Seasonal businesses

In short

You have probably watched a slow month eat a good month's profit. A landscaper I know said it best. He said the summer feeds him, and the winter tries to eat him. If you run a seasonal business, the busy months have to carry the quiet ones. It helps to find out how many months of bills your slow season really holds. Some owners then move a fixed share of each busy month's income into a separate account, so it does not blur into daily cash. The IRS expects quarterly estimated tax payments from self employed people, even when the bank balance looks thin. Plan for them.

The whole of it

What it is

A friend of mine sells Christmas trees from a lot at the edge of town. He does about four months of real business each year and spends the other eight planning for it. He is what we call a seasonal business owner. Your income arrives in a bunch, but your bills come every month, week in and week out.

That gap is the whole puzzle. Rent does not care that it is January. The insurance company does not know your lake has frozen over. So the work is less about earning more and more about spreading what you earn across twelve months. It sounds plain. It is plain. Plain does not mean easy.

You are not doing anything wrong by having lumpy income. Ice cream shops, tax preparers, pool builders, and farm stands all live this way. Good people have been managing it for a very long time, and you can too.

How it works

I once watched a woman who ran a summer kayak rental sit at her kitchen table with a shoebox of receipts. She said the money felt like it vanished. It had not vanished. It had simply gone out at a different speed than it came in.

Here is one way to slow that down. First, list your fixed costs, the ones you owe even when the doors are closed. Rent, insurance, loan payments, software, and your own pay all count. Add them up for one month. That number is your monthly floor.

Next, look at your off season. Count how many months bring in little or no money. Multiply your monthly floor by that count. The result is the amount your busy season would need to leave behind. Think of it as a bridge built during the good months and crossed during the bad ones.

Then consider paying yourself a steady wage. This habit changes lives for a lot of owners. Rather than drawing whatever the till holds, you move the same amount to your personal account each month. In the busy months, the rest stays in the business. In the quiet months, that stored money covers your wage. You get a paycheck that feels normal, and the business gets a cushion.

Taxes deserve their own mention. If you are self employed, the IRS expects you to pay tax through the year, not in one lump in April. These are called estimated payments, and they are due four times a year. The form for figuring them is Form 1040 ES, and the IRS explains it on its own website. Because your money comes in bursts, some owners set the tax share aside the day the money lands. Taxes feel smaller when you pay them in small pieces.

The numbers, and where to find yours

You have probably wondered which figures matter most. There are a few, and each one lives somewhere you can look up.

The first is your monthly floor, which comes from your own bank and bill records. The second is the number of slow months, which comes from your last two or three years of sales. If you have a bookkeeping program, it can show income by month in a single report. If you do not, your bank statements will do the job.

The third is your tax set aside rate. The rate for self employment tax is set by law, and the IRS publishes it. The rate is the current figure, which the official source publishes each year percent. The Social Security part of that tax only applies up to a yearly earnings cap, which is the current figure, which the official source publishes each year. You will also owe regular income tax on your profit, and that rate depends on your bracket. The IRS explains all of this in Publication 334, the Tax Guide for Small Business, and in Publication 505, which covers estimated tax.

The fourth is your retirement savings room. If you want to save for retirement through a SEP IRA, the yearly limit is the current figure, which the official source publishes each year. A SEP IRA is a retirement account for self employed people, and only the business owner puts money in. Your own tax preparer can tell you which account fits you.

Write these down in one place. A single sheet of paper is enough. Seeing the numbers side by side takes the fear out of them.

A worked example

A man named Daniel runs a lawn care business in Ohio. He works hard from April through October and does very little from November through March. Let me walk through his year with his own plain figures, so you can check every step.

Daniel counted his fixed costs. His truck payment is 450 dollars. His insurance is 180 dollars. His equipment storage is 120 dollars. His phone and software cost 50 dollars. He also wants to pay himself 3,000 dollars a month. Add those up: 450 plus 180 plus 120 plus 50 plus 3,000 equals 3,800 dollars. That is his monthly floor.

Daniel has five slow months, November through March. So he multiplies: 3,800 times 5 equals 19,000 dollars. That is what his busy season must leave behind.

His busy season is seven months, April through October. To build 19,000 dollars over seven months, he divides: 19,000 divided by 7 equals about 2,714 dollars. So Daniel plans to set aside roughly 2,714 dollars from each busy month, on top of covering his normal costs.

Now the tax piece. Say his profit for the year comes to 52,000 dollars. He picks a rough tax set aside of 25 percent to start. He multiplies 52,000 by 0.25, and that gives him 13,000 dollars. Divided by four payments, that is 3,250 dollars per quarter. He can then check it against Form 1040 ES and adjust with his preparer.

Daniel told me it felt like a load came off his back. He was not earning a cent more. He simply knew where every dollar was headed. That calm is worth a great deal.

Where it goes wrong

I have made this mistake myself, so I will say it kindly. The first trap is treating a great July like a normal month. It is not normal. It is one of only a few, and it has to stretch.

The second trap is skipping the tax set aside. A big summer can hide a big tax bill, and the bill does not hide from you. The IRS can charge a penalty when estimated payments run short, and its Publication 505 explains how. Setting the money aside early takes the surprise away.

The third trap is mixing personal and business money in one account. When they blur, you cannot tell whether you are doing well or just spending well. Two accounts, kept apart, give you a clear picture.

The fourth trap is guessing at your slow months. A year that felt short may have been three months long, or six. Use your real records. Numbers are kinder than memory.

And the last trap is being caught short when a slow season runs longer than planned. Weather, prices, and luck all move. Many owners build in an extra month of cushion. It costs little and buys peace.

Questions to answer before you leave this page

Do you know what your business owes each month even when no customer walks in? How many of your months bring in almost nothing, and have you counted them from real records? Are you paying yourself a steady wage, or drawing whatever is left? Where will your bridge money sit, and is it apart from your daily cash? Have you set aside a share for taxes, and do you know your four payment dates? And who could look over your numbers with you, whether a tax preparer or a trusted friend who is good with figures?