While some businesses, particularly in the retail sector, find that Christmas is their busiest time of year, for others it can be a difficult period. Factors such as lower levels of production due to increased holiday, decreased sales and, in some instances, total shut down for a week or two, can all have an impact. However, employees still need to be paid, and any loan repayments must be met and all these elements combined can have a negative influence on cash flow.
What steps can SMEs take to prepare for this? In this blog, we offer some advice.
Plan for extraordinary expenses
Christmas parties, staff gifts, bonuses and the like all add up. Employees will also often be paid much earlier in the month than usual. Make sure you plan and budget for this expenditure well in advance, so it doesn’t catch you out.
Delay unnecessary expenditure
Think carefully before making purchases and avoid buying big-ticket items if they can wait until the New Year.
To maintain positive cash flow it is essential to invoice promptly and actively chase any late payments. In the run up to Christmas, this is more important than ever. If overdue accounts are not chased in late November or early December, then the chances are they won’t be paid until January at the earliest. Keep in mind that the person responsible for accounts may be taking extra annual leave and therefore may not be around to make payments. Likewise, if invoicing is delayed until after Christmas there will be a noticeable impact on cashflow at the end of February. Any delay in invoicing means a delay in getting paid.
Incentivise prompt payment
If there is room in the profit margins, consider offering a ‘Christmas discount’ for payment upfront or early settlement of the invoice and be clear on what the penalties are for late payment.
Maintain your cash reserves
Look at using the full payment terms you have agreed with your suppliers. At this time of year, there is little point in paying early, unless a discount is on offer.
Have a Plan B
If you can, build a cash buffer to help you through the period. If this is not feasible, then look at arranging alternative funding options such as a temporary business overdraft or loan.
To ensure your business does not start 2017 with financial difficulties it is important to plan ahead and have a proactive approach. Taking the time to assess your situation and predict any issues will pay dividends.