Post-Christmas is a dangerous time for small businesses, especially B2B operators. As business starts to slow down for the Christmas closure periods, so too does the cash flow. Without proper planning, your business could become another statistic.
For most businesses, reduced cash flow doesn’t typically have an impact until what I call 'graveyard month': between late February and early March. This is the time when most businesses collapse due largely to the slowdown catching up with them.
Christmas is a perfect storm, with B2B sales declining, employee leave-loading pay and a dip in cash flow caused by customer spending wrapping up until mid-January. It is easy for businesses to fold under the financial burden.
With proper planning, however, you can avoid the stress of reduced cash flow and, by acting now, you can build a buffer to protect you from the slow Christmas period. Taking early action is crucial for businesses wanting to avoid the effects of graveyard month.
With these tips you can start preparing now, to ensure you too can enjoy the silly season without worrying about what might greet you in the new year:
Assess your cash flow
Planning ahead means considering your cash flow patterns and ensuring that there are enough funds coming in, compared with the amount being spent in outgoings. A useful hint is to look at making incoming payments as frequent as possible; this means you don’t need to wait until a job ceases to invoice.
Your aim should be to have as many accounts at least partly paid off as possible before Christmas. A great way to do this is to provide added incentive by offering discounts to clients who pay before Christmas. The customer receives a discount and you see the benefit in your cash flow.
Put off purchases and look to payment terms
While you want to ensure payments are coming in as quickly as possible, you should also try to extend outgoing payments as far as your suppliers will allow, to reduce outgoing funds and again build a buffer of cash, reducing the risk of being caught off guard.
You should avoid making any large purchases at this time of year. However, if you must place stock or inventory orders, try to negotiate payment terms that don’t require immediate payment, or can be paid through instalments.
It is often easier to negotiate lengthening payment terms rather than trying to reduce the price, as it might put your suppliers offside and hint that your business may be in distress.
Recover outstanding debts
While you might look to extend your own payment terms with your creditors, you should also be tightening payment terms for your own outstanding debts. Look at your debt ledger before Christmas and refer debts older than 60 days to a collection agency.
Even if you only receive partial payment, it means you are more likely to receive some of the outstanding money, instead of scrambling to make up the funds when you are hardest hit.
You can also find extra money by looking at your old written-off debts and referring them to a collection agency. Make sure you refer them to an agency that doesn’t charge unless the debt is recovered, so you can rest assured you won’t be left out of pocket, even if the debts can’t be recovered.
Determine your stock levels
Evaluating your current stock levels will help give you a clearer idea of what you need for the new year. It also gives you the opportunity to sell off anything you don’t require or that has been with you for six months or longer. Holding a pre-Christmas or New Year's sale will help you stay afloat in financial hardship.
By focusing on your post-Christmas survival now, you are setting your business up for the best chance of success. It’s the businesses that don’t look ahead that will be caught out in graveyard month.
These simple steps will help you determine your priorities, analyse your strengths and weaknesses, and make sure you are well equipped to handle whatever the Christmas period throws at you. These steps might even allow you to relax and enjoy Christmas with your loved ones.
Roger Mendelson is CEO of Prushka Fast Debt Recovery and principal of Mendelsons Lawyers.