The day-to-day management of a business can be time-consuming to the point where it can overwhelm the strategic side of things and seasonal spikes and dips can be particularly harsh if not anticipated and accounted for. One industry may be busy, another may be slow, and others may fall somewhere in between.
Christmas can be especially complex as it represents a sales surge for some markets and a temporary death knell for others. Whether you’re winding down or gearing up for the festive season, you’ll need to have a clear strategy in place. Here’s how your business can prepare for the most wonderful time of the year:
1. Project your cash flow
Cash flow needs to be carefully managed during a seasonal dip or a seasonal spike – if you’re expecting a slow December, you’ll likely consume more resources than you’re outputting.
Use your past sales data, and you’ll not only see what kind of Christmas you can expect – you’ll see when business is booming, and when it tends to dry up throughout the year. This information can be invaluable in terms of dictating your strategy for the next twelve months. Moments of opportunity and moments of potential stress can both be identified easily.
With this information at hand, you can prepare a cash flow forecast to indicate when resources are expected to be abundant or tight. The intent here is not to reproduce the effects of a balance sheet, but to give a broader view of your finances over a given period.
And when the season is over and your incomings and outgoings are firmly defined, use the information to improve your strategy for next year.
2. Get (and lose) help
The 80/20 rule is also known as the Pareto Principle and it’s exactly what it sounds like. Some companies do 80% of their business during 20% of the year.
So, if you’re one of these businesses, the key to navigating seasonal spikes is to hire more people during your 20% period. Keeping your overhead low means hiring temporary workers during periods where sales (and productivity requirements) are expected to be higher, but it also means ensuring that your workforce stays lean the rest of the time. The key here is to be flexible and to hire only when your full-time staff can’t manage the operational burden.
3. Develop a good relationship with vendors
You want to get paid by your customers and your vendors want to get paid by you. On time and ideally early – in both cases.
Even though early payments can build rapport, they can have harmful effects on your overall cash flow just like late payments can have harmful effects on your most important relationships. The answer is to effectively compromise and delay payments as long as you can, while still remaining within the terms of your invoice agreement. You need to slow the outflow of cash if possible, but not to the detriment of your credit rating or your business relationships.
4. Save up
Squirrelling away the money you’ve earned during busier seasons is an obvious step if you’re expecting a slower Christmas, but it’s not always easy if you haven’t planned for it.
As a rule of thumb, look to store three months’ worth of expenses during the busier periods, which should give you enough cash to cover operating costs in the midst of a seasonal downturn.
5. Use technology to manage and forecast cash flow
Finally, give yourself the tools you need to effectively manage and predict cash flow. Technology can make it easy to keep up with finances in real-time, plan for incoming highs and lows, and know your cash position. Cloud-based accounting software can check up on your finances anywhere, any time. By centralising all your information you can save time and increase efficiency.
Whether you’re expecting a barren or fruitful Christmas, a little planning goes a long way – in the last month of 2018, in 2019, and beyond.
About Colin Timmis:
Colin Timmis serves as Country Manager of South Africa at Xero. Colin served as Head of Accounting for SA at Xero Limited from July 2016 until April 2018. He has over 12 years’ experience in the accounting space – including cloud accounting software implementation, development, integration and best practice, says Xero. Having registered as a professional accountant with SAIPA in 2004, Colin went on to run a traditional SME accounting practice for eight years. In 2011, he founded South Africa’s first cloud accounting practice, real-time accounting, and was later appointed Xero advisor in South Africa