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Cash Flow lessons these 12 Days of Christmas

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Most of us enjoy the traditions of Christmas parties and days on the beach, but for the small to medium businesses there can also be the less happy tradition of cash flow woes.

So what can be done to avoid a seasonal cash flow slump?

Rather than ending up stranded like a partridge in a pear tree come the New Year, why not focus on one sound business principle a day this Christmas to help avoid a financial dilemma?

Day 1 – Push for upfront payments

Your clients might appreciate that at this time of year businesses may need to make special arrangements. Collecting payments upfront rather than spending time chasing debt in the New Year will bring good cheer to any business.

Remember a quick phone call can often resolve confusion over an overdue invoice or a late delivery far better than a string of emails bouncing backwards and forwards like Santa’s reindeer in the snow.

In the longer term, asking for accounts to be fully or partly settled in advance, can help identify problem payers as well as uncover the champions in accounts payable department.

Day 2 – Look from the outside in

Growing your customer base is a sure-fire way of improving immediate profits and long-term sustainability. Some proprietors see their businesses as extensions of their personality, which might make it very difficult to be objective and to create products that fill a market need.

Increasing your customer base comes with having an objective understanding of your clients and competitors.

Think of three typical clients: who are they, where do they live and work? What interests and motivates them? If you sent Christmas cards, how would you personalise the message on each?

Then, think about what your business might do more, or even less of, to meet their diverse needs. Also, beware of the Grinch. Study your potential competitors. What are they doing to attract your three profiled clients and steal Christmas away from you?

Day 3 – Now look at the inside, from the inside

With a clearer picture of the way your business is seen by customers and competitors, it’s time to start dishing out the presents around your workplace.

Your gift list is the skills and resources you already have – and might be overlooking – plus the extra ones needed to help boost cash flow.

With your client and competitor profiles still in mind, do a thorough checklist: Is there a need for a faster, more secure website with live chat or better in-store or over-the-phone customer service? Would your product descriptions make sense to someone with no background knowledge? When were your accountancy systems last updated?

Day 4 – Sweat the small stuff

A small increase in the profit margin of each and every sale – combined with more customers and stronger positioning against competitors – can significantly boost cash flow.

Small efficiencies add up, especially to the bottom line. While you may not like to sweat the small stuff, it’s the little things remembered from Christmases past that keep customers coming back.

Day 5 – Cut costs, wisely

You don’t have to go the full Scrooge to cut costs. After all, shrinking a business isn’t the best way to guarantee an effective cash flow.

Look at the expenses that generate results. If there’s spending that’s not going anywhere, that’s the sort of free gift you don’t want to be giving away this festive season.

Make a resolution; if the money is not generating income, don’t spend it.

Day 6 – Sort out your suppliers

Are there some suppliers that have fallen off your Christmas card list?

Have a clean out and review old supplier agreements. Use the New Year to renegotiate better terms and conditions, cheaper fees or added value from suppliers who might have gotten as stales as last year’s mince pies.

Monitor the market and see what others are offering. Shop around and take advantage of any seasonal volatility that could see a good return or an opportunity to dispose of seemingly unsaleable stock.

Day 7 – Credit only where credit is due

Christmas can be a time when new customers want to spend up big. Don’t swing into holiday mode too early by failing to run a credit check.

If in doubt note the warning signs, tighten your terms and conditions or initiate a strict cash-on-delivery or EFT – electronic funds transfer – policy, which of course can be reviewed in the New Year.

Day 8 – Let the banks pay!

Accepting credit card payments means the issuing financial institution, rather than your business, carries the risk.

So this Christmas, why not let the banks give the gift of an interest-free period?

Day 9 – Taxes don’t go holidays

It can be easy to overlook the payment of taxes such as GST as well as superannuation in the midst of so many public and staff holidays.

Take note of due dates, set aside adequate funds in a holding account, and don’t be tempted to use this money to compensate for a drop in cash flow.

Be aware that increased sales attract extra GST, so plan ahead.

Day 10 – Spend other people’s money, wisely

Building a business based on borrowing is a well-practiced principle.

Ensure that any sudden solution you adopt over the festive season doesn’t become a long-term liability.

Consider carefully the borrowing terms. Unless needing backing for major, long-term capital investment, short-term options such as an overdraft or credit card payment might be enough to tide your business over.

If family or friends are part of your cash flow rescue plan, ensure their agreement well before a loan is needed. Professionalism remains essential. Prepare a written agreement that details all terms and conditions and have it signed by all parties before a Christmas drinking session.

Day 11 – Keep some cash in reserve

Having a respectable stash of cash squirrelled away in a separate, high interest bearing account could really save your business when Santa isn’t coming round with gifts.

Day 12 – Keep it real

Financial reports need to clearly and accurately detail the basics: what funds are available today, what is tied up, and what is owed.

On the twelfth day of Christmas, make a New Year’s resolution to keep financial reporting real, and monitor your cash flow daily for many happy returns throughout 2015.

David Henderson has had baptism into accountancy working for a global accountancy firm while at the same time working in his family’s small accountancy business. He is a chartered accountant and the CEO of ROCG Australasia. David strives to make the financial intelligence and practices of key global players accessible to small to medium businesses via CashMaxforecaster.com.

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