Five Christmas slip-ups your business must avoid
The countdown to Christmas is now on. Lots of fun, lots of activity and the rush to get everything finished before the break.
Busy period or not, Christmas causes a period of dislocation and volatility for most businesses. This dislocation and volatility means that it is not business as usual and, for many businesses, it is the change that causes the problem.
Most business owners cope well with consistent trading conditions. Trading and business conditions are predictable and the solutions you have used in the past should work.
Change the environment, though, and normal does not necessarily work.
Here are some things to watch out for:
1. Watch your stock levels
If business activity spikes over this period and you sell goods then there is a temptation to increase stock levels.
That makes sense as long as you don’t go too far. Too much stock after the Christmas period and you will either be carrying out-of-season product or you will have too much cash tied up in trading stock.
Try to work with suppliers who can supply on short notice. Better still; see if some of your suppliers will supply you on consignment, where you only pay them once the stock is sold.
It could be better to miss a few sales than be carrying a trading stock headache into the new year.
2. Avoid discounting in peak season
The sale signs are already up and this will continue in the run up to Christmas. The danger is in taking a ‘me too’ approach.
If everyone else is discounting then maybe it sounds like a good idea. Know your profit margins and how much you can afford to discount. If you discount your margin away over the peak trading season you lose any profit buffer to carry you into the new year.
Story continues on page 2. Please click below.
3. Christmas trading comes at a price
Costs tend to go up over this time of the year: more staff, leave costs, downtime from non-trading days, as well as increased promotion costs, all mean that costs will push upwards.
Keep an eye on them. It’s great to get into the Christmas spirit as long as you don’t end up with a New Year hangover.
4. The post-Christmas cashflow crisis
The new year will lead you into a quieter trading period and a tighter cashflow period. The March quarter tends to be the toughest cashflow quarter of the year.
You will need a cash buffer going into the new year. Don’t over commit yourself in the run up to year end and end up in trouble.
5. Make sure you get paid
If you work with account customers, start your debtor follow up now. If your customers are under any cashflow pressures the Christmas period will increase the pressure.
The creditors who chase hard and early will get paid first. Don’t be the last supplier on the list – the basket may be empty by then.
Christmas is a great time of year. Just don’t get caught up in the rush and let things get out of control.
Greg Hayes is a director of Hayes Knight and specialises in taxation and business planning advice.