Penalty rates, staff holidays and sales fluctuations are among the extra expenses that pop up at the end of the year for businesses, so it pays to plan ahead financially. Here are some key areas to look out for.
Control debtor management
Outside of the retail industry, plant and office closures can lead to a drop in revenue over December and January – leaving small businesses struggling to account for additional costs.
Kyle Kimball, managing director at law firm Sajen Legal, says small businesses can manage extra expenses by staying on top of their debt collections over the Christmas period.
“Don’t cut people slack where it’s not absolutely warranted or because you’re frightened you might upset someone,” Kimball says. “Your clients have agreed to terms and despite assumptions to the contrary, very few have any objection about being made to keep to them. Human nature being what it is, though, unless reminded, paying bills can often be the last on our list of things to do – especially at Christmas.”
Writing your private parties and gifts off on the company doesn't help and is misguided.
Keep cash flow healthy
According to Prosperity Advisers’ 2015 small business research report, cash flow is the number one concern for Australian small businesses – with the festive season only heightening cash flow challenges.
Declining sales and profits is the second highest worry for small businesses, according to the study.
Loan Rescue co-founder Paul J. Lange says small businesses experience dips from reduced revenue and increased expenditure over Christmas that can affect overall cash flow.
“Writing your private parties and gifts off on the company doesn't help and is misguided,” Lange says. “Companies must implement strategies that will help them bridge the reduced revenue for the month to six weeks.”
Small businesses can stay ahead by preparing a cash flow forecast that accounts for holiday leave and a possible decrease in sales.
Companies should also review supplier agreements and encourage early payments to assist in higher cash flow over the period.
Budget for incidentals
Businesses need to budget not just for the typical recurring costs but also one offs such as Christmas parties, staff presents, bonuses and client gifts.
According to Sajen Legal’s Kimball, “Unless these items have been included in a budget, or there’s an amount allocated for discretionary spending, keep your small business Christmas costs to what you can take from petty cash till next year.”
Heather Jennings is a Sydney-based journalist who writes about technology, finance and business for publishers including ninemsn, Yahoo7 and Thomson Reuters.