Preparing for the holiday season is a challenging task for businesses. There are seasonal fluctuations, extended hours, and increasing activity that can make cash flow management more difficult.
If you find this situation stressful, you are not alone. Many SMEs experience this, so owners need to devise a better plan to manage their cash flow as Christmas and the New Year approaches. Here are some ways to maintain a good cash flow during this season:
Create a Cash Flow Forecast
Look at the past to plan for your future – that’s how cash flow forecasting can help you. Check the cycle of your past seasonal peaks to know the expenses and payments during this time of the year. It’s vital to have a realistic forecast so you won’t overestimate or underestimate the cash you will need during the holiday season or new year. Knowing when your cash inflow and outflow are the highest can help you save up and set aside a cash buffer you can use during your holiday business operations.
Minimise Overtrading Risks
Businesses tend to get overwhelmed during the holiday season and increase their overtrading risks. This is when a company takes up orders that they may not be able to fulfil or they are not financially capable of undertaking. Your cash flow may be compromised when this happens.
Lessen the possibility of encountering this problem by checking your investments and work that may be better off delayed to the new year. Make sure to prioritise the essential expenses first. Plan ahead and see if your company has enough stocks and capital that can help you get extra supplies, even at short notice.
Deal with Slow Payers
Recently, many large firms are using their bargaining power to delay payments to smaller businesses. At the same time, they face growing pressure on their supply chain as well as declines in demand for their products and services. The result is $115 billion in late payments to small businesses every year – denying SME’s more than $7 billion in working capital annually.
“You don’t want your cash sitting with your debtor as the new year begins.”
Late payments can affect your business growth and profitability. It may even taint your relationship with your suppliers. Make sure to invoice early and communicate with your clients by sending reminders on different channels. Alternatively, you can set up an automated invoice reminder to keep your customers aware of your payment terms. Consider offering an early settlement discount to encourage your customers to pay up at a previous date. You don’t want your cash sitting with your debtor before the new year starts.
Clear Your Inventory
The cash you need might just be in your inventory for a long time. Clear overstock and excess inventory by selling them during the Christmas season. Some things you can do are repackaging your products, to make them appealing for the holiday season. Perhaps you could invest in marketing your products in new ways to attract a new segment of buyers. You can also try cross-selling or upselling these products.
Predicting your upcoming inventory needs is best done when you have sufficient data on hand. Data can help identify critical metrics such as your fixed and variable costs associated with each product and service. It also helps determine the amount of cash you need for a buffer, or how much money you’ll need to borrow for your business’s upcoming expenses.
Explore Financing Options
Access to traditional funding can be more difficult during the holiday season. Try alternative financing for a simple yet effective way to increase your cash flow. There are various flexible funding solutions available for Australian businesses. Some of the leading financing options are invoice finance, or otherwise known as debtor finance; trade finance, and more. After approval, these funds are often accessible within 24-hours – so there’s still time to access the funding you need now and in 2021.