No Snow Hurting Your Bottom Line?

Running a snow removal business is a delicate balance of navigating each unique storm and keeping customers happy—a business owner needs to be just right in so many ways to be successful.  Another thing that must be just right is seasonal snowfall amounts.  Too much snow or too little snow can create financial difficulties for a snow removal business.

Too Little Snow? What can be done?

While some parts of the U.S. have seen record snowfalls in recent winters, other locations have been extremely dry, and the snow has been noticeably absent.  Last winter, large sections of the Midwest were dry or saw fewer and weaker snow systems than in years past.  If snow removal is a large part of your seasonal revenue and there is an absence of snow, it can be nearly impossible to make up those financial losses.  A lack of snowfall can substantially hurt the bottom-line.

Fiscal Planning

Many snow removal companies operate in multiple industries, and removal may only be a percentage of total revenue.  However, making up this lost revenue during warmer months can sometimes be difficult–if you are a landscaper, this can be made worse if the weather is also uncooperative during the spring.  Weather can throw a wrench into budgetary planning anytime of the year—and a year with a lack of snowfall can make continuing normal yearly operations a difficult task.

During winter, the absence or excess of snow may make it difficult for small snow removal businesses to budget.  This irregularity can require budget cuts and cause some sleepless nights.  When you have been in the business for a while, building up reserves from a “generous” season is a good strategy to deal with the lean times.  However, if you are new to the industry or have multiple lean seasons, staying afloat may require different solutions.

Preseason Contracts

Discounted preseason snow removal contracts allow consumers to share part of the risk.  Consumers take the chance on prepaying with the uncertainty of snowfall amounts.  Still, in cases of extreme snow, these contracts can create lower returns for snow removal companies.  Additionally, preseason contracts become a priority when a storm hits. This creates the potential for overall decreased revenue.

Weather Insurance

When used properly, weather insurance can ease the financial drain of an abnormal season.  Weather insurance is offered for various weather events.  Snow, lack of snow, or a combination of these two events can be insured.  Coverage periods can range from days to weeks to months.  Policies can be tailored to fit a business’ specific weather risk and budget.

For example, John operates a landscaping company with a snow removal business.  Last winter was warm and dry.  John’s concern is that this winter will be a repeat of last year.  Without snow, he and his crew have very little to do during the winter months, and his company will lose money.  This makes financial planning difficult.  That uncertainty makes John nervous about the fiscal strength of his business.  As a solution, John can develop a weather risk management plan for his business that includes the use of weather insurance.  If it doesn’t snow enough and the conditions of his policy are met, John will receive payment.  John can choose to purchase a policy that financially insures most of his loss from lack of snow or he can lower his premium by choosing a limit that is enough to get him through potentially dry winter months.  When spring rolls around either way John has the financial fortitude to continue his business

Just Right for Your Business

We all dream of just right.  If you own a snow removal business, mother nature’s idea of just right may be very different from yours. Long-term fiscal planning, preseason contracts, and weather insurance are all potential approaches to help your business be just right.