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5 Things Retailers Can Do Now to Avoid a Holiday Season Cash Flow Crisis

By Caron Beesley

The holiday season can account for as much as 30% of a retailer’s annual sales. However, sales aside, it’s also an especially important time to keep an eye on the many variables that can impact cash flow, such as inventory, extra labor, and marketing. Supporting such a critical time in your sales operations can take a large slice out of working capital, which is inextricably tied to cash flow.

Now is the time to put measures in place to help prevent a cash flow crisis in the coming months. Here are five you should consider.

  1. Assess and Shore Up Your Working Capital to Avoid Cash Flow Problems

    Working capital is essential if you’re to pay your bills on time and avoid cash flow problems. Working capital is the amount by which your existing assets exceed your liabilities (bills, payroll, and debt). It’s determined by a number of factors in your operating cycle—such as the timing of accounts receivable or retail sales, how long it takes to shift inventory, and when you pay your suppliers. These are rarely in sync, so it’s up to the business to find other sources of cash to finance your operating cycle—this could be from your profits, your savings account, credit cards, or other sources of financing, such as a line of credit or invoice finance from Fundbox.

    This is particularly true as you head into holiday season and need access to short-term working capital to fund your inventory or staffing needs through the end of the year. Be sure to factor the need for working capital into your planning process. Analyze your operating cycle and use your cash flow forecast to gauge when funds are likely to enter and exit your business, then put plans in place to ensure you stay cash flow-positive during these periods. Read more in How to Find the Best Working Capital Solution.

  2. Intelligently Analyze your Sales and Inventory

    Imagine if you could use a simple piece of software to help avoid inventory bloat or prioritize your buying needs. Business intelligence (BI) software, also known as predictive analysis, can help take much of the guesswork out of understanding consumer buying behaviors based on historical trends. If you know you sell more of a certain kind of product or have more success with a particular promotion at a certain day or time of the year, then you can plan your inventory accordingly, and minimize unwanted stock and tied-up cash. Read more about how BI can help free up cash flow and get recommendations for small business-ready tools that can help.

  3. Hire the Right Kind of Help to Ensure Cash Flow and Sales Are Booming

    Retailers always need to hire during the holiday season, but think beyond hiring help for the floor and storefront. What behind-the-scenes resources could you benefit from to help you better manage customer expectations and cash flow during this period?

    For example, while you’re busy serving customers, who’s taking care of your books and making sure that your bills are paid, expenses are tracked, and cash flow is managed? Don’t forget tax season is right around the corner, and a little preparation now can help you maximize your deductions and save time when 2017 arrives. Consider hiring a bookkeeper or ask your accountant to take on a few extra hours so you can concentrate on running your business.

    Other staffing considerations include adding a customer service representative to make sure orders are fulfilled and customers are happy. What about marketing or social media? Could an independent contractor help you keep your prospects and customers engaged and aware of your holiday specials and events? What about an inventory or fulfillment manager to help you keep an eye on your merchandise during this busy time?

    Take a look at gaps you struggled with last year and review your staffing plans accordingly.

  4. Negotiate Better Terms from Your Suppliers

    Now is the time to work your relationships with suppliers and see if you can negotiate extended payment terms so that you can better balance the inflow and outflow of cash during the holiday months. With all that money going out the door to procure inventory, staff can quickly compromise cash flow, especially if you don’t have a plan to ease the pain of pre-season expenses.

  5. Delay Unnecessary Expenses

    Just as you’re starting to think about ways to maximize your income tax deductions, don’t go crazy. Are there certain expenses (necessary or otherwise) that you can delay until after the holidays? For example, could you delay your staff holiday party or gift-giving until January and instead position it as a big “thanks for all your hard work” celebration?

What measures do you use to protect cash flow before and during the holiday season? Leave a comment below.

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