How the Holidays Affect Small Business Cash Flow: Survival Tips

The holidays have a profound impact on small businesses. Traditionally, sales go up, but the payments and invoices are delayed throughout the holiday season. Vacations and weather are usually blamed for the tardy payments. Payments on invoices tend to go back to normal after January. Small businesses need to take precautions to prevent cash flow shortages and keep their companies stocked throughout the holidays.

Planning Ahead

The first step to surviving holiday cash flow problems is forecasting appropriately. If you know that you cash flow will drop at certain times, factor that information into your forecasts. Cash flow also takes a hit around Easter and in the early summer. When forecasts show that cash flow will be tight plan accordingly.

When you know that cash flow will be unstable, prepare a cash reserve and find ways to limit the outflow of business expenses. Begin this process before the holidays. Attempting to hold onto the cash during the peak of the holiday season will not preserve the cash flow of the company. Taking necessary steps to keep extra cash on hand will prevent the need for any last minute loans to keep the business running.

Keep cash flow moving by invoicing early and often. Do not just invoice once a month. When invoices are constantly going out then they should be consistently paid, injecting cash into the bank. Many companies offer their customers incentives to pay early. Taking a small percentage off the bill for paying within a specific time frame is customary in many organizations.

Offering loyal customers discounts throughout the holidays is an effective way to increase business and remove any excess inventory.

A ten percent discount can boost sales while making customers feel appreciated. Make sure to provide excellent customer service during a sale. A financial incentive is no excuse for skimping on service. Most customers choose to shop at small businesses because of the personalized attention they receive.

Holiday merchandise dates quickly and a holiday sale will help prevent useless stock from sitting on the shelf after the holidays. If Holiday merchandise is not moving quickly enough, announce a one-day sale the week before Christmas. Social network sites are perfect for getting the message out. This type of sale moves merchandise while injecting cash into the business.

When cash flow is in peril, consider ways to cut expenses. Begin with the inventory. Unsold inventory is wasteful; so do not order extra merchandise. This is particularly true close to the holidays. Monitor the labor budget closely, and cut where it is appropriate. However, remember to stay fully staffed in order to provide the customer service that your clientele expect.

Take advantage of any grace periods or payment delays available to you. If you have the habit of paying early, wait until the due dates to pay your bills. This allows the business to keep more cash on hand. If you have the option of making minimum payments, do not pay over minimum during the holidays. Communicate with different vendors and find out if any of them are willing to work with you during the holidays. A strong business relationship with your vendors will make them more accommodating.

Collecting

Outstanding customer debt will ruin the cash flow of any small business. Unfortunately, it is up to the small business owner to follow up on any unpaid invoices. Even during the busy holiday season, make sure to follow up with customers. Remember that your customers are busy, and they may need a simple reminder to pay their bill. Attempt to pin down a date that they expect to pay their bills so that you are able to plan your finances accordingly. It also makes things easier if you accept alternative forms of payment. Cash or guarantee funds take extra time to obtain, and accepting credit cards allows customers the luxury of paying over the phone.

If you are in need of immediate cash flow, consider factoring. Invoice finance organizations allow small business owners to borrow on their unpaid invoices. There is a drawback to factoring; it is not free. Only a percentage of the invoice is provided upfront; it is typically close to 80 percent, and the factoring company requires a small percentage of each invoice as a fee for the service. Although factoring is not free, it is a simple way to increase cash flow during the holiday season. Factoring fast is becoming a popular alternative to credit cards and difficult to obtain small business loans.

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