The business realities of managing Christmas
21 December 2011
For some, Christmas is a boom time but for others it is a period of significant dislocation. There isn’t a one-size-fits-all approach to dealing with Christmas, so as a business owner you need to look at your business model and understand how Christmas affects your customers and suppliers then plan accordingly.
Watch your profitability and cash flow
Any period where operating conditions change means that there can be an impact on a business’s profitability and cash flow.
If your business carries debtors, then be aware that a customer’s suppliers will be trying to collect their accounts prior to the Christmas season. And, of course, some of those customers may have a close down period or have people away over January who approve or authorise payments.
Don’t be last on the payment list. If you have customers who are cash flow stretched then it will be ‘first in first served’. If you are too slow in chasing your accounts you may be waiting until February to collect your money. Get to them early and have a concerted follow up approach to get your cash in.
Manage your trading stock
If you carry trading stock, you need to find a balance between ensuring that you have enough stock to satisfy demand during what may be a busy trading period and over-committing and finding yourself with surplus stock. Where your stock is either seasonal or time limited, this balance is critical. See if you can have a range of suppliers that can supply on short notice. If you can have your suppliers carry your stock for you or who will supply you on a consignment basis, this will significantly improve your cash flow position.
The Sale Season
The sale signs are already all over town and this will only escalate through January. Understand the impact of your pricing and the effect of any discounting you offer. We all want to make that extra sale but don’t get sucked into discounting yourself into a loss. You need to get the balance right between pricing to be competitive and pricing that returns a profit to your business. Know your numbers and make informed decisions.
Watch your costs
The Christmas period can bring an increase in operating costs. This can include additional wage costs and penalty rates, end of year bonuses and Christmas gifts. Where your business has a close down period over Christmas, the impact of these increased costs can be compounded by a reduction in revenue. The key is to understand the effect of the period and build it into your budget - you need to do this at a trading level and also map the cash flow effect. Once you understand the impact, ensure that you can afford it and don’t over commit your business. Too much Xmas spirit can be deadly.
Manage the festive period and your business will start the New Year fit and healthy.
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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.