While the Christmas break for many is a time to recover and plan for the new year, itโs also a time where cash flow is tight and wages still need to be paid, leaving many business owners in a tough position. Depending on what type of industry youโre in, your cash flow may not return to normal until the end of January โ six weeks later! Unless you have cash reserves available for support over this period, read on to see how you can safeguard your cash flow these Christmas holidays.
1) Chase up customer accounts
Review your current accounts receivable and contact your customers, requesting confirmation of when they are going to pay. This might sound like common sense, but we see many businesses get โtoo busyโ in the leadup to Christmas and consequently, this slips through the cracks. Before you know it, itโs a week until Christmas and all those customers you were counting on paying have left for their holidays meaning youโve missed your chance to collect the cash before the break.
2) Talk to your suppliers
If you know youโre going to be in for a tight Christmas, review your accounts payable and reach out to suppliers, requesting more time to pay. You could negotiate paying a reduced amount or better yet, deferring the payment in full until after Christmas. You will be surprised how many suppliers are willing to work with you and will appreciate the communication.
3) Use the bank to your advantage
Contact your bank about your ability to increase or open an overdraft facility. Whether you need it or not, at least you know you will have a contingency plan for any unexpected surprises. Be sure to act now and not leave it until the last week of the year or you might find youโre too late.
Take advantage of the interest-free period on your credit cards. Most cards come with 55 days interest-free, so if you have some larger expenses due, it might be worthwhile to use the credit card over the break and keep your cash in the bank. Just ensure that when the Christmas period is over, you pay the card out in full and avoid any interest charges.
4) Contact the ATO
Where you have outstanding debts or upcoming payments due before the end of the month, contact the ATO and setup a payment plan to help smooth your cash flow. A short-term arrangement can generally be made quite easily and will make a significant difference to your bank balance over the break. Keep in mind, the ATO will charge you interest (currently 7.01% p.a.), so weigh up the cost of implementing a short-term arrangement against the benefit before you finalise any arrangement.
5) Prepare a short-term cash flow forecast
Even a short-term cash flow forecast can assist you to grasp an idea of your position and act accordingly to improve it. ย Forecasting doesnโt have to be complicated. A basic spreadsheet of the expected cash inflows and outflows for the next three months will be adequate. Alternatively, if you are using XERO or one of the many forecasting apps available, you can prepare a more detailed forecast.
Donโt wait, act now
With Christmas fast approaching, act now to get a clear idea of your cash position and improve your cash flow over the Christmas break. This will help you to avoid the squeeze and give you the peace of mind to enjoy Christmas and come back recharged and ready to take on 2022!
For more information on how best to manage your cash flow or assistance with your cash flow forecast, contact your local William Buck Business Advisor.
