Christmas is a great time of year. Most people enjoy the spirit of goodwill and excitement that it engenders. For some businesses it can be a stressful time as they try and cope with significant increases in activity or deadlines imposed by customer who want the job completed before Christmas.
For most businesses it is not a normal trading pattern. It may be elevating activity levels, causing spikes in cashflow or causing a lot of additional costs. And this can sound alarm bells if you let things get out of control.
Too many businesses come back from the holiday season, saying ‘Why did we do that?’
There’s often lots of activity, but not a corresponding lift in profits, and cashflow is chewed up in managing all of the activity, creating a headache for the first quarter of the year. And for some of these businesses it will take until Easter to get back onto a reasonable cash and profit level.
Typically quarter one is a tough cashflow period for many SMEs. Consumer spending contracts after the holidays and businesses that have made their way through Christmas now need to get back to normal trading cycles.
All of this leads to February being a cash crunch for many businesses. A part of this is aggravated by quarterly superannuation payments being due at the end of January with the December BAS for most businesses due in February. Lots of cash going out to the taxman with cash inflows either reduced or tougher to collect.
Over the last year or so the Tax Office has been quite reasonable with businesses suffering cashflow problems. If you had a genuine short-term problem and needed some time they were generally providing that assistance.
You should not expect that this level of support will continue indefinitely, however. Already the signs are there of some tightening in approach. Don’t plan your position of the taxman being a willing banker for your business.
Avoiding a Christmas hangover for your business is about staying in control of what is happening and not getting carried away with the increased trading levels of the holiday season. You may have increased spend to service the activity but make sure that it is controlled.
There may be times when it is best not to incur the additional expense, especially if you are sacrificing significant profit. Smart business owners know their profit and cash position well and make their business decisions based on reliable information.
You should have in place trading and cashflow budgets that project your position on a month-by-month basis. These forecasts should allow for any changes in activity levels and reflect the movement anticipated in both your funds inflow and outflow.
You need to have enough detail and forward timeframe to see not only what might occur in December, but also what the flow on effect will be in January, February and March. That is the time when the headache is most likely to occur.
Your tax payments need to be factored in to this. For many businesses they come out in lumps and it these lumpy payments that cause a problem. If this is a strong cashflow period for your business, use the surpluses to build some reserves.
There may be some quiet times for your business and these reserves will carry you through those times. Good businesses know how to make money – great businesses know how to keep it.