I know it’s barely November but with just 6 full trading weeks until Christmas it’s exactly the right time to be thinking about your cash flow. Cash flow can get severely disrupted over the Christmas period for many reasons. Last year because of the way the dates fell, the disruption lasted almost 2 weeks; this year looks like it should be more contained within one week so hopefully not quite so disruptive.
If you were getting my blog last year you might remember I talked about cash flow this time last year, but as it catches so many people out, and can take months to recover from if you haven’t planned it properly, I don’t mind repeating myself!
Christmas Cash Flow can be a killer because several things hit you all at once:
- Between your staff, your customers and your suppliers, you can be losing up to 2 weeks of real trading, and so inevitably December is often a low sales month.
- Staff usually get paid up to 10 days earlier than usual;
- Customer orders can drop off in December as they plan for their shut down, and minimise purchases to help their Christmas cashflow.
- If your staff take extra time off in December this can affect your output.
- Lower sales in December will affect your cashflow straight away if you use invoice discounting as your drawdowns will be lower.
- If you get paid on normal credit terms, your cash receipts are going to be lower in January and February.
- Sales invoicing may be delayed if your accounts department don’t get it all done before Christmas. Any delay in invoicing means a delay in getting paid.
- If customers usually pay you around the end or start of the month, your payments may be delayed until the first or second week of January.
- Some customers will use the Christmas break as a reason not to pay you.
- January can often be a slow sales month as people get over the break, which will compound the December effect.
- November VAT return? Your VAT will be due early January. Have you got it in the cashflow?
- March year-end? Then you’ll have corporation tax to pay on the 1st of January too. This should be already set aside in a savings account of course.
- And don’t forget those personal tax bills due in January; do you need any extra dividends to cover them?
So here’s how you plan for Christmas Cash Flow:
- Have a really good look at your 13 week cashflow forecast (you DO have one, don’t you?) Has it got realistic customer receipts and have all of the points above been factored in?
- Start building up a cash buffer now, to tide you over if things get tight later.
- Review your debtor report right now, today! Make extra efforts to get any old debts in, and keep late payers on a tight leash. These are the ones who’ll use any excuse not to pay you over Christmas.
- Make sure you get your debtors report every week, without fail so you keep a close eye on who owes you.
- Identify any key customers whose payments you rely on. Have a conversation early on about when they’ll be paying you over Christmas. Get a commitment to pay you on time if you can.
- If you use invoice discounting, check you won’t have any concentration limit issues if key customers pay you late.
- Make sure all invoicing is kept right up to date, and all invoicing must be done before you break up.
- If you need to, speak to your bank early if you need some help over Christmas – they’ll need a forecast to show why you need help and when you’ll be repaying it.
If you start planning now you’ll be able to take the stress out of your Christmas cash flow and maybe even relax a little over the break.
And if you don’t have a 13 week rolling cash flow forecast and you’d like a copy of my template, just reply to this email and I’ll send it over to you.