The holiday season can be a tough time for business owners. According to research released earlier this month by global financial technology platform Intuit QuickBooks, small and medium-sized businesses are expecting an average of eight invoices will go unpaid between now and Christmas Day.
One big headache is unpaid invoices. A recent article from the Adviser mentioned that these unpaid bills have led to a huge $22 billion shortfall for small and medium businesses. This problem gets worse during the holidays when expenses go up.
But with a little planning, you can beat the cash crunch. Being organized can help you start the new year with enough cash and let you enjoy a well-deserved break during the holidays.
Here are 8 simple tips to keep the cash coming in over the festive season, and tackle the issue of unpaid invoices.
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.
Get Ready for the Holiday Shopping Spree
This year, the holiday shopping spree is expected to be bustling, with Australians ready to shell out around $30 billion on everything from presents to festive outings1. That’s a 10% hike compared to last year’s spending. On average, each person is anticipated to spend nearly $1,400 to $1,479 during the Christmas season.
It’s a substantial pie, and a significant slice of annual revenue for retail businesses comes from this period. The Australian Retailers Association forecasts a total spending of $66.8 billion between November and Christmas Eve.
But to make the most of this spending bonanza, planning is your best ally. Ensure you have enough stock to meet the demand. If you run low, securing new stock amidst the holiday rush might be a tall order.
Also, having some funds ready can be a lifesaver. It’ll help you quickly restock hot-selling items and keep the cash registers ringing. If you need to, arrange for a line of credit or other funding sources well before the season hits full swing.
Start your preparations early, so when the holiday shopping fever sets in, you’re not just ready; you’re thriving.
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.
Clear Unsold Seasonal Stock
Having unsold stock when the season ends can tie up your money, which could be used to cover important expenses like salaries, rent, and other bills.
It’s good to have enough stock to meet the demand, but having too much left over can lock up your capital and profits.
You’re the expert when it comes to your business, and you know the best time to stop buying seasonal stock.
As the season winds down, consider slashing prices on leftover items. Offering discounts can help bring in some extra cash to tide you over during the quieter post-Christmas period. Plus, it saves you from the hassle and costs of storing unsold merchandise. It’s a win-win: you free up some cash, and your customers score a deal.
Set Aside Funds for Tax Payments
Higher sales during the holiday season also mean a higher Goods and Services Tax (GST) bill. With all the hustle and bustle, it’s easy to overlook tax and GST payments.
Have a system in place to ensure you pay your bills on time. Whenever money comes in, set aside a portion to cover your tax bills and other overheads.
Planning for these costs ahead of time can help you manage your working capital better. This way, you won’t face cash flow problems when it’s time to pay up. It’s all about being prepared, so when the tax bill arrives, you’re ready and not caught off guard.
Strike Fresh Agreements with Suppliers
The holiday season is an important time for both you and your suppliers.
Use this chance to try and stretch out credit terms with your current suppliers. This way, you can fill up your shelves without draining your cash upfront.
If that doesn’t work, Trade Finance facilities might boost your buying power, freeing up some cash. Your supplier gets paid right away, but you only pay after you’ve sold the goods.
Also, it’s a good time to look around. You might stumble upon other suppliers giving better deals or lower prices on goods. This could save you some money, helping ease cash flow during this busy season.
Pause on Big Buys
Cash can run thin quickly during the bustling festive season. It’s wise to hold off on big purchases that can wait until the new year.
If a buy doesn’t boost your sales or revenue for the holidays, maybe save it for later.
But if new gear will help you hit your targets quicker, think about Equipment Finance. This way, you can get what you need without a big upfront cost, spreading the expense over a longer period and keeping your cash flow steady.
Secure Financing Early
Having some external funding can be a lifesaver to bridge cash flow gaps and grab opportunities during the festive season.
Even if you’re on the fence about needing extra cash, it’s smart to be ready and know what’s out there. This way, if you do need some funding, you can act fast and snag the right kind of financial help when it matters most.
There are many different cash flow financing solutions that can be tailored to the needs of your business, including:
Trade Finance
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 Trade Finance.
Asset Finance
Asset 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 Asset Finance facility can help you get the tools you need to succeed.
Navigating the financial waves of the festive season can be smooth sailing with the right strategies in place. These steps are your toolkit for harnessing the holiday hustle to your advantage, ensuring a merry season for your business and a prosperous kickoff to the new year.
If you need funding to capitalise on an opportunity or bridge a cash flow gap, call our friendly team of Business Finance advisors today.