Planning for the Christmas cash flow crunch - small business tips

It’s (almost) the most wonderful time of the year again! The time when we look forward to Christmas traditions - such as festive jumpers, mulled wine, family reunions and exchanging of gifts.

However, despite bringing much joy to all, the holiday season can be a time of great anxiety for business owners. For many, December brings the additional stress of worrying about potential cash flow shortages.

Now that the countdown is officially on for the end of the year, there’s no better time to prepare your business and take steps to mitigate the seasonal cash flow crunch.

Why do businesses face cash flow issues at Christmas?

If your business suffers from cash flow problems around this time of the year, you are certainly not alone. There are several reasons why small businesses in particular take a hit in December. Many of these factors are industry dependent, but some of the main reasons include:

  • Staff holidays

  • Supply chain issues

  • Lengthy payment terms

  • Additional expenses

  • Quietest season or high demand

How can I best prepare for cash flow challenges?

Cash flow management is crucial to ending the year on a high note. Remember - prior planning prevents poor performance, and there are always steps you can take to tackle the Christmas period head on.

Prepare for staff shortages

From annual leave to sick leave requests, you need to be ready for staff shortages over the Christmas period. Not only is it a time that people usually want to take holidays, it’s also the middle of winter, which means pesky winter colds and bugs are rife. What’s more, Covid-19 remains an ever-present threat and a factor you need to consider.

It can be difficult managing staff holiday requests, particularly when a number of your employees have outstanding holiday with little time remaining to take it. Whilst it’s important to be as fair as possible, you need to do so without putting your business in a vulnerable position.

Be sure to calculate your Christmas staffing needs in advance, and make sure you have enough manpower to tide you through. If your business can function well remotely, a good way around offering time off is giving people the option to work from home.

Depending on your sector, hiring contractors or temporary workers can also be a great way to ensure you’re not left with labour issues that could impact your cash flow during the Christmas season.

Alternatively, you could consider providing incentives for people to help out. Or, think about offering overtime to employees who want to make extra cash over the Christmas period. However, when offering overtime remember that employees are not permitted to work more than 48 hours per week.

Keep supply chain issues in mind

As a result of Covid-19 and Brexit, small businesses have already faced supply chain issues throughout 2021. Unfortunately, Christmas is unlikely to be any different. You need to plan for scenarios of delayed supplies and reduced stock combined with potentially high volumes of orders.

One of the major threats to small businesses that rely on large quantities of goods is the Heavy Goods Vehicle (HGV) driver shortage. With a deficit of over 100,000 qualified UK drivers, significant disruption can be expected.

With issues across the supply chain, it’s important to remain flexible in your offering and react quickly to external changes. Businesses using local suppliers are likely to face less issues in this area, which means if your company uses overseas supplies, you need to be extra-prepared and have contingency plans in place.

Invoice ahead of time

The closer it gets to Christmas, the more difficult it can be to collect money owed in unpaid invoices. The holidays have a reputation for disrupting businesses, which will ultimately increase the chances of delayed and missed payments.

To give your business the best chance of being paid on time, it’s crucial to get invoices sent out as early as you can. It’s never a good idea to issue invoices within the last two weeks of December.

When submitting invoices, it remains as important as ever to clearly state your invoice payment terms. If you work with clients that have a reputation for paying late, you should also state the action you will take in the event of non-payment. Whilst it may feel a tad bah humbug, if you don’t take steps to protect your business you may be left out of foot.

As well as submitting invoices in advance, you can also send out friendly reminders, explaining that you’re chasing invoices early to avoid having to do so during the holiday season.

To alleviate the stress of late and unpaid invoices, you may consider selective invoice finance and advance your invoices ahead of time. This solution allows you to pick and choose which invoices your business wants to sell. In return for a small fee, you can receive the money owed to your business upfront, helping alleviate any cash flow crunch without taking on debt.

Budget for additional costs

It’s also vital to take time to factor any additional costs you can expect over the Christmas period. Many small businesses choose to throw an annual Christmas party, and whilst this can be a great way to boost company morale and keep employees happy, it can negatively harm working capital if you don’t stick to a budget.

Understand your seasonal cash flow cycle

For many businesses, Christmas is a time that offers the greatest potential for high sales. For others, Christmas is off-season, bringing a quiet period. It’s important to understand your company’s cash flow cycle and preempt potential issues accordingly.

If you know this time of the year is going to be busy, make sure you have the capacity to take full advantage. On the other hand, if you’re expecting sales to be slower, think of creative ways you can maximise your offering, and get involved in the festive spirit.

A final note

Most importantly, remember to take time to decompress this Christmas. The last couple of years have been a challenging time for small business owners, and it’s important to give yourself a chance to relax and spend time with family, even if it is only for a day or two.

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