by Scott Grady , CNS Partners
Have you ever heard the phrase, “You can’t spend profits?” Well whether you have or you have not heard this phrase, it is correct. What you can spend is cash. Cash flow is critical to any business and no matter how profitable your business is there are times when cash flow is tight. One of these times is Christmas (unless you work in the retail or hospitality worlds).
If, like many businesses, you close down for an extended period over Christmas (possible 2 to 3 weeks) then you will already know that cash flow can be tight around this time of year. The main reasons for this are:
- If you are not at work then your customers are most likely not at work either. This means that they are not around to pay invoices. There customers are also probably not at work either so they are not collecting their cash.
- Most businesses try to fit a month’s worth of work into 2 to 3 weeks so paying bills or trying to collect cash is the last thing on their minds.
- Revenue can drop away dramatically at this time of year while expenses such as wages, rents and many others continue as normal.
The good news is that there are tools that you can put into place to help with cash flow problems over Christmas:
- Review accounts receivable regularly and chase outstanding accounts quickly. By getting in and getting your money before people go on holidays (both physically and mentally) you can ensure that debtors does not spiral out of control.
- Invoice early. Get the invoice to customers and clients as early as possible in December to ensure that you are in time for the December payment run. If not you may be waiting until February.
- My favourite – offer a Christmas discount to anyone who pays before Christmas day!
- Lastly have a back-up funding plan in place. This is most likely going to be an overdraft facility with your bank. This is a last resort. If your business cash flow is working well you should not have to borrow because your customers do not pay you on time!
If you know your numbers, track your debtors regularly and manage any potential issues then cash flow should not be a problem over the Christmas break. It is important to take time out over the holiday season and not worry about money.