Christmas and the holidays can be a cash flow boon for certain small businesses, but for others it can be the slowest time of year. Add to that the seasonal element—when asked what the toughest season for small businesses is, 23% of respondents to an Intuit Quickbooks survey said that winter was the hardest.
Unless you’re prepared, cash flow can quickly be compromised during times like this, especially when you add on the additional burden of gift-giving, client and employee appreciation, and all those federal holidays when your business effectively shuts down.
6 Tips for Managing Cash Flow This Season
1. Take Charge of Accounts Receivables and Collections
The first step to preempting a cash flow problem is to keep track of the following:
- Outstanding invoices. Start chasing any late payments sooner rather than later.
- Invoices that are almost past due. Identify any invoices that are due in 7 days and extend a courteous reminder that the payment is due in X days and how the payment can be made. Position the communication as a gentle reminder to your customers that the holidays are coming and that you appreciate prompt payment.
- Bill payments. According to Intuit Quickbooks, paying bills is the number one thing that keeps business owners up at night. Make sure you have a clear view of pending expenses and the dates they are due.
Once you’ve reviewed each of these, try to pinpoint any issues and develop a plan to mitigate them ahead of time. Your plan could include any of the points below.
2. Refer to Your Cash Flow Forecast
Your cash flow forecast should be your constant companion year-round. Forecasting the movement of cash in and out of your business three to six months out is essential to understanding what your cash position will be and help you take steps to mitigate any potential pitfalls. If you’ve been in business for some time, look back at trends from previous years, refer to your cash flow statement (an actual record of cash flow in the past), and see where problems are likely to occur (such as clients who frequently fall into late payment patterns, unexpected expenses that crop up at this time of year, and so on).
3. Build a Budget
Creating a budget (outlining future receipts and expenses) and sticking to it can help you keep cash flow under control. Always refer to your budget before spending any money this period. Talk to your accountant about which seasonal expenses you can offset as tax deductions and what those limits are—but remember, any deductions won’t be realized until you file your taxes or make estimated payments, so they won’t help you during a cash flow problem.
4. Resist the Urge to Spend
What extra costs do you incur during the holidays? Holiday parties, gifts, client entertainment, and paid time off for staff can quickly add up. While you can off-set some of these expenses as tax deductions, it’s important to identify these costs ahead of time and work them into your budget and cash flow forecast. Put off any spending that can wait until cash flow is stronger, such as repairs and maintenance.
5. Defer Payments
If you rely on vendors and suppliers, try to negotiate extended terms in advance of the holiday season, particularly if cash flow problems are a recurring problem at this time of year. If you use a business credit card, you might consider stretching out payments until next month, but don’t get stuck in the position of carrying the burden of high-interest payments.
6. Make Cash Flow a Business-Wide Priority
Share your cash flow strategy and budget with your team. Make sure everyone is on board and understands their role in conserving cash flow too, everything from reducing unnecessary expenditures to monitoring the business for issues that could impact your cash situation.
7. Have a Back-Up Plan
When all else fails and you’re still dealing with late paying clients or need an injection of cash to keep you operational through the holidays, consider your options. Invoice financing from Fundbox is a useful service that allows you to advance payments on unpaid bills. For a small fee, you can get the money you’re owed in as little as 24 hours with 12–24 weeks to repay. Don’t confuse invoice financing with invoice factoring—they are quite different.