Managing cash flow – Christmas is not always a boon time for business
When you start your business, the first lovely achievement is to break even – not to end the financial period owing more than your business made has made is something to be proud of, starting a business is a difficult and expensive (though very rewarding process).
Christmas is a boon time for retailers. Though even the largest retailers struggle with the ebb and flow of business that happens throughout the financial year.
You may have read recently that Toys ‘R’ Us in the United States is close to bringing in administrators. Their sales throughout the year do not provide enough cash flow to fully stock their shelves and hire the staff required for the Christmas rush – it can happen to any business.
Once you have survived your first year of business, you can use the data from that year to project your cash flows for the years ahead and ensure that you plan accordingly.
A cash flow statement can be constructed, with the help of Think Accountants, to ensure that you plan for times when cash flow is substantial and use that information to plan for times when your cash flow is less sizable.
A list of the bills you pay, payments from customers, a list of long and short term clients and how much you can expect to earn from each on an ongoing basis and in the future forms part of your cash flow statement.
Supply for many businesses can also be seasonal. If you sell fruit and vegetable or seafood, you are reliant on the season. You need to plan accordingly.
Accounting, Law and IT firms find the Christmas season slower, as do many businesses.
These are all times you can plan for.
It is not an unusual practice for businesses to close their doors over this period, this saves on many running costs such as staff wages and ensures that your staff are not building up large leave balances that could prove an issue for your company.
Leave balances are listed in the Liability column on your Balance Sheet and can prove an issue to the business if you are carrying large leave balances when looking for more company finance or should you need to pay out the employee if they choose to leave your employ.
Other smart ways to manage your cash flow is to ensure that you do not have a long list of debtors. Affording a valued client extra time to pay their bills, while an activity of goodwill, could end up costing your business. It is a delicate balance.
Managing and constantly negotiating with suppliers can see your business save money and also keeps your suppliers aware that you are keeping a close eye on your inventory and researching the best way to service your clients with affordable and reliable products.
While loyalty is a lovely sentiment, bankruptcy can be an unfortunate side effect. You always need to take into account what is best for your business and act accordingly.
The best thing you can do is visit Think Accountants to work on your cash flow statements on a regular basis to ensure that you are managing the most important part of your business and to ensure that your business remains viable and continues to grow and flourish.
We hope you had a successful Christmas trading period.