Maintaining your business’ Christmas cheer
For some it is a boom time, for others a period of significant dislocation.
Because of these differences there is not a one size fits all answer to the best way to prepare for and manage the festive season.
You need to look at your business model. Examine how the season affects your customers and suppliers. With this information, what you need to do is reasonably predictable.
Any period where operating conditions change means that there can be impacts on your profitability and cashflow. You need to look at both of these areas.
If you carry debtors, be aware that many of your customers’ suppliers will be trying to collect their accounts prior to the Christmas season.
Some of your customers may close over January, and the people who can approve your payments might be away.
Don’t be last on the payment list. If you have customers who are cash flow stretched then it will be first in first served.
If you are too slow in chasing your accounts, then you might and up waiting until February to collect your money. Get to them early and have a concerted follow up approach to get your cash in.
If you carry trading stock, then you need to find a balance between ensuring that you have enough stock to satisfy demand during what may be a busy trading period. That said, don’t over commit and then find yourself with surplus stock.
Where your stock is either seasonal or time limited, it is critical to find suppliers and who can supply you on short notice.
If you can have your suppliers carry your stock for you or who will supply you on a consignment basis this will significantly improve your cash flow position.
The sale signs are already all over town and this will only escalate through January. Understand the impact of your pricing and the effect of any discounting you offer.
We all want to make that extra sale but don’t get sucked into discounting yourself into a loss position.
You need to get the balance right between pricing to be competitive and pricing that returns a profit to your business. Know your numbers and then make informed decisions.
The Christmas period can bring increases in operating costs. These can include additional wage costs, penalty rates, end of year bonuses and Christmas gifts.
Where your business has a close down period over Christmas, the impact of these increased costs can be compounded by a reduction in revenue.
The key here is to understand the effect of the period and build it into your budget. You need to do this both at a trading level and also in terms of cash flow.
Once you understand the impact, ensure that you can afford it and don’t over commit your business. Too much Xmas spirit can be deadly.
Manage the change period and your business will start the New Year fit and healthy.
Greg Hayes is a director of Hayes Knight and specialises in taxation & business planning advice.