The business realities of managing Christmas
The Christmas season affects different businesses in different ways and can have a significant impact on you.
For some, it is boom times but for others, a period of significant dislocation. Because of these differences, there is not a one size fits all answer to the best way to prepare and manage the season. You need to look at your business model and how the season affects your customers and suppliers. Armed with this information, what you need to be doing should be reasonably predictable.
Any period where operating conditions change means that there can be an impact on your profitability and cash flow. You need to look at both of these areas.
If you carry debtors, be aware that many of your customer’s suppliers will be trying to collect their accounts prior to the Christmas season. And, of course, some of those customers may have a close down period or have people away over January who approve or authorise payments.
Don’t be last on the payment list. If you have customers who are cash flow stretched then it will be ‘first in first served’. If you are too slow in chasing your accounts you may be waiting until February to collect your money. Get to them early and have a concerted follow up approach to get your cash in.
If you carry trading stock, you need to find a balance between ensuring that you have enough stock to satisfy demand during what may be a busy trading period and over-committing and finding yourself with surplus stock. Where your stock is either seasonal or time limited, this balance is critical. See if you can have a range of suppliers that can supply on short notice. If you can have your suppliers carry your stock for you or who will supply you on a consignment basis, this will significantly improve your cash flow position.
Understand the impact of your pricing and the effect of any discounting you offer.
The sale signs are already all over town and this will only escalate through January. We all want to make that extra sale but don’t get sucked into discounting yourself into a loss. You need to get the balance right between pricing to be competitive and pricing that returns a profit to your business. Know your numbers and make informed decisions.
The Christmas period can bring an increase in operating costs. This can include additional wage costs and penalty rates, end of year bonuses and Christmas gifts.
Where your business has a close down period over Christmas, the impact of these increased costs can be compounded by a reduction in revenue. The key is to understand the effect of the period and build it into your budget - you need to do this at a trading level and also map the cash flow effect. Once you understand the impact, ensure that you can afford it and don’t over commit your business. Too much Xmas spirit can be deadly.
Manage the festive period and your business will start the New Year fit and healthy.