Juggling cash flow is hard at the best of times in small business, but it’s super tricky during the Christmas and New Year period when many businesses close and consumers go on holiday.
If you find the silly season a little stressful, you’re not alone. All small business – regardless of industry sector – struggles to juggle cash flow during the lead up to Christmas and the weeks after.
In fact, research by SME loans firm Prospa reveals that eight out of 10 (78 per cent) of small business owners say that at least some of their business worries are related to cash flow.
Two-thirds (65 percent) of small business owners even feel stressed during the holiday period because of cash flow problems in their business.
Commenting on the findings, Prospa CEO Beau Bertoli said concerns about cash flow can distract from spending quality time with family and friends.
“Small business owners make big sacrifices to build a better future for their families. Managing a small business takes its toll, and it can be difficult to switch off,” he said.
But with a little forward planning, you can make sure that you’ve got your ducks lined up to make sure your business runs smoothly during this period.
Leaving cash flow decisions until after Christmas is risky, SME funder Scottish Pacific’s senior executive Wayne Smith warned.
“If you’re going to be busier, are you carrying enough stock, and do you have enough working capital to get your hands on extra stock at short notice?” said Smith.
“For Scottish Pacific, October through to December is typically the strongest quarter for funding enquiries, as business owners look to shore up their working capital to see them through this tricky period.”
Forward plan for the decrease in cash in advance by putting a monthly budget in place and forecasting cash flow at the beginning of each financial year, advised Randall Corless, SME accountant for Brisbane firm Marsh Tincknell.
“This helps businesses to understand cash flow seasonality and to put the appropriate action plans in place so they don’t run out of cash during December and January,” said Corless.
Business owners should also consider trading hours, with some business potentially shutting down but still needing to pay wages and leave loading in advance of their sales invoices being paid.
A great way to get the cash flowing in your business is to ensure your invoices are sent to customers as early as possible.
Many businesses close down over the Christmas period, so payments to creditors are likely to be made by 20 December or after 10 January. The sooner you can invoice your services out in December, the more likely you’ll be paid before Christmas, Corless said.
“Keep in mind, invoices should be sent as early as possible to keep a health cash flow all year round,” he said.
And while shortening payment terms can be a difficult conversation to have with customers, you can invoice earlier to ensure payments are received prior to Christmas.
Another way to maintain cash flow into your small business is to set up automatic invoice reminders. This is a great way to gently remind customers about your payment terms.
Read more about how to set up reminders here.
Make sure that staff advise of leave they plan to take during that period well in advance and work out your payroll obligations, accountant at Sydney’s AKA Group, Anna Kyriacou said.
“Ask staff if they’re happy to be paid as per normal pay runs instead of all upfront before they go on leave,” she said.
It’s also worth considering if you need more staff, whether you’ll be paying existing staff for extra hours, and how you’re going to manage this financially.
Also, discuss the tax implications of the annual Christmas bonus if you pay one with your accountant, she added.
Don’t let late payers get away with letting things slide at this time of the year.
If you’ve provided a product or service, you have every right to be paid within your agreed payment terms. Plus, you’ll still have bills to pay, after all.
The key is to have a strategy in place to chase the payment as soon as it falls due and hasn’t been paid. This includes getting on the phone and making sure you build good relationships with the right people in the accounts department.
Kyriacou added that chasing early is crucial.
“Emailing seven days before the due date as a reminder, and keep calling daily for those overdue, as you don’t want to finish the year off with cash flow sitting in debtors,” she said.
Sell stock that’s taking up space at a discounted price ahead of the Christmas period, advised Linden Toll, CEO and founder of Apricity Finance.
“Anticipate demand by looking at your sales from last year as well as other variables; consumer confidence, political climate and other economic and social factors that might influence the behaviour of your customers,” said Toll.
Now is the time to consider whether they will be able to cope with the next Business Activity Statement (BAS) period, and plan ahead.
The Scottish Pacific SME Growth Index research shows that more than eight in 10 business owners dip into their own pockets to fund growth. Even a basic cash flow forecast will clearly show if you need additional funding, said Scottish Pacific’s Smith.
“I’d recommend that if businesses don’t already have cash flow forecasting in place, they should definitely move to implement this discipline for that crucial post-Christmas period,” said Smith.
Look for ways to implement a better approach next year by planning ahead.
Small businesses should set aside time to critically review costs to see if there’s room for greater efficiencies, Michelle Kvello, director of Sydney finance and strategy consultancy, Lantern Partners said.
“This could include automating tools to help manage cash forecasting.
“In fact, we regularly encourage clients to carry out ‘smart sourcing reviews’ to readily identify ways to operate and stay agile,” she said.