How can small business owners navigate through the disruption and cost of Christmas for their business?
The recent Retailers Christmas Survey from Deloitte has illustrated some of the key challenges faced by small businesses in the lead up to Christmas and into the New Year. The survey showed that while many Australian retailers are expecting a bumper sales period, they are concerned that profitability is likely to prove challenging in part to the changing Australian dollar.
The Christmas period can be challenging for business due to the changes in demand for staff, products, costs and the impacts of closures over the holiday period.
Most business owners plan cash flow around consistent trading patterns, however whenever there is an unpredictable peak in demand or an ebb in business revenue, the change to 'normal' trading conditions can cause some unforeseen issues for cash flow in January or February.
With careful planning and knowing your numbers, there is a lot your business can do to prepare for the holidays. Here are our top 3 tips for SMEs ahead of Christmas
Australians are savvy and have learned to anticipate the sales around Christmas time, and it may be tempting to discount your stock to encourage sales, particularly if other stores that sell similar goods do the same. The danger is that it's a 'me too' strategy.
Know your margins and how much you can really afford to discount before posting the sales signs, because if you discount your margin away over the Christmas trading season, you may discover there's little profit to buffer your business in to the New Year. Offering a 25% discount may seem reasonable to get stock moving, however do and know your numbers: if your gross profit margin is 30%, then you need 500% increase in sales volume just to maintain the same position.
It's somewhat unavoidable: costs for staff, leave, downtime on non-trading days and increase promotion costs tend to see your outgoings rise over Christmas.
Keep an eye on them. It's great to get into the Christmas spirit, but it can be followed by a serious New Year Hangover.
After all the hullaballoo over Christmas, New Year typically sees quieter trading and a tighter cash flow period for businesses, which can lead to a tough third quarter for many businesses.
It's important at this time of year to have cash buffers in place to manage usual trading costs in the New Year. Keeping an eye on the cash coming into and going out of your business is vital to ensuring you don't end up in trouble come February.
If you work with account customers, start your debtor follow up now. If your customers are under any cash flow pressures, the Christmas period will only increase that pressure. The creditors who chase hard and early will get paid first. Don't be the last supplier on the list – the basket may be empty by then
If you have any questions about planning your Christmas (and post-Christmas) cash flow, contact us on 02 9957 4033.
This article is provided for information purposes only and correct at the time of publication. It should not be used in place of advice from your accountant. Please contact us on 02 9957 4033 to discuss your specific circumstances.