How to Survive the Seasonal Sales Cycle

Q: Any tips on how to survive a highly seasonal small business?

A: For many retailers the holidays are a time when they encounter a huge spike in business. Seasonal businesses dedicate a large part of the year preparing for those certain weeks or months when most of their revenue is generated.

Those boom times come at a price—financial survival throughout the remainder of the year when business slows to a trickle.

To help smooth the bumps it will be important to create a tight budget and stick to it throughout the year. Create a special cash reserve account for use only in leaner months. Set money aside whenever you can. Creating a cash flow forecast will help you identify patterns and see what you are up against. Include a worst-case plan to anticipate any nasty shocks.

Operating a seasonal business also requires that you plan and use your time more efficiently than other business owners. Some periods may call for only 25-hour workweeks, while others go far beyond that. To make sure everything gets done and also avoid burnout, you’ll need to schedule your time carefully.

Put slower times to good use by using them to update your Web site, catch up on maintenance, strengthen customer relationships or write marketing plans. You may want to employ only a small core of permanent workers and use temps or interns to fill in. Consider offering off-season sales or rates, and look for ways to generate revenue during quieter periods.

Owners of seasonal businesses can also take advantage of CAPlines, an umbrella SBA 7(a) loan program providing guaranteed loans designed to help small businesses meet short-term and cyclical needs for working capital. With the Seasonal Line, your business must have established a definite pattern of seasonal activity. Eligibility is based on the size and type of business, how the loan will be used, and the availability of funds from other sources. To learn more about CAPlines, click Research SBA Loan Programs under the Loans and Grants section of www.sba.gov, then go to Special Purpose Loans.

To learn more about operating seasonally, contact SCORE, America’s free and confidential source of small business mentoring and coaching. SCORE is a nonprofit association of more than 12,000 business experts nationwide and 90 in the Houston area who volunteer as mentors. SCORE Houston offers low-cost seminars and workshops. Visit www.scorehouston.org to learn more about valuable SCORE resources.

Help with worker classification issues

Q: When I started my small business a few years ago, I paid my workers appropriately as independent contractors because I was using them on a project basis without a lot of supervision. As my business has grown, though, I’ve evolved to the point where I use them continuously under my supervision and they really should now be classified as employees. Is there any way that I can switch their classification without exposing myself to heavy IRS penalties and back taxes?

A: It’s not unusual for employers to find themselves in this situation. Fortunately, the Internal Revenue Service recently released a new program that can provide the relief you are looking for. This new IRS program is called the Voluntary Classification Settlement Program (VCSP) and is meant to encourage employers to come in compliance with respect to their worker classifications.

The program allows employers to voluntarily correct misclassification issues going forward for workers who had previously been wrongly classified as nonemployees or independent contractors. While providing protection from the possibility of an employment tax audit for prior years, it offers substantially reduced costs for reclassifying workers.  

A business owner who participates in the VCSP agrees to treat the class or classes of workers as employees for future tax periods for employment tax purposes. The employer will pay 10% of the employment tax liability that may have been due on the compensation paid to the workers, calculated at the reduced rates for the most recent year with no liability for any interest or penalties. For example, an employer who misclassified workers and paid them $100,000 in 2010 for wages below the Social Security wage base would owe only $1,068 in employment taxes, rather than $10,680, plus interest and penalties, for that year. 

Organizations considering this program should keep in mind that the IRS is in the midst of a three-year program that significantly increases the number of worker classification audits.
There are more details to the program than I can describe here. But this may be a good time to “clear the air” with the IRS with respect to employee classifications with minimal cost and exposure. Deciding who can legitimately work as a contractor and who must be given employee status has become a difficult matter for small business owners. So, consult with your CPA or tax attorney to get advice on how best to take advantage of this opportunity.