Summer can be a tale of feast or famine for some Australian businesses – holidays can be peak periods for retail, hospitality and tourism, or can typically slow down for many other industries.
Some businesses may even choose to close their doors for up to a month during certain times of year.. Depending on your terms of trade, this approach might flow on to impact your next quarter’s cash-flow.
Whether your business experiences its highest demand over summer, or you run a skeleton operation, or if your activity level lies somewhere in between, there’s likely to be a disruption to your normal routine.
Here are four tips that may help cushion the impact the holidays could have on your bottom line.
Plan for variations in your cash-flow
Seasonal variations affect businesses in different ways and forecasting cash-flow for this period can be difficult.
Public holidays may reduce the number of trading days. End-of-year celebrations might impact productivity. And additional expenses, such as staff bonuses and seasonal celebrations, could increase outgoings.
Some suppliers may request early invoice settlement before the break, while offering less frequent delivery schedules over the break.
As the basis of cash-flow forecasting is to model alternative scenarios that could take place during the forecast timeframe, you might like to consider a number of scenarios in your projections.
As Andrew Banks points out in his exclusive Business Strategy 101 article series, it’s imperative to monitor cash-flow closely to make sure it is positive, not negative.
“You cannot risk trading for too long with negative cash-flow,” he explains.
Using technology can help improve cash-flow management
While forecasting can help you plan your seasonal cash-flow, it’s important to keep a close eye on your incomings and outgoings – in real time. There is a range of cloud-based forecasting software available, which may help you save time in your forecasting and could help you recognise things that you might need to adjust on the go.
If your business hits its stride in summer, the additional workload might result in a delay in invoicing; both on you issuing the invoice, and your customers paying on time.
The average time for Australian large businesses to settle invoices to small business suppliers is now 14.4 days, according to credit agency Illion’s Trade Late Payments Report for the 2019 June quarter, and also shows that late payments to Australian businesses have dropped in the past year from 11 days to 10 days thanks in-part to improved trading conditions and wider use of direct debit.
Many of today’s cloud-based finance management systems, offer electronic payment solutions, which provide invoicing tools that can help save time and optimise cash-flow.
You may find setting automatic payment reminders for customers a useful way to help sync your payment schedule as well as your customers’.
Plan your Christmas spend – and postpone other purchases
If your projections show that cash-flow will be tight, you might choose to postpone non-essential purchases and expenditure, choosing instead to limit outgoings to expenses that directly relate to sales and income.
It may also be beneficial to tap into your liquidity to help offset additional expenses incurred during the holiday period. This may also help avoid any late payment penalties.
Some businesses choose to utilise their company’s rewards program as a way to fund things like the Christmas gifts for customers and staff.
Additional finance may be required
A March 2019 report by the Australian Small Business and Family Enterprise Ombudsman into payment practices for Australian small and family business found that “small business cash-flow in Australia is unpredictable and presents significant difficulties in their ability to access and service finance.”
Late payments account for a 43 percent downturn in SME cash-flow and it’s common for small businesses to encounter cash-flow shortages over the holiday season.
A cash-flow crunch may cause financial ripples in the New Year, so if you find your outgoings fast outpacing your incomings, it may be worthwhile considering additional finance options.
[i]Business Charge Cards, such as the American Express Business Card may also act as a flexible payment tool for everyday business purchases as they offer additional cash-flow days , which may provide a buffer to help keep your cash-flow positive.
[ii]Flexible Payment Option is a feature on the charge card available for eligible card holders. It provides an instant line of credit, giving you access to much-needed capital when you need it most.
And because Flexible Payment Option is an existing feature available on eligible charge cards, it may eliminate the lengthy applications associated with many short-term business loans.
Points earned on the Card could help with your bottom line as they could be used to redeem for travel, staff incentives or even to help pay down the account balance.
[i] Cards are offered, issued and administered by American Express Australia Limited (ABN 92 108 952 085). ®Registered Trademark of American Express Company. American Express approval criteria, fees and charges apply. Subject to Terms and Conditions. Visit https://www.americanexpress.com/au/business/credit-cards/membership-benefits/FPO/ for more information.
[ii]American Express approval criteria, fees and charges apply. Subject to Terms and Conditions. Visit https://www.americanexpress.com/au/business/credit-cards/membership-benefits/FPO/ for more information.