“It’s the most wonderful time of the year,” claims the well-known Christmas tune. And while the end of the year means long summer days, end of year celebrations and Christmas festivities with family and friends, for many small businesses it can be a difficult period marked by cash flow challenges.
While Christmas is usually the busiest time of the year for businesses in the retail and hospitality industries, those in other sectors often find that sales slow and customers take longer to pay invoices during the holiday season. Your suppliers may also close for an extended period at this time of year, meaning that you may need to place – and pay for - a large order prior to Christmas to ensure you have product to sell while your suppliers are closed.
Whether your business is large or small, well-established or in start-up mode, it’s prudent to take a planned approach to managing cash flow during the holiday season.
1. Create a solid forecast
A detailed view of your anticipated revenue and outgoings over the holiday period will allow you to assess any potential pain points and give you the best chance of avoiding cash flow dramas. If your business is likely to be affected by slow sales, late payments or higher staff costs, your forecast should reflect this – and allow you to create a strategy to address these potential problems.
2. Keep on top of invoicing
It’s easy to let your admin slip in the lead-up to Christmas – however this is the most important time of the year to stay on top of your invoicing and accounts. Whether you’re a B2B business or one that deals with consumers, you’ll find that many customers will be slow to pay – either because their business is closed over the Christmas period, or they’re enjoying a holiday break.
If you’ve been thinking about moving to a cloud-based accounting system, it’s worth exploring making the transition before the end of the year. Software like Xero and MYOB allows you to set up automated reminders for overdue payments, which means you’re taking a proactive approach to outstanding invoices even if you’re away from the office.
3. Set expectations with your customers
Be clear with customers that you expect them to pay within their credit terms over the Christmas period. Consider contacting regular slow payers a few days before payment is due to confirm that they’ll be paying on time. The phone is usually a more effective method than email; if you’re not comfortable having this conversation with your customers, your bookkeeper may be able to assist.
4. Avoid non-essential spending
If December and January are traditionally quiet months for your small business, take a close look at your planned expenses to see if there’s any spending that can wait until February or March once you’re back into your regular trading rhythm.
End of year celebrations and staff Christmas bonuses are two common areas that many business owners don’t think about until later in the year. If paying for these aspects is likely to be a squeeze, set up a small regular fortnightly or monthly payment to an account that’s solely for these expenses so you’re contributing to this cost throughout the year.
5. Make the most of any quiet time
If sales are a little slow in the lead-up to Christmas, use the time wisely to ensure you’re in a position to hit the ground running in the new year. Send employees on a course to expand their skills, get them to shadow workers in other areas of the business so that they can build their knowledge (and perhaps help out during busy periods) or give them the opportunity to implement small operational improvements that they’ve suggested during the year.
For business owners, the pre-Christmas slowdown is a great time to work through the to-do list you’ve been compiling all year. Take a thorough inventory, search for more suitable funding alternatives, complete a comprehensive competitor analysis or research the market for new products and suppliers.
6. Access extra funding
With plenty of small businesses facing cash flow shortages due to the holiday period, it’s a good idea to have a plan to access additional capital if you need it. Invoice finance and trade finance products are two ways that businesses can take the pressure off when cash flow is tight.
Cashflow Finance provides invoice and trade finance solutions that are specifically designed to meet the needs of small businesses. Turn your unpaid invoices into cash or access a flexible line of credit to pay supplier bills, allowing you to save your cash flow for other operating expenses.
Our tailored products allow small business owners to access additional funding to avoid cash flow shortages at Christmas, or whenever extra funds are needed throughout the year. To speak to our team about flexible debtor finance solutions that will give you peace of mind, contact us today on 1300 760 205.