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Dec 18 , 2023
As people gear up for the festive season, many businesses can find themselves running into problems with their cash flow.
Cash flow issues can be particularly challenging during the holiday period, so business owners need to be on guard and plan ahead. Here are four common pitfalls that businesses often encounter and strategies to avoid them.
Slump in Christmas sales
Some businesses witness a surge in customers and increased cash flow during the holiday season, while others may experience a decline in sales. In the latter case, as business activity slows down fixed expenses persist, leading to a potential cash flow mismatch.
To minimise the impact, it’s crucial to trim non-essential expenses until the post-Christmas uptick. Additionally, creating a cash flow buffer throughout the year can cushion against quieter periods. Exploring different financing options to secure stock for the upcoming year is another option, as is getting paid early with the help of invoice finance.
Eroded profit margins on Christmas sales
The act of offering holiday specials often translates to lower profit margins per item sold, putting a strain on the ability to cover ongoing business expenses.
To reduce the impact, businesses should focus on increasing sales volume by effectively marketing and promoting Christmas specials. Leveraging communication channels such as email to advertise special offers and emphasising the temporary nature of discounts can increase sales.
Late customer payments
Extending credit during Christmas can result in late payments as consumers juggle multiple financial obligations. Businesses must also take into account the number of days people are away on holiday. This delay in receiving payments can disrupt cash flow.
To minimise the impact, consider invoice financing to address outstanding customer invoices. Encourage early payments by offering discounts for prompt settlements, or reevaluate credit policies, potentially avoiding credit offers during the festive season.
Poor stock management
Balancing stock levels is a delicate task during Christmas. Being understocked can lead to missed sales opportunities, while excess inventory ties up valuable capital that could be used for other business needs.
To cut down on the impact, conduct realistic forecasts of Christmas stock requirements. Explore invoice and trade finance to optimise stock levels without straining working capital and monitor market trends to adjust stock orders accordingly.