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Why Forecasting is Important as a Seasonal Rental Business

Author: Nathan Crossley January 27, 2022 · 4 Min read
Why Forecasting is Important as a Seasonal Rental Business

Many rental businesses rely on the revenue from just a few months of the year to sustain them for the rest of the year. That’s why forecasting revenue and expenses isn’t just something that would be nice - it’s a necessity to the survival of a seasonal rental business. Don’t worry; it’s not as scary as it sounds, and you don’t have to be an accountant to plan appropriately.

Forecasting is a fancy word for planning, which is critical for the successful running of any business. However, it is much more essential for those who don’t have a steady income because their peak time is just a few months of the year. You can go to an accountant or bookkeeper for advice, but they likely won’t have the same expertise you do within your industry.

In addition to being vital to the successful running of a rental business, forecasting also helps you make strategic decisions. It can help you know when to invest in new stock, upgrade your equipment or hire more staff. These are all decisions you’ll want to make for yourself, and having a forecast means you’ll make informed decisions.

The secret weapon to seasonal rental success

If you operate a seasonal rental business, there will be months where you’re making a lot of money and others where you’re not. That’s something that affects all seasonal companies, and it’s not atypical for revenue and expenses not to line up. You rely on those few months of the year where you’re making money to fund the quieter periods of the year.

That’s why it is essential to forecast your revenue and expenses and why it’s closer to the front of your mind than it is for other businesses. Below are some of the reasons you should be forecasting and planning ahead to maximize your income and prevent cash flow issues.

Cover your expenses

Of course, running any business isn’t easy, but having a steady income that more than covers your expenses is easier to manage. If you earn the majority of your revenue during just a few months of the year and your costs fluctuate from month to month, it can be hard. Forecasting allows you to ensure that income is spread across the year.

Investing in your business

There come times when every rental business needs to invest in new products, whether they are to rent out or upgrades to essential systems. You need to know when it makes sense to make those big purchases and if you can afford the investment. This prevents you from overspending and reduces the chance of finding yourself in a difficult situation.

Preparing for peak season

Getting prepared for the peak season of your rental business is critical. It’s essential to plan and get things in places ahead of time because the last thing you want is to say no to a customer. This importance is magnified for seasonal businesses as you need to invest long before you need them. Having a forecast can help you to plan and manage these expenses.

Strategic decisions

This year, you may have decided you need more time off or struggled to keep up with customers in previous years. You may be thinking that hiring some temporary help during the busy season is a good decision. Forecasting will tell you whether you can take on this extra expense and what you need to do to afford it.

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What you need to forecast

So, you know why you should be forecasting, but what exactly does forecasting entail? There are two main elements you should focus on - revenue and expenses. This may sound challenging, but it is easier to manage and maintain once you break it down as you grow your rental business.

Forecasting revenue

To forecast revenue, you need to consider a few things like industry statistics, industry peers, and your past years. By looking at these things, you can get a pretty accurate picture of what your next year will look like. To help get an idea of what you should be looking at, you can start by answering these questions:

  • What is the growth rate of my industry?
  • What do other businesses in my industry make?
  • What has been my year-on-year growth in the past few years?
  • Are there any trends that could affect my revenue?
  • What is the ROI on my new inventory?

If you’re new to the industry or want to reinforce these assumptions, it can be good to talk to your peers. You can ask what other companies in your industry usually make and how they expect to grow in the coming year.

Forecasting expenses

There are two aspects that you’ll need to think about to forecast expenses - fixed expenses and variable expenses.

Fixed expenses are those that remain the same from month to month, like rent on your premises, subscriptions, utility bills, and salaries.

Variable expenses can fluctuate from month to month; they include the cost of new equipment, hiring extra staff, paying for repairs, and unexpected illness.

Room for adjustments

It’s key to note that your forecast is not set in stone and it should be adjusted as more information becomes available to you. This will allow you to be more agile and adapt more easily if there is an issue. In addition, it gives you room to plan variable expenses around times when cash flow is good and not be left out of pocket by an unexpected bill.

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