THE 12DAYS OFCHRISTMASCASH FLOW

B A K E R A F F L E C K M O F F R E Y

01.

The 12 Days of Christmas Cash Flow

Christmas is just around the corner but the season is not always filled with joy forbusiness owners who have not prepared their cash flow for the Christmas season.Unless you are in retail, hospitality or accommodation, this time of year can mean adry spell for sales leading to post-Christmas cash flow problems. Or if you are inthose industries, excessively busy periods can leave you flustered.

1. For the first tip of Christmas your capital gave to thee!Since the Christmas shut down period sees the normal cycle of cash flow cease, it isimportant to ensure you have secured enough working capital and are achievingmaximum turnover.

2. For the second tip of Christmas be wary of customer concentration risk.As an SME you may have individual customers who represent a large portion of yourrevenue. It is important to consider what would happen if one of those clients wentbelly-up and how this could affect you. Put a contingency plan in place just in casesomething happens to these clients.

3. For the third tip of Christmas make your messages clear, so your customers do notfear.Good communication is the corner stone of any good relationship and is even moreimportant when it comes to busy periods like Christmas. One of the mostuncomfortable things you can do in a business is to chase payments from clients. Theprocess can lead to nagging and customers can find themselves frustrated. Assign aperson in your workplace to give clients a call ahead of time (customer relationsspecialists) to ensure they are on track for payment. Give them all the informationthey need to make payments on time, as well as all trading terms and expectations,so they can’t find last minute excuses.

4. For the fourth tip of Christmas your invoices gave to thee, on time payments fromdebtors and overdue accounts as a priority (it’s a stretch but this sentence doesactually rhyme).Ensure that you are invoicing promptly and then chasing overdue accounts as apriority to ensure they don’t drag on your cash flow and lead to insolvencies in thenew year. Good communication from step 3 is a given. Just remember that yourdebtors may also be affected with business shutting and delayed payments on

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their accounts, so being organised will help minimise this risk. Asking for accounts tobe fully or partly settled in advance will also identify problem payers and champions.

5. For the fifth tip of Christmas your bank did give to thee, an effective and efficientcredit policy.Just be sure you have a good credit policy in place prior to Christmas to overcome anyunexpected losses or late payments. This will alleviate any extenuating pressure onyour cash flows should anything happen.

6. For the sixth tip of Christmas your planning gave to thou, a rolling 13-week cashflow.A great way to predict and react to trading and social trends is to prepare a rolling13-week cash flow. Since this involves a three month forecast, you should be betterequipped to handle any peaks or troughs in your income. It may also point out anywarning signs a few months in advance giving you time to react accordingly. Mostfailures occur from businesses not recognising trends and troughs which leave themwithout enough of a buffer to cope during low periods.

7. For the seventh tip of Christmas your staff gave to thee, leave requests early soyou can plan accordingly.Understandably, Christmas time means a lot of staff going away on family holidaysor annual leave. Be sure to set an early deadline (say 3-4 months in advance) for anyleave requests for the Christmas period to be submitted and review them carefully. Befair to as many employees as possible but also be firm when it comes to taking timeoff during this period. Encourage an open dialogue about what would be the leastdisruptive times to go away and negotiate with certain staff where applicable. Ensureyour staff know how important they are and try to empower them to be extraproductive leading up to Christmas to cover for possible deficits during the period.Make sure they know how critical they are to the overall efficiency of the company.

8. For the eighth tip of Christmas your budget gave to thee, enough savings to buy atree.Okay you might not be buying a tree, but having a realistic budget for this period willprevent overspending and will prepare you to better manage your resources over thistime. Clearly outline what funds are available today, what is tied up, what isowed and where you can get more. Look at the expenses that generate results and trynot to spend money during this time if it in not generating income.

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9. For the ninth tip of Christmas small efficiencies and professionalism keep thecustomers coming back. Being efficient at delivering your core services over this timewill create faith in your business as you are not crumbling under the pressure of theseason. Happy, trusting customers equal more and ongoing sales. This comes down toplanning and budgeting but helps to ensure you meet your bottom line. Beprofessional when dealing with issues to avoid turning into the Grinch.

10. For the tenth tip of Christmas the ATO gave each year, tax and super that don’tdisappear. It is all too easy to overlook the payment of taxes like GST andsuperannuation in the midst of all the public holidays and staff vacations. Be awareof due dates and set aside funds to use for these causes. You do not want thesecharges to come as a surprise.

11. For the eleventh tip of Christmas your borrowing gave to thee, moderate loans,debtor finance and more money! Building business based on borrowing is notuncommon but be reasonable when considering these options as they can quicklybecome a long-term liability. Consider the borrowing terms carefully and whetheryou will be able to cover these debts in the new year. Another option is to sellportions of your debt to a debtor finance company. The company pays youimmediately and takes on responsibility for chasing up the payments. Not allbusinesses will be seen as an acceptable risk for the finance company, and fees forthe service may be included too, so this option is not for everyone.

12. For the final tip of Christmas, Santa said to thee, “Close your eyes and breathedeeply.” While this time is usually hectic for most businesses in one way or another,it is important to keep a level head and make calm decisions. The main takeaway is tobe as prepared as possible by analysing trends and your internal finance so you canmake adjustments. Being prepared can be the difference between an SME going Ho!Ho! Ho! and Oh no! No! No!

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Baker Affleck Moffrey is here to help you alongevery step of the way. Our professional services canhelp you budget and plan accordingly for the sillyseason. We are already consulting with many of ourclients to combat the Christmas cash flow crunch.