10 Christmas cash flow tips for SMEs

According to recent studies by Xero, 92% of Australian businesses experience negative cash flow at least one month out of the year. Does this surprise you? The goal of most SMEs is to be profitable year-round, but that doesn’t always work out.

As the holidays start to creep up towards year-end, your business might experience heightened employee absences, slow payments from customers and lagging sales. Despite being coined one of the happiest times of the year, you might be feeling extra stress surrounding your business’s cash flow.

Putting the proper safeguards in place can alleviate some of the pressure you face as a business owner, allowing you to fully enjoy the holidays with your family and friends. Keep these ten tips in mind as we begin to head into the holiday season.

1. Create boundaries

Business owners often forget they are running a company during the holidays. Being generous can be great when it doesn’t impact your cash flow. Ensure that your customers understand that the holidays don’t mean late payments. Although you may decide to give one-time leniencies, don’t let your customers get too comfortable with late payments. You worked hard to earn that money. Make sure you are collecting it. Consider sending out reminders and offering your customers incentives to pay on time (like discounts for early payment), or alternatively, take out debtor financing to bridge any gaps in cash flow that inevitably arise.

2. Have flexibility

Unexpected surprises are inevitable, regardless of what season you’re in. You want to have the flexibility to manage any irregular costs, staff shortages and late customer payments. Maybe one of your top performing machines goes out or a large customer never pays you. Putting the proper safeguards in place, like an emergency fund, can help you maintain effective cash flow while still retaining flexibility for unexpected items.

3. Stay on top of invoicing

Staying on track with customer invoicing is a vital component of managing your cash flow during Christmas. If you never send out an invoice, how can you expect to get paid? Your accounts payable department will need to factor in the holidays and prioritise getting invoices out well before deadlines. This will help your customer remit timely payments and boost your cash flow.

4. Check loan options

Managing cash flow during Christmas time isn’t just concerned with receiving payments from customers. In fact, another major component of effective cash flow management is leveraging payment methods. A standard loan or line of credit might be what your business needs to implement added flexibility or create a safety stock of cash for unexpected surprises.

5. Take a proactive approach

Taking a proactive approach to your business is another method of improving your cash flow. If you know certain vendors struggle to make payments during the holidays, reach out before the invoice is due to see if they want to set up a payment plan. Collecting a portion of the cash is better for your cash flow compared to missing payments altogether. In addition, when it comes to managing your employees, properly plan for absences during the holidays. You may need to jump in and help get invoices out or pay suppliers on time to keep operations running smoothly.

6. Understand your situation

What has historical cash flow looked like during Christmas? Taking a look at prior financials can help you understand what to expect going into this year. Are there expenses you can plan for, such as employee bonuses or lower sales levels? Knowing what generally happens during Christmas will allow you to take a proactive approach and find alternative methods of increasing your cash flow. You don’t want to wait until it’s Christmas time and your bank account is lingering at too low of a level to pay bills.

7. Prioritise growth

One of the top methods to increase cash flow that SMEs often overlook is growth. Growing your revenue while focusing on maintaining expenses creates profit for your business. Improving your profit margins gives your business more wiggle room during Christmas. Is there a customer that you never followed up on or a new product you can release around Christmas? Finding creative ways to grow puts you in a less vulnerable cash flow position.

8. Focus on bookkeeping

The books generally don’t lie. When your accounting system is updated in real-time for transactions, you have more information to base your business decisions on. For example, if your accounting records aren’t updated to show outstanding checks, you risk over drafting when the check finally clears. Bookkeeping surrounding the cash account is important, especially around Christmas when businesses are catching up on their records and depositing payments.

9. Build a cash reserve

Most business owners can agree that having too much cash is never a bad thing. Building a cash reserve not only provides you with peace of mind, but can also ensure that you have enough money to cover upcoming or unexpected items. A good rule of thumb is to have a cash safety stock for at least 6 months of operating expenses. If you don’t have that much cash set aside, work towards having a few weeks of expenses covered around Christmas.

10. Enjoy the holidays

Last, but certainly not least, enjoy the holidays! Christmas is a wonderful time to spend with family and friends. Factor a break into your busy schedule to reset. The new year is just around the corner, which means preparing for tax time and navigating new issues. By prioritising your cash flow leading up to Christmas, you won’t feel as overwhelmed, giving you the opportunity to take some much needed time off.

From uncertainty surrounding vendor payments to lower employee productivity, you want to be giving your business the best chance of creating a positive cash flow around Christmas time.

One way that your business can promote strong cash flow during Christmas is to apply for funding. Extra funding is a great solution that gives you access to cash when you need it. Even if you don’t plan on using the funds, having the option if something unexpected comes up can save your business from over drafting or remitting late payments.

At Valiant, we understand the strain Christmas can have on business owners, which is why we work with you to find the right financing solutions for your business’s needs. Reach out today to set up a consultation and talk over your situation with one of our team members.