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Owning Multiple Complementary Businesses

Dave Paladino discusses seasonality of businesses

I have evaluated hundreds of opportunities and have owned dozens of businesses.  One rule that I have found is that nearly all businesses are seasonal to some degree.  Some obvious examples are lawn-mowing firms and companies that sell team gear to high schools and colleges.  The first is seasonal due to weather, and the latter is due to the ebb and flow of a different type of season - sports.  Especially with summer vacations and other breaks, the window of opportunity for making in the school market is abbreviated.

Whether you are a banker or a potential buyer of a business, it is critical to understand the relative seasonality of any company.

The primary question to as is "Who is the customer"?  Many business owners that are deep in the weeds - or are trying to sell - can be tempted to say that there is little seasonality to their success.

 

Whether you are a banker or a potential buyer of a business, it is critical to understand the relative seasonality of any company.

 

I advocate a deeper analysis, and here are some questions that I have found to be invaluable:

  • Is your customer a business or a consumer?
  • What is the sales cycle?  A software package that runs a real estate company that has a long sales cycle will be less seasonal.
  • What are the tax ramifications of purchasing your product? Sellers of construction equipment find December to be a busy month because they sell big-ticket items that may have tax deductions.
  • Do your products have anything to do with kids being in school?  Partially to protect the tourism industry, the state of Iowa recently made it illegal for schools to start before a certain date.
  • Is your product a luxury?  Owners of affordable housing will see lower amounts of seasonality than sellers of wakeboard boats.
  • What does the weather itself have to do with your business?  Lawn irrigation companies basically shut down from December to March.

What can you do to combat seasonality?  Many owners actually enjoy that aspect of their business.  I know several that simply do not work during non-peak months.  They cherish time with family.  They hunt or fish.  They travel.  It's all part of their plan and what works for them.

Others like to diversify in a way that counterbalances seasonality.  That's why a lot of lawn and landscaping businesses also do snow removal.

Whenever you are evaluating a business, it's important to understand that most of them are seasonal in some way.  And it's imperative for you to understand the reasons for that seasonality and plan accordingly.

 

The Firm Deal Review

Number of Employees: 41

Current Businesses Owned: 3 - Dino's Storage, Landmark Group, Paladino Development Group

Best Advice: Diversify, diversify, diversify!

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