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Beat the Christmas cash flow blues by planning ahead

For small businesses, Christmas can be one long cash flow headache. Deloitte Private partner Paul Pettit offers expert tips on how to stop it turning into a full-blown New Year hangover.

For many business owners, the Christmas-summer holiday is a four-to-five-week break from business as usual.

This lengthy period of irregular cash flow highlights a problem many small businesses already have — lack of money to see them through quiet times, says Paul Pettit of Deloitte Private.

He outlines three common problems small business owners face at this time of year:

  1. Not receiving the cash needed to cover all the payments you need to make over the summer break. 
  2. Staff who manage your cash flow are often on holiday. 
  3. Your banking facilities, eg overdraft, may be alright for normal trading, but won’t cover the whole holiday period.

The two areas to tackle are your receipts and payments.

1. Get paid promptly

“Get December and January invoices out early — and well before Christmas,” Pettit says. That gives your customers time to pay, but also there’s no excuse for them not paying on time. “You should also agree with your customers that they’ll pay before Christmas if they’re closing down for the holiday season.”

Approach customers who owe you money now about paying up. If they have cash flow problems, get them to pay at least part of the debt. Some cash is better than none.

November is a great time to send out polite reminders — then you have enough time pre-Christmas to chase up any late payments.

November is a great time to send out polite reminders — then you have enough time pre-Christmas to chase up any late payments.

2. Staff rosters

It’s a good idea to think about what staff you need for the period, Pettit says. “There’s no point having a full team if your customers are on holiday.” However, you may want to keep some holiday cover to chase payments and make sure invoices go out.

If you think you’ll have summer cash flow problems, talk to your suppliers about delaying or spreading payment to them.

If you think you’ll have summer cash flow problems, talk to your suppliers about delaying or spreading payment to them.

Payment priorities

On the other side of the ledger, look at bills you must pay and prioritise them.

Make sure you pay wages and PAYE first. You can get into trouble with Inland Revenue if you don’t pay PAYE on time. Remember, as a business, you’re responsible for paying it on behalf of your employees.

“Your provisional tax and GST may fall on 15 January, so if you think paying them will be a problem, talk to Inland Revenue before then,” Pettit says. “You could also look at using a tax pooling company to delay tax payments.”

To give your business the best present of all, start thinking about Christmas and planning for it as you would any other quiet time.

If you think you’ll be short of funds to clear all payments over the break, talk to your bank or other funders early about getting covering facilities, eg a loan or bigger overdraft.

Also think about what you could set up for other quiet times of the year, eg asking your bank for an overdraft as bank fees will be lower if your account dips into the red.

Being prepared could be the best present you give your business.

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