Low season or failing business? How to tell

Telling when a business is doing well or is in a high season is pretty easy – more money in your account.

However, telling if your business is crumbling or it is just experiencing a low season is another task altogether.

Could it be the reduced traffic? Or maybe the reduced sales? Perhaps it could be the loan you took, and are paying back, to expand the business?

These are just some of the questions entrepreneurs battle with as they try to understand the dynamic nature of not only the business but also the market.

Sometimes even the high season could simply be that – a high season – and has nothing to do with how fast your business is expanding.

For example, those businesses that saw opportunity soon after the Covid-19 pandemic struck made a killing when surgical masks became the most sought-after item. However, soon the market was liberalised with changes in legislation that allowed cloth masks to be used as well.

As such, demand for surgical masks dropped and so were the margins.

peak season

So how can one tell if their business is on a high or low?

Unlike December which is largely regarded as a high season because of the emotional spending and the spirit of the holidays, January is considered a low season. Unless your business portfolio extends to the school items.

Ruby Amondi of Style by Ruby, a fashion business based in Westlands, Nairobi singles out high seasons as the festive period and school holidays.

“The most popular high season is December because 80 per cent of weddings take place during that period, and considering that schools are closed,” she says.

Additionally, this is the period employers have released their employees with some good end-year packages.

During this season, entrepreneurs like her who deal with fashion make huge profits as they get wedding orders back to back. These high seasons, however, come with risks for her business which she describes as a double-edged sword.

“Contracts and legal agreements should be encouraged during high seasons. Any mishap and you are out of business,” she says.

However, at the moment, and for the better part of this year, Amondi’s business will be experiencing a relatively low season.

Low season

She says this low season that comes from January. Amondi attributes this to the complicated school calendar, which saw many parents spend more in a year in fees as school terms were compressed.

“It’s school fees back to back,” she says. “This population also happens to be the most stylish, meaning we are looking at very complicated season right now.”

One of the complications this year, she says, is the upcoming General Election in August, which is likely to cause a slump in the business environment.

“You have no idea how confused we are about the elections. An election year is a low season,” says Amondi.

Sam Kibara, a business risk analyst, says all businesses have their seasons. He gives an example of a small hotel that experiences an upward surge in customers in the morning or around lunchtime, or bookshop owners and school uniform fitters who have a high season every January and spikes beginning of subsequent terms.

“A cycle can be as short as a day and as long as a whole year,” he says.

Business relevance

Kibara says every business must estimate the revenue during these seasons and spread it across their fixed and variable expenses.

“What Covid-19 has done is it has not only interrupted the cycle but also business processes,” he says. An example of this is that businesses that used to do a lot of photocopies ended up doing scans.

As such one must realise the direction the business is taking.

Kibara says the longevity and sustainability of a business depends on if it answers the question of the day.

For example, if you are moving from photocopying to scanning, do you now have to do more scans than photocopies for you to remain in business?

One way of determining how your enterprise is fairing is by doing business process analysis.

This should determine whether the business will be sustainable if you continue running it the way you are doing today.

“If I continue doing the business this way, are there other options I can do it? This is normally done for bigger businesses, which have very elaborate processes,” says Kibara.

Stress testing

The other way is by doing stress testing.

“You want to know what is the minimum operation you can do to allow you to continue in business even though you are not making money for yourself,” Kibara says. “Even a small business needs to know that.”

“At the end of the month, you need to know how much money has come to be able to pay the rent and salaries, and at least to make sure the business can continue inclusive of the wear and tear of machines.”

If a business is not meeting all these, he says, then you can be sure that if you go continuously for three to six months, then that business will collapse.

“That part of stress testing is a fundamental part of what we all do in business continuity management, where when the business is doing well, you need to invest in business continuity challenges,” says Kibara.

“It is actually more of scenario building, like what will I do if for a month I can’t sell or there’s disruption in the business premises.”

He says with these two tools - business process analysis and stress testing - even a mama mboga should be able to tell how their business is doing.

Fashion retailer Amondi says she normally uses the high season in December to compensate for the low seasons. “Meaning, if we make three times as much, we pay forward our bills, like our January rents are paid in December.

“That is what we should do, but we have been on a low season since Covid-19 was announced two years ago,” she says.