… How to avoid seasonal cash slump and make the most of your Christmas trading. This article I put together for Kochie’s Business Builders should help you through.
Most of us enjoy the traditions of Christmas parties and days on the beach, but for small businesses there can also be the less happy tradition of cash flow woes.
An advantage of running a SME is that adjustments can be made quickly to take advantage of opportunities or to detour to avoid disaster.
Rather than ending up stranded like a partridge in a pear tree come the New Year, this Christmas why not focus on one sound business principle a day, for twelve days, to help avoid a financial dilemma?
Day 1 – Push for upfront payments
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.
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.
Day 2 – Look from the outside in
Growing your customer base is a sure-fire way of improving immediate profits and long-term sustainability.
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?
Also, beware the Grinch. Find three potential competitors. What are they doing to attract your three profiled clients and steal Christmas away from you?
Day 3 – 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.
With your client and competitor profiles 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? When were your accountancy systems last updated?
Day 4 – 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.
Day 5 – Cut costs
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.
Day 6 – Sort out your suppliers
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.
What are 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.
Day 7 – 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 policy, which of course can be reviewed in the New Year.
Day 8 – 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?
Day 9 – 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.
Day 10 – 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.
Day 11 – 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!
Day 12 – 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.