Small to medium businesses can run into financial difficulties over the Christmas period as the seasonal shut down takes over the normal cycle of cash collection is disrupted.
Invoices are not chased, staff go on leave and unless you’re in retailing, business slows down. That combination can lead to a rise of insolvencies in the New Year.
To avoid Christmas cash flow shortages, here’s the advice from David Henderson the founder of CashMax Forecaster, a forecasting tool that helps SMEs plan, set strategies and manage budgets.
Push for upfront payments.
Your clients might appreciate that at this time of year business may need to make special arrangements. Collecting payments upfront rather than spending time chasing debt in the new year will bring good cheer to any business.
Remember a quick phone call can often resolve confusion over an overdue invoice or a late delivery far better than a string of emails bouncing backwards and forwards like Santa’s reindeer in the snow.
In the longer term, asking for accounts to be fully or partly settled in advance, can help identify problem payers as well as uncover the champions in accounts payable department.
Look from the outside in.
Growing your customer base is a sure-fire way of improving immediate profits and long-term sustainability. Perhaps you, like almost everyone else, would like everyday to be Christmas day.
Some proprietors see their business an extension of their personality. This means they might only be providing a service or product they themselves need, making it very difficult to be objective.
Increasing your customer base means understanding not only your clients, but your competitors, from an outsider’s perspective.
Think of three typical clients: who are they, where do they live and work? What interests and motivates them? If you sent Christmas cards, how would you personalise the message on each?
Then think about what your business might do more, or even less of, to meet their diverse needs.
Also, beware the Grinch. Search the internet for three potential competitors. What are they doing to attract your three profiled clients and steal Christmas away from you?
Now look at the inside, from the inside.
With a clearer picture of the way your business is seen by customers and competitors, it’s time to start dishing out the presents around your workplace.
Your gift list is the skills and resources you already have – and might be overlooking – plus the extra ones needed to help boost cash flow.
With your client and competitor profiles still in mind do a checklist: Is there a need for a faster, more secure website with live chat or better in-store or over-the-phone customer service? Would your product descriptions make sense to someone with no background knowledge? Is there a staff member who has an interest in a more financially-viable role? Are you still relying on faxes when new software can do the job? Can you provide a 1800 or other toll number instead of expect clients to pay long-distance call rates? When were your accountancy systems last updated?
Sweat the small stuff.
A small increase in the profit margin of each and every sale – combined with more customers and stronger positioning against competitors – can significantly boost cash flow.
Small efficiencies can also do much for the bottom line. While it might not be thought fashionable to sweat the small stuff, it’s the little things remembered from Christmases past that keep customers coming back.
You don’t have to go the full Scrooge to cut costs. After all, shrinking a business isn’t the best way to guarantee an effective cash flow.
Look at the expenses that generate results. If there’s spending that’s not going anywhere, that’s the sort of free gift you don’t want to be giving away this festive season. Make a resolution; if the money is not generating income, don’t spend it.
Sort out your suppliers.
Are there some suppliers that have fallen off your Christmas card list?
Have a clean out and review old supplier agreements.
Use the new year to renegotiate better terms and conditions, cheaper fees or added value from suppliers who might have gotten as stales as last year’s mince pies.
Monitor the market and see what others are offering. Shop around and take advantage of any seasonal volatility that could see a good return or an opportunity to dispose of seemingly unsaleable stock.
Credit only where credit is due.
Christmas can be a time when new customers want to spend up big. Don’t swing into holiday mode too early by failing to run a credit check.
If in doubt note the warning signs, tighten your terms and conditions or initiate a strict cash-on-delivery or EFT – electronic funds transfer – policy … which of course can be reviewed in the new year.
Let the banks pay.
Accepting credit card payments means the issuing financial institution, rather than your business, carries the risk.
So this Christmas why not let the banks give the gift of an interest-free period?
Tax and super don’t holiday.
It can be easy to overlook the payment of taxes such as GST as well as superannuation in the midst of so many public and staff holidays.
Take note of due dates, set aside adequate funds in a holding account, and don’t be tempted to use this money to compensate for a drop in cash flow.
Be aware that increased sales attract extra GST so plan ahead.
Spend other people’s money, wisely.
Building business based on borrowing is a well-practiced principle.
Ensure that any sudden solution you adopt over the festive season doesn’t become a long-term liability.
Consider carefully the borrowing terms. Unless needing backing for major, long-term capital investment, short-term options such as an overdraft or credit card payment might be enough to tide your business over.
If family or friends are part of your cash flow rescue plan, ensure their agreement well before a loan is needed. Professionalism remains essential. Prepare a written agreement that details all terms and conditions and have it signed by all parties … before a Christmas drinks session.
Keep some cash in reserve.
Having a respectable stash of cash squirrelled away in a separate, high interest bearing account could be the difference between SME Santa going Ho! Ho! Ho! rather than Oh No! No! No!
Keep it real.
Financial reports need to clearly and accurately detail the basics: what funds are available today, what is tied up, and what is owed.
On the twelfth day of Christmas, make a new year’s resolution to keep financial reporting real, and monitor your cash flow daily for many happy returns throughout 2015.
Read more from Henderson: Don’t Make These 3 Mistakes If You Want Your Business To Succeed.
Business Insider Emails & Alerts
Site highlights each day to your inbox.