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For a lot of retail and restaurant businesses, the holidays can be the busiest time of the year. But for other small businesses, the holiday season can herald in one of the most difficult times of the year. Many shut down production completely, and even close their doors during the peak of the December holidays.
While this may conserve some cash, wages still need to be paid and fixed costs need to be taken care of. To add to these woes, customers can be tricky to track down over the holidays, leading to unpaid bills and potential cash flow problems—the #1 reason why small businesses fail.
If this sounds like you, here are six things you can do to improve cash flow this holiday season.
Every business should have a cash flow forecast and keep close tabs on it during this time. By maintaining a forecast you’ll have a clear view of when money is coming in, when it’s due out, and what’s left over. This will help you make crucial decisions about our finances during the holiday season and all year long. Plus, if you have an accurate cash flow forecast going into the holidays, you’ll have an easier time managing your cash flow during the holidays—helping you survive the slow period. Check out these tips for putting together a cash flow forecast and analyzing it.
Cash flow issues are problematic on their own right. But it gets even more frustrating if your cash flow fluctuations are mostly caused by late-paying customers.
If you’re constantly struggling with late-paying clients, it’s time to evaluate your terms in advance of the holiday season. That way you can ensure a steady source of income during the holidays and avoid the net 60-90 day trap. Start with new clients, and then when the New Year rolls around, reach out to existing clients to discuss your new terms for invoice collection.
Now is not the time to be delinquent about payment discipline. Invoice frequently. Don’t overlook overdue accounts, because you may not see that payment until January if you aren’t on top of it. And be diligent in chasing unpaid invoices—the closer you get to the holidays the harder it will be to get paid. So don’t wait, chase!
If getting your customers to pay is a constant struggle for your small business, consider offering incentives to early-paying customers or start accepting electronic payments. Or, for your larger invoices, ask clients to pay you in installments instead of a big, lump sum deposit at the end of your services. That way you can get the cash you’re owed in your bank account before the holiday season sets in. Whatever you can do to get the money you’re owed in the bank faster, consider doing it.
Your outgoings can spike during December as you plan staff and client parties or organize holiday gifts. Other things to consider at this time are the holidays themselves—Hanukkah, Christmas, New Year, and so on, will shorten the amount of available trading days, which can impact your income and profits.
Plan for time off, too. You and your dedicated employees work hard throughout the year. So when your customers stay home to celebrate the holidays, consider taking some time off yourself. But before you head home to celebrate, make sure your cash flow is ready for the seasonal lull.
Do you have enough cash set aside to take time away from your business and spend it with family? Could you keep things going by delegating to your staff? Read our post on taking vacations without your business falling apart for tips.
If you can, delay any large expenditures until cash flow has improved. You may be tempted to reduce your overall taxable income for the year with business expense, but be sure to weigh up the pros and cons of any large purchases, repairs, or maintenance at this time.
If those expenditures aren’t absolutely crucial for your business—and can be tackled in the new year—avoid dishing out the cash before you absolutely need to.
Conserving cash doesn’t just start and end with the business owner. Make sure your staff is also keenly aware of expense restrictions and management at this time of year. Before you get into the holidays, sit down with your management team or employees to let everyone know that it’s time to be cash flow savvy.
Go check out Fundbox here for more advice!