How SMEs can manage their cash flow during the festive season
Monday, November 5, 2018/
If you’re a small business owner, managing cash flow can be one of the many things that keeps you busy day-to-day, and sometimes awake at night.
With Christmas just around the corner, seasonal fluctuations may be about to impact your bottom line, meaning good news for some and bad news for others.
Here are the stories of business owners who share your dilemma, along with their tips on managing cash flow and staying afloat as things fluctuate.
Making hay while the sun shines
The Party People chief party dude Dean Salakas says his online party supplies business hits its heights in October, with Octoberfest, Halloween and Melbourne Cup having the majority of their sales in October. This rolls into the Christmas peak, meaning their revenues are heavily skewed towards the back end of the calendar year.
There’s an added dilemma says Salakas: “We have to buy stock between January and April for the peak trading period so it has a significant impact on our cash flow.”
At present, his business deals with this by carefully allocating funds after peak trading and investing surplus in the business. Using quieter times for executing projects and managing people’s roles so that they can assist during peak trading is also helpful, he says.
Of course, for businesses that need a little extra help covering costs during the Christmas period an overdraft may be a suitable option, allowing businesses almost instant access to additional funds with more flexible repayment terms than a business loan.
Careful forecasting, planning and diversification
Fashion changes with the seasons, but unfortunately for fashion businesses the weather is unpredictable. That’s a key challenge for ELK creative director Marnie Goding.
“We run a fashion business where we design bi-annual collections launching in Spring/Summer and then Autumn/Winter. If we end up with problematic weather then income is challenged and we risk ending up with excess stock, that’s the first issue,” Goding says.
“The other is that we design 12 to 18 months ahead and then allow six months for major production. The collision of seasons and the subsequent pressure on cash flow can be significant.”
ELK has various strategies to manage cash flow around these challenges:
- Using data from previous seasons and hedging strategies to anticipate the coming period.
- A global sales strategy – by selling in both the southern and northern hemispheres we run a 12-month season unlike most fashion labels that run a six month season (allowing time to move slower selling items).
- A multi-channel business – if wholesale is down then retail or web sales could be up.
Re-packaging existing goods and services
Sometimes, a little creative thinking around what you sell and how you sell it can be the answer to the dilemma of seasonal income.
Intrepid Cleaning owner Patrick Elliot encourages business owners to “think outside the box and try turn a traditional quiet period into a positive.”
His business provides office and commercial cleaning services daily or weekly. As most offices shut down over the Christmas and New Year Period, he experiences a drop in demand.
Elliott has turned this dip around by offering a new type of cleaning service: deep cleans with auxiliary services such as carpet cleaning.
“With everyone out of the office, we can freely clean the carpets without people stepping on the wet or drying floors,” Elliot says. Providing this high value service at a time of year that suits both his business and his customers has been a success.
No matter what your business is, there are various strategies to help smooth the ups and downs and manage cash flow around seasonal cycles – whether it’s an overdraft, a global sales strategy or allocating funds from peak trading periods to the quieter months.
The information provided in this article is intended to be of a general nature only. It has been prepared without taking into account your objectives, financial situation or needs. Before acting on the information in this article, National Australia Bank Limited (ABN 12 004 044 937, AFSL and Australian Credit License 230686) (NAB) recommends you consider whether it is appropriate for your objectives, financial situation and needs. NAB recommends that you seek independent advice before acting on any information in this article.