happens, software, accountancy. The number you owe in a month where you sell nothing.
- Your trough gap: the fixed floor minus the realistic contribution of your worst three months, summed. That is the amount the peak has to fund.
If your fixed floor is £9,000 a month and your three worst months contribute £4,000 a month of gross profit, your trough gap is £15,000. That is the figure to have in a separate account by the end of December, and it is not an aspiration, it is the cost of opening in January.
Arrange the overdraft before you need it, in the autumn, when your recent trading looks strong and your management accounts are flattering. A facility requested in October, on the back of a good September, is a routine conversation. The same facility requested in the second week of February, with two months of losses to explain, is a different conversation with a different answer.
And use the quiet months to do the work the busy months prevent. Review prices in February for April. Chase the aged debtors. Do the health and safety review, the insurance renewal comparison, the supplier negotiation. A business that treats its trough as dead time gets twelve months of trading and four months of management a year.
Where this shows up in the game
Business Baron runs on a monthly calendar and the seasons are real. A café takes its money in December, a landscaping firm takes it between April and September, and both of them still pay rent in the months that do not pay. Players who expand on the strength of a strong autumn frequently meet the consequences in February. A café is one of the free game's five business types, and January makes the point in your first year without any explanation from us.