What's the best way to budget for fluctuating expenses?

You are on the right track.  You have a budget for your business is it realistic?  Budget should be yearly and monthly to take in seasonality of your business. Fixed expenses such rent ,utilities, should be covered by sales each month. If you have Sales( Cash) during your busy season more than expense put it in a savings(money market account) so that it is available for periods when sales are lower.  Work with your local bank to get a credit card and business line of credit so that it is available when needed.  

How can you increase sales in your off periods?  Do you have customer list?  If so offer them a special price on certain things in off period to increase sales.

Robert G Schooley   

First of all,  it is important to keep your books up to date so you always know your own numbers.  This is the most frequent problem that I see when assessing businesses. If you are a profitable company, you will be able to access capital from a variety of sources to help you through the seasonal ups and downs, but not if your financial records are messy and you do not know your own numbers at all times.  A bank loan is not the only option anymore.  The best way to set yourself up now for 2020 is to engage an advisor who has great ideas on how to manage a seasonal business.  Look for an advisor that may be an expert in retail such as from your trade organizations or of course, ATS Advisors. We provide these services to many retail clients.  

You definitely need a separate bank account for your business. If you have a problem with cash shortage perhaps a low interest rate credit card. Banks will usually give you 12-18 on the of no or low interest when you open a new account or set of accounts. Make sure you “keep the books” ( and that means keeping an accurate rate of expenses and income). When you are doing well put aside money for later unseen expenses.

Prior to becoming a business broker I owned and operated businesses for 30 years, 15 here in Florida. First let me say you are not alone. Almost every business experiences the "season" and "off season" here in Florida. As a broker I here it all the time that the goals of many businesses are to try to break even during the slower months. The trick in my opinion is simple, open a business savings account that you are able to contribute to during the prime time and draw upon it in the slower times. 

Calculate your fixed and semi fixed (insurance, utilities, etc.) expenses so you know what you need during the slower months. Based on your 2019 sales calculate the shortage and then save accordingly.

Develop a realistic budget.  Use historic data as your starting point.  

Create a forecast for the business and each month compare your actual performance to your budget and forecast.  Understand the variances and make adjustments for future months forecast as applicable.

You can use QuickBooks software.

Wishing you great success! 

I'll share with you how my seasonal business clients do it using my Cash Flow Mojo software:

1 - Using P&Ls from the past few years, they figure out what their Cost of Goods Sold (COGS) is on average as an annual percentage of revenue so they can set aside cash to buy inventory year round without a problem. Then each week during their cash flow management planning - when they are allocating the revenue that came in that week -  the first thing they do is set aside the annual percentage of the revenue that came in to replenish inventory. As sales go up and down, the percentage they set aside stays the same, but the dollar figure goes up and down with the revenue. They simply put the calculated dollar figure into the cell on the window called the cash flow controller. Then they keep that cash in a separate bank account used to pay for inventory and other items that make up their COGS.

 Simplified example: Annual revenue is $500,000 on average for the past 3 years. Cost of goods sold is $229,000 on average for the past 3 years. 
$229,000 ÷ $500,000 = 45.8%

This week's revenue that came in was $7,950 multiplied by 45.8% = $364 that gets set aside this week for COGS expenses to be used as needed.

2 - Then, when they are doing their budget in the software, they figure out how much the expenses run for the "off season" - in other words how much does it cost to run the business during the total season when sales are slow, then they divide that by the number of weeks in the off season. Then using their P&Ls for the past few years they figure out what the sales revenue is that comes in during the off season and divide that by the number of weeks in the off season.

Simplified example: The off season is 5 months or 23 weeks long. Expenses have run $10,000 a week during the off season and revenue has dropped to $8,500 a week in the off season - so the shortfall per week is $1,500 for a total of $34,500.

Now at the beginning of the good selling season they add a bill in the bills window and name the bill "Off season Savings" and put the bill amount due as $34,500. In the invoice number cell they put $1,500/wk to remind themselves that they need that amount each week to put in savings. Then  they try like heck to pay $1,500 on that bill each week and set that payment aside in a savings account so by the time the off season arrives they have a stash of cash to use to continue to buy inventory and pay all the bills because they have made up the off season weekly shortfall of $1,500 a week when it is easiest to do.

I hope that proves to be helpful to you.

 Don’t get Lazy

An expense budget is not the way to manage cash. You need to do a cash flow projection.An expense budget measures your historical Performance. You need to project the future. And this is not a once a year activity 

The cash flow projection should be done monthly or bi-monthly or weekly. It needs to take into consideration current sales volume and updated projections as well as known expenses.

Managing cash as a proactive activity budgeting is a after-the-fact  measuring system. Both are good when used for the correct purposes.

Looking back over the last several years can help you discover trends.  How much are your sales fluctuating in the slow months?  Is your cost of goods percentage staying consistent during those months?  Are there areas that you can tighten the belt for those months?  You can then apply the trends moving forward, factoring in expected changes.  Do you expect your payroll to stay the same or drop during the slow months?  What about insurance?  Are you using any cash back cards appropriately?  Depending on your level of purchases, that can help quite a bit.

Get a business line of credit.  This will allow you to manage the ebb and flow of your business revenue better.  Like all businesses, its not if your business will have a major financial challenge, its when.  Having a business credit line in place during that challenge is like having a parachute in place when the plane starts having problems.  It could very well save your business.

Make a numbered list of each and every Expense. See what Expenses are unnecessary and can be eliminated or reduced, then see which expenses can be resourced from a less expensive source. Analyze each and every Expense. Don't be afraid to tell a supplier they need to charge less for a Product &/or Service, and ask for a better price before you take your business elsewhere.