The longest holiday of the year is right around the corner, but for millions of American business owners, Thanksgiving can be disruptive to cash flow. With most of America taking time off to be with family and do some holiday shopping, taking any time off or even shutting down your business for a few days can put a dent in your finances.
So what are your options? Here are seven tips for keeping cash flowing over the holiday.
Understand your Cash Flow Predicament
Thanksgiving is particularly disruptive because many Americans use the two-day holiday to take the entire week off. With your customers busy doing other things, sales take a slump, the mail doesn’t get delivered, and client payments are delayed.
This may or may not impact you, but it’s useful to understand in advance if it will. Use your cash flow forecast to plan for this time so that you have a realistic view of your cash situation and can take steps to mitigate potential problems (take a look at your monthly budget to inform your forecast). Don’t forget to review your cash flow statement from the same time last year. This will help you see if, and when, you encountered a cash crunch during the holiday season and help predict the chances of it happening again.
Issue Your Invoices Ahead of Thanksgiving Week
With Thanksgiving falling so close to month-end, make sure you send your invoices in advance of Thanksgiving week so that your clients have time to process them and schedule payments ahead of the holiday. Read more about smart invoicing practices.
Understand your Payroll Obligations for Federal Holidays
Payroll is a big cost, but if you dare to close your doors over Thanksgiving, should you pay your employees? Hopefully you’ve factored this into your employee’s contract terms and conditions. However, it’s useful to recap what the law requires.
If your employees are eligible for overtime (non-exempt) you aren’t required to pay them on days that they don’t work. You can also require them to use any un-claimed PTO to cover those days. However, if you pay your employees on a salaried or fee basis (exempt), federal law requires you to pay them, so factor these costs into your cash flow forecast.
Have the Right Amount of Cash in Reserve (forget the old 3–6 months’ rule)
The old adage that you should always have three to six months of cash in reserve is misleading for many business owners. Instead, as you plan your finances over the holidays, take a look at your cash flow statement to gauge previous holiday spending patterns. Refer to your cash flow forecast to gauge cash in and cash out at this time.
Now that you have a view of your cash needs, you’ll need to work out how you’re going to get more cash if you run into a dry spell, and how long it will take to obtain. This could be a bank line of credit (a good safety net), invoice financing (a great way to get cash you’re owed, and the money can be obtained in as little as a day), or raising funds via other methods. It doesn’t only have to be financing either: You could try and negotiate better payment terms from customers and suppliers.
All these steps— how much cash you’ve spent, what you plan to spend, and where and when cash will come from when you need it— should give you a good idea of what you need in reserve.
Make it Easier for Customers to Pay
If the holidays or your own vacation time complicate your cash flow, a good way to keep it flowing is to make it easier for customers to pay you. Online payments, direct debit, etc. can all expedite payments by several days— especially important over Thanksgiving when the mail man is on holiday too, and checks aren’t getting delivered.
Don’t Be Flush with Cash
Look for ways to put off unnecessary expenses or purchases until the holiday period is over (sometimes it can make sense to make these purchases to reduce your taxable income, but check your cash flow forecast first).
Talk to Your Accountant
Your accountant is there to help you keep your business finances on track, and now is an especially good time to start talking to them about your year-end finances as well as strategies to improve your cash flow situation overall.