Avoid the post-Christmas cashflow hangover

| December 16, 2017

The Christmas period can be an expensive time for small and medium-sized enterprises and managing cash flow in the following months can be challenging. It is critical to be well prepared, as revenue typically falls at the start of the New Year and can be slow to recover.

During this time, small and medium-sized business owners can be stretched by staff holiday pay, supplier bills as well as rent, and in late February the Business Activity Statement (BAS) payment is due. Here are five tips businesses can use to avoid a post-Christmas cash flow hangover.

1. Develop a financial forecast and plan accordingly
It may not be the most glamorous task, but it is important for your company’s financial health. Create a realistic financial forecast for 2018, factoring in taxes and expenses, so you have a clear outline of expected cash flows. Prepare best and worst-case scenarios and figure out if you have adequate capital to manage through and have other options available if needed. Most importantly, be ‘fair dinkum’ with your assumptions.

2. Get your invoices right
A common cause of cash flow crunches is inadequate processes. To reduce the chances of a cash flow crunch at such a critical time, there are a number of housekeeping tips for orderly invoicing.

Request written orders and remember to note the order number on your invoices. Forward an invoice copy with your goods and also to accounts payable departments. It’s also a good idea to get to know the accounts payable people of your major customers – good relationships will ensure you get help with any problems along the way.

It is important to phone before the invoice is due to check it is in the system and that all supporting documents have been received. For best practice, start following up shortly after the due date.

3. Cut costs
Give your operations a seasonal lean makeover. Looking for and making small cost cuts will improve your bottom line. Monitor your stock levels and make sure that your investments are generating income. Cut your losses and sell off bad lines.

4. Review your suppliers
Review your current and old supplier agreements, and compare them to what else is on offer in the market. You might not be getting bang for your buck. Use the opportunity to renegotiate and lengthen creditor days for optimal capital arrangements.

5. Consider debtor finance
By providing companies with upfront cash against receivables, debtor finance or factoring is a simple and effective service to smooth out cash flow troughs. The biggest benefits are fast approval and access to funds, lending up to 85% of the value of invoices, and the fact that property isn’t required as a security.

Cash flow is central to the growth and survival of small and medium companies. Now is a good time to review your business, plan ahead and take a closer look at debtor finance to protect against cash flow shocks and squeezes.

6. Take a break
Owners of small businesses work so hard all year. It is so easy to get drawn into work. Take a break to spend quality time with family and friends and really recharge your batteries.

Have a happy Christmas!

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Greg Charlwood

Greg Charlwood is the Managing Director of Australian Invoice Finance, one of Australia’s leading providers of cash flow support to small and medium sized businesses.