Many Australians consider the December holidays to be the most “wonderful time of the year”, with the summer holiday punctuated by public holidays and annual leave. However, for business owners, it can be a stressful time if they are experiencing a cash flow crunch.
A cash flow crisis is caused by several factors. Many businesses shut over this period but are still paying wages to staff on holiday, as well as other fixed costs such as rent and loan repayments.
Customers also take holidays so invoices don’t get paid and, for some businesses, the flow of funds can slow to a trickle. The impact on income can spread into January and February as back to school expenses limits consumers’ spending capacity.
The management of cash flow is critical over this period. There are several strategies business owners can implement to improve their cash flow or create a cash buffer leading up to the holiday season.
Five strategies for managing cash flow
Make a plan
The best way to reduce stress and avoid a crisis is to have a cash flow management system in place. We have a simple cash flow forecast tool and step-by-step video guide which businesses can use to predict and manage their cash flow.
Get invoices out
Make sure your accounts are in order. Send invoices well before the December shut down period and consider interim billing. An example of interim billing is charging for work completed in December, rather than waiting until the whole project is finished in January. Another strategy is to offer incentives for early payment or penalties for late payments.
Pursue late payers
The fastest way to improve cash flow is to get outstanding invoices paid. For businesses with terms of 14 days send statements twice a month. For customers invoiced on the first of the month, their payment falls due on the 15th of the month. Don’t wait until the 30th to remind customers they owe you money.
To conserve cash, only place orders over the holiday season that are absolutely necessary. If you need to make purchases, ask suppliers if you can defer payments to the New Year or arrange a payment schedule. Most suppliers are happy to accommodate these requests as it will help their cash flow as well. Remember to document the arrangement in writing.
Ask for help
Business owners who can see a cash flow crisis looming should proactively ask for help. Don’t bury your head in the sand. Reach out to your accountant, contact your bank, discuss a short-term overdraft, unsecured loan or credit card. Creditors prefer to know you’re doing something about their debt rather than ignoring the problem. It is important to ask for help sooner rather than later.
To avoid a cash flow crisis over the holiday season, good planning and sound financial advice are essential for ensuring your business experiences a happy festive season.
BDO has a number of resources and online courses designed to assist business owners manage their cash flow.