Even in a typical year, the holiday season can be stressful for business owners. A YouGov study revealed that 65% of small business owners feel stressed because of cash flow problems during the festive period.
The best way to overcome a cash flow crunch is to get organised. With the right preparation, you can start the new year with a healthy cash balance and enjoy some well-earned time off over the holidays.
Here are 8 tips to help you maintain cash flow over the festive season.
Create a Cash Flow Forecast
It’s been a year like no other for businesses in Australia. But you can still learn from previous years and gain a better understanding of what to expect over the coming months.
Take a look at your historical sales revenue and outgoings to predict your working capital requirements. While this has been a year of uncertainty, cash outflows and seasonal sales trends should be similar to previous years for most businesses.
Using this data, you can create a cash flow forecast. Getting to grips with your working capital needs and identifying potential cash flow gaps is key to starting the new year on the right foot.
Prepare for Seasonal Sales Demand
According to the Australian Retailers Association, shoppers will spend a record-breaking $11 billion on Christmas gifts alone this year.
With the average Australian retail business generating 43% of annual revenue from Christmas sales, you need to get it right during the festive period.
It’s vital that you have enough inventory or access to funds to capitalise on opportunities. If you wait until you’re in the middle of the silly season, you could find it hard to secure new stock.
Start planning early and establish lines of credit or access to funds so you can take advantage of seasonal sales and increased demand.
Invoice Customers Early
Most businesses close over the festive period. You’ll be waiting until January to receive payment if you don’t invoice customers well before the Christmas break.
Sending out invoices early and setting up payment reminders can keep money flowing and help you avoid a cash flow crunch.
Offering your customers an early payment discount can also be an effective way to speed up payment cycles. Providing an incentive for your customers to pay early can provide access to capital when it can benefit your business the most.
If outstanding invoices are causing cash flow issues, read our guide, How To Collect Unpaid Invoices From Customers in 6 Simple Steps.
Clear Unsold Seasonal Stock
Capital tied up in unsold inventory can’t be used to pay wages, rent, and other overheads.
It’s important to have enough inventory to capitalise on demand, but you don’t want to be left with capital and profits tied up in unsold stock.
You know your business better than anyone and when the optimal time is to implement a cut-off point for buying seasonal inventory.
When the season is coming to an end, you can clear unsold stock by offering discounts. This can bring in additional revenue to help out during the post-Christmas period and lessen the costs and logistical demands of storing unsold inventory.
Don’t Forget Tax Payments
Increased sales also mean increased GST. It’s easy to neglect tax and GST payments over the busy holiday season.
Make sure you have systems in place to pay your bills before the due dates. When money flows into your business, set aside funds to cover your tax bills and other overheads.
Preparing for costs in advance can help you manage working capital and avoid cash flow gaps when it’s time to pay.
Negotiate New Deals With Your Suppliers
The festive period is an important time of the year for your suppliers as well as your small business.
You can use this time to see if you can negotiate longer credit terms with your existing suppliers. This will allow you to meet demand while avoiding the upfront costs.
If your supplier is unable to offer longer terms, a Trade Finance facility could improve your purchasing power and free up capital. Your supplier is paid upfront, but you don’t have to pay for the goods until they have been shipped, sold, and turned into revenue.
It’s also a good time to shop around. You may find that alternative suppliers are offering better terms or cheaper goods.
Hold Off on Large Purchases
Cash flow management is vital during a period where working capital can quickly become stretched. Avoid spending large sums on purchases that you could postpone until the new year.
If a purchase doesn’t impact your ability to generate sales and revenue over the holiday season, it may be a good idea to wait.
When new equipment will help you meet your goals faster, you should consider Equipment Finance to avoid the significant upfront cost. You can get the equipment you need and maintain liquidity by spreading the purchase cost over a more extended period.
Secure Financing Early
External funding can provide the cash injection you need to manage seasonal cash flow gaps and take advantage of opportunities.
Even if you’re not sure you will need funding, it pays to be prepared and know your options. Then, you’ll be in a better position to move quickly and secure the right type of funding should you need it.
There are many different cash flow financing solutions that can be tailored to the needs of your business, including:
Invoice Finance, also known as debtor finance, is a funding solution for businesses that sell to other businesses on net terms. It’s a fast and effective way to release capital tied up in your unpaid invoices.
Instead of waiting for your customers to pay, you can access an immediate cash advance of up to 95% of the invoice value. Then, when your customer pays the invoice, you receive the remaining balance, less fees.
You can choose from confidential facilities, end-to-end factoring or short-term selective invoice financing solutions that enable you to decide which invoices you want to finance.
To learn more about Invoice Finance and how you can use your outstanding invoices to get a fast cash injection, check out our guide, How Does Debtor Finance Work.
Trade Finance can fund the purchase of inventory or raw materials to help you capitalise on peak sales demand. It enables you to bridge the cash flow gap between ordering from your suppliers and generating sales revenue.
With readily available capital to pay suppliers upfront, you can also negotiate early payment and bulk buying discounts to increase your margins. When combined with an Invoice Finance facility, Trade Finance can cover cash flow gaps of up to 180 days.
If you want to learn more about this type of funding and how it works, check out our guide, What is Trade Finance.
Equipment Finance helps businesses to fund the purchase of new and second-hand equipment, machinery, and vehicles. Instead of tying up capital in assets and equipment, you can spread the investment cost over a more extended period.
If you need to replace equipment or expand to meet seasonal demand, an Equipment Finance facility can help you get the tools you need to succeed.
Read our client story to see how Equipment Finance powered NSW transport company Computertrans forward.
Improve Cash Flow Management Over the Holiday Season With ScotPac
You can make the most of the festive period and avoid a cash flow crunch by planning ahead. If you will need external funding to manage working capital this festive season, it’s better to act now.
Preparation can help you avoid working capital headaches and ease stress over the holidays. If you need funding to capitalise on an opportunity or bridge a cash flow gap, call our friendly team of Business Finance advisors today.