How to avoid a Christmas cashflow crisis

Here Rob Mercer, senior regional director, Ashley Finance, and Nick Hood, of insolvency and corporate recovery specialist Begbies Traynor, share their top tips for successfully making it through the Christmas period.

While Christmas is a peak operations time for many sectors, it can be a challenge for small businesses, which do not have the resources to cope with a festive flurry or a seasonal downturn in business. Here Rob Mercer, senior regional director, Ashley Finance, share his top tips for successfully making it through the Christmas period.

The festive flurry – demand spikes

For retailers, manufacturers, transport and logistics firms and many others – Christmas is without a doubt, the busiest time of the year. This may sound great in theory, but if a small business is experiencing a cashflow issue then it can be extremely difficult for them to take advantage of the opportunities presented by increased sales, which can have a longer term impact.

Sharp demand spikes at Christmas mean SME owners need to be able to cover a highly concentrated period in which there are a lot of extra costs. For one, considerably more stock or raw materials may be needed – all of which needs to be purchased well in advance, before any sales money has been received.

More staff are often required too, whether its needing extra employees on the shop floor, behind the bar or drivers for additional vehicles on Christmas Day; there are more and higher wages to be paid. Additionally, year-end bonuses may be payable to permanent members of the team. For these small businesses, it’s a time in which a lot of costs are going out, with few coming in at the same rate.

The seasonal shutdown – putting a pause on business

On the other hand, for those in a number of other sectors, Christmas is a period in which business winds down; the offices close and everything is effectively put on pause for a couple of weeks. In some cases, this can last right through to mid-January.

These SMEs won’t necessarily suffer in December like their busy counterparts – it’s post-Christmas, at the end of January when they’ll start to feel the absence of money coming in.

A knock-on effect

Of course, there are also factors that affect all small businesses alike, regardless of what they do. For example, some suppliers use the seasonal shutdown in business as an excuse to not pay outstanding bills or delay payments, even later than usual.

With staff at home, finance offices closed it means the Christmas period can have a negative impact on cash flow with the knock-on effect of these missed payments or later payment of invoices.

To top everything off, the colder weather means that utility bills can make for an unpleasant surprise and added to this for the majority of businesses, quarterly rent bills are due after Christmas in the New Year. Then there’s the matter of Self-Assessment tax returns at the end of January which could apply to many company directors and sole traders on a personal level.

So, taking all of this into consideration, what can small business owners do to make sure their Christmas cheer doesn’t get dampened by a cashflow conundrum?

Plan, plan and plan again – there’s no substitute for making the effort to forecast cash flow as carefully as possible with your team. If you know you’re going to experience a flurry in demand, then don’t just let it happen, discuss and invest your time in planning for it

Anticipate late payments – build in a buffer that assumes you will have an indefinite higher proportion of late payments than normal during this period

Control all spending – what can you do to manage spend? Are there some things that are unnecessary or could be postponed until there is less cash pressure? If so, then put it on the backburner till February

Explore your funding options – do you need to purchase stock in advance, or pay invoices before sales money comes in? Getting some funding in place could help to remove that stress and worry

For example, Invoice Finance can advance you up to 90 per cent of the cash you’re owed in issued invoices, whereas something like a Business Loan could provide you with a quick injection of cash to cover costs. Both options are cost-effective and flexible solutions that can soothe your cash flow in the short term.

These tips don’t just apply during the Christmas period – any good businessman or woman will know they are key to maintaining a healthy cashflow all year round.

But despite the above painting a somewhat gloomy picture, it needs to be remembered that for many SMEs in the longer term, Christmas is a very profitable period. Unfortunately, however, this is often something that’s only recognised in late January, after all payments have come in. It’s then that small business owners can breathe a sigh of relief and know they’ve survived the Christmas period.

So, plan ahead – start by exploring some finance options and prepare for late payments, and in the shorter term this could help deliver you a merrier Christmas.

Related: Late payments cause UK SMEs to miss out on over £250 billion

Tips on avoiding a holiday cashflow crisis

Strict credit controls should be second nature to your business, and Christmas time is no exception to the rule. Don’t let payments slide at this time of year. Ideally, ensure that one person manages the process of chasing debts promptly, with good record keeping.

If you are not trading over the holiday period, will somebody still be able to deal with invoice/payment enquiries, or are you planning to take calls at home? Either way, make sure you let your customers know.

And these measures should also form the basis of a plan to get your business in the best shape possible for the year ahead.

Nick Hood, of insolvency and corporate recovery specialist Begbies Traynor, says that 60% of all new UK businesses fail in their first few years of trading because they neglect key areas of business administration, such as working capital management and credit control.

He offers the following tips to keep your business growing over the coming year:

  • Keep cashflow forecasts regularly updated, ideally projecting at least six months ahead.
  • Make a resolution to get your annual accounts filed with Companies House on time. Failure to do so might affect your firm’s credit rating.
  • Regularly update the business plan. It should be constantly reviewed as market conditions, including new competitors or new technology, change. Make a resolution to do this at least once a quarter.
  • Review suppliers and their costs for the New Year. It’s easy for costs to increase and for original suppliers to no longer provide best value for money. Check out the competition in January.
  • Delegate tasks to capable staff. This means you can concentrate on the longer-term development of the business.

Owen Gough, SmallBusiness UK

Owen Gough

Owen was a reporter for Bonhill Group plc writing across the and titles before moving on to be a Digital Technology reporter for the

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Cash Flow

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