Cashflow – Your No 1 Christmas Priority – By Ann Cooper-Smith

Unless you are a retailer or in hospitality the Christmas period is often cashflow negative.  Not only do many Kiwi businesses shut down for 3-4 weeks thereby losing sales for that period, most business have the triple whammy of holiday pay/STAT days payable, as well as GST and provisional tax payments due before business reopens in mid-January.

There may also be additional cash outflows for annual Christmas closedown plant maintenance, customer gifts, Christmas parties, and increased owner drawings for personal spending and holidays.

Do you have a plan for possible cashflow shortages?

Immediate Plan of Action – the Band Aid Approach

Firstly, prepare or update your cashflow forecast covering the critical 4 months November – February.  This step will help identify any expected cash deficit.  A problem identified is a problem half solved.

Secondly, review your critical short term cashflow drivers and decide what can be done quickly to improve short term cashflow.  For example:

  Cashflow driver – Possible Short-Term Strategies

  •   Sales – Ramp up November & December sales by working overtime to complete orders early, bring project work forward, offer special promotions, implement progress invoicing
  •   Debtor Days – Invoice promptly, set tight payment terms, send statements before due dates, follow up all overdues promptly, send December invoices early and ask for payment before Christmas close-down, use invoice factoring
  •   Creditor Days – Contact suppliers to see if payment terms can be extended, use credit cards (and pay before the interest free period expires)
  •   Expenses – Can you opt for a team BBQ or fun outing rather than a flash restaurant Christmas party? Are customers/team Christmas gifts necessary? Can you donate to charity instead? And don’t overlook the impact of gifts and entertainment on Fringe Benefit Taxes
  •   Personal Drawings – If cash is short consider inexpensive (but mindful) gifts – for example acts of service, hand-made gifts, or time spent with loved ones can mean more to them than an expensive store purchased gift. A picnic on Christmas Day may be more fun (and less stress / fewer calories) than the usual multi course hot cooked Christmas breakfast / lunch / dinner.
  •   Tax & GST payable – Talk to Q2 about whether you can make a retrospective tax purchase later in the year, can you estimate your provisional taxes lower, or agree on a payment plan with IRD before payment is due

Thirdly, if you still expect to have a cash deficit then talk to your bank now to set up suitable credit facilities for the Christmas period and beyond.

Implement Permanent Sustainable Solutions

While short term cash improvement strategies may get you through the Christmas period, they are a band aid rather than a permanent sustainable solution.

Your business will not grow or prosper if it is starved of cash and every business owner should understand the cashflow drivers for their business, as well as how to calculate and improve their cash conversion cycle.

Attend Q2’s free Cash Flow Improvement (Where is the Money?) Workshop

Q2 invite you to their special pre-Christmas free “Where is the Money? Cash Flow Improvement Workshop” on 14 November 2018.

The workshop will cover working capital, cash conversion cycles and brainstorm ways to improve the 7 main business cashflow drivers.  Some cash flow improvement strategies will be able to be implemented in time for Christmas, while others can be implemented in the New Year to ensure your business gets off to a flying (cashflow positive) start in 2019.

To register for the free “Where is the Money? Cashflow Improvement workshop”  click here.

For more information on How to Improve Business Cashflow  click here.