Christmas cashflow can be dire so here’s some practical things you can do about it
If you’re a regular reader of my blog then you’ll know I talk a lot about the dangers of growth to the cashflow of a business, and it certainly seems that growth is now with us…Mike Carney himself now considers the glass to be half full and says that the recovery has now taken hold.
So couple that with the traditional cashflow hole that Christmas creates for many companies, and the result can be a really stressful time for business owners, just when the rest of the country is switching off for a week.
So here are the reasons why Christmas Cashflow can be so dire, and some practical things you can do about it.
1) You probably have to pay your staff earlier than usual; for some reason they want it before the end of the month to buy presents and stuff.
2) You have less working days than a usual month, so less days to make sales.
3) Customer orders often drop off in December as they plan for their shut down, and minimise purchases to help their Christmas cashflow.
4) Staff often take extra time off in December which can affect sales.
5) Wages will be higher relative to sales as staff are paid their holiday pay.
6) Lower sales in December will affect cashflow straight away if you use invoice discounting; otherwise it’s going to hurt in January and February.
7) Sales invoicing may be delayed if your accounts department don’t get it all done before and over Christmas. Delay in invoicing means delay in getting paid.
8) If you usually get customer receipts around the end of the month you’ll find they may not turn up until the first or second week of January.
9) Some customers will use the Christmas break as a reason why they haven’t paid you yet.
10) January can often be a slow sales month as people get over the break, which will compound the December effect.
11) If you have a November VAT return your VAT will be due early January.
12) March year-end? Then you’ll have corporation tax to pay on the 1st of January.
13) And don’t forget those personal tax bills due in January that you’ll need to take a dividend to cover.
So, what can be done?
1) Plan Plan Plan
2) Make sure you have a weekly cash-flow forecast covering between now and mid February – make sure you can see any pinch points.
3) Identify any key customers whose payment you rely on, have a conversation early on about when they’ll be paying you over Christmas. Try to get a commitment to pay you on time.
4) If you use invoice discounting, check you won’t have any concentration limit issues if key customers pay you late.
5) 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.
Start planning now and take the Crunch out of the Christmas Cashflow.