A constant element through all of the challenges of business is the need to manage cash flow. The year-end break period can further complicate cash flow. Many businesses usually find cash availability is tighter over this time, with more downtime, a lull in sales into the new year and debtor payments pausing over the break.

Below we provide cash flow tips for you to review, so that you can start preparing for the year-end break period now.

Sales and marketing
Consider what are reasonable sales expectations for the next few months.

1. Are you likely to see a seasonal increase?
2. Do you have currently offer products or services that are outside of your normal business focus area? Is demand for these products and services likely to continue or diminish? Are there other markets you could expand these items into?
3. Are there government grants or other financial support currently available to businesses in your target market, that could assist them to invest in your products or services? If so, is there specific timing and eligibility requirements? Is your target market aware of these opportunities, or are you able to bring them to their attention?
4. Are there specific marketing activities or promotional costs you will need to fund to obtain sales in this period?

Plan to keep your sales calls and marketing activity going into December, so you have enough work lined up for January and February.

Be wary of discounting. To provide discounts for customers and profit for the business, you need to ensure you are trading above break even point. Consider what impact a discount will have on your gross margin and how much sales will have to increase, just to keep up the same position.

Stock
Following your sales expectations, what are your stock requirements?

1. Do you have enough stock to last you into the new year?
2. Do any of your suppliers have a long annual shut-down you need to consider, that might interrupt your ability to source stock?
3. Is there any stock you anticipate needing, that could take longer to receive than usual, that perhaps should be ordered now?
4. Are there any opportunities to purchase smaller quantities, more frequently? Would that impact your cost prices?
5. Are you dealing with seasonal stock? Avoid setting yourself up for an excessive amount of stock leftover at the end of the season. Consider the balance between how much you can realistically sell and the value of any potential sales you may lose by having placed a smaller order and sold out.
6. Do you have any obsolete stock? Look at ways to clear it – whether by putting items on Ebay or using them as a draw card to get customers in-store. Although you wouldn’t expect to recover your full costs on the stock you might get a welcome amount of cash.

Staff and payroll
Come December and January, there are four public holidays (Christmas Day, Boxing Day, New Year’s Day and Australia Day) and an amount of annual leave is usually taken. Most businesses will be closed for the public holidays at least. For those, it means reduced staffing needs and limited sales activity during the holiday period. Some businesses however, such as those in the hospitality, retail or tourism industries, may see a surge in sales and extend their trading hours during the holiday period.

1. Will the business be closing for holidays and if so, for how long? Are you obliged to pay staff before they go on holiday, or can you keep to your normal pay run frequencies? Are your staff covered by contracts or awards providing an entitlement to annual leave loading (so they are paid extra when they go on holiday)?
2. Will you need to engage casual staff, or ask staff to work extra hours? With casuals, is there a minimum shift entitlement? With existing staff, factor in the overtime or ‘penalty’ rates that would be incurred.
3. Are you intending or required to pay staff bonuses at year end?
4. The annual staff party, year end gifts etc. – are you in a position to pay for these now? If cash is tight, consider keeping things simple and low cost for now, if it’s appropriate to proceed at all. You could provide a special staff lunch or staff gifts sometime in the new year when the situation is not so fragile.

Debtors and invoicing
If your current invoices aren’t paid by the first week of December, it’s unlikely you’ll see the money until mid or late January. As your customers start to wind down and close for the year end break, so too do their accounts payable operations. If you have a large amount of debtors, don’t just action debtor follow-up. There may be things you can tweak that will help to consistently keep your debtors balance down.

1. If you have a large debtors balance, or invoices that are overdue, you need to be actively following up payment now.
2. Consider whether you will accept payment plans or partial payment. COVID-19 prompted greater flexibility in many areas and partial payment is better than nothing when it comes to cash you can use. However, for significant amounts you may be wise to obtain legal advice prior to offering a customer extended payment terms or a payment plan, due to implications this could have on an opportunity to terminate a contract for breach of contract.
3. Have you reviewed your invoicing practices and payment terms recently? Consider whether they are appropriate in the current state of affairs. If you are only invoicing at the end of the month, it will help your cash flow to invoice at the end of each job, or at least weekly. If your payment terms are 30 days after end of month, consider changing it to just 30 days after invoice date, or better still, 14 days. You could also look at requesting partial payment upfront, or on instalment in proportion to work completed.
4. How easy do you make it for customers to pay you? Part of this would be sending invoices promptly, so they remember what it’s all about, but also think about the payment methods you accept. Ability to accept payment by credit card is helpful; it’s even better if you have integrated options on your invoices where people can click through and pay immediately. Also, make sure you have the payment options on the actual invoice, don’t just put them on an accompanying email, as you can’t guarantee the email will accompany the invoice through your customer’s payment process.

Expenses
Ensure any non-fixed expenditure is qualified and defer non business critical expenditure.

1. Are there appropriate checks made to justify planned expenditure? Review purchases planned for the next few months to identify if anything can reasonably be delayed or cancelled.
2. Review your current expenses to make sure you are not paying for items/services you don’t need or aren’t using at the moment. Be careful to discuss this with relevant staff where appropriate so you are not inadvertently cutting access to items/services they need to perform their role.

Cash and finance
Scope out your cash needs for the next few months – don’t forget to include payments for superannuation, GST and PAYG as per the applicable due dates for your business. Identify any potential shortfalls and plan for how those shortfalls will be funded.

1. Be very clear on what is provided for currently, what will have to wait and what may be somewhat flexible, so you don’t run into shortfalls through a misunderstanding. For example – will you be able to purchase extra stock you didn’t anticipate needing and so didn’t budget for specifically?
2. Do you have an emergency fund? If you don’t have one, determine what would be an appropriate amount of emergency funds for your business. Set up an interest paying account that you can access immediately when needed. Contribute regularly to the fund until the desired amount is reached. Set clear expectations on what circumstances qualify for withdrawal of funds, and ensure you top-up the fund again after withdrawing from it.
3. Are there any local, state or federal government grants or incentives your business is eligible for, that you can apply for?.
4. If seeking additional finance or restructuring debt, consider your options and what you would be signing to very carefully. It would be best to have a discussion with your accountant. But in particular: avoid unsecured business loans and taking on personal liability for liabilities of the business.

Bookkeeping
Whether your business is closing or staying open over the year-end break period, put a priority on keeping the bookkeeping up to date. Being able to access current data on your business means you can maintain an understanding of your business position and cash availability.

In closing: Cash flow problems are often cited as a factor in business failures. The year-end break period generally comes with increased expenses and reduced revenue. If you have any questions or concerns about your businesses cash flow, you can call us on 03 5339 3200 or contact us here.

Thanks for reading.

The information contained on this website has been provided as general advice only. The contents have been prepared without taking account of your personal objectives, financial situation or needs. You should, before you make any decision regarding any information, strategies or products mentioned on this website, consult your own financial advisor to consider whether that is appropriate having regard to your own objectives, financial situation and needs.