Navigating Christmas cashflow challenges: EBI
The Christmas period presents unique cashflow challenges for SMEs, even those with robust financial systems.
1. Poor planning
Failing to forecast and prepare for seasonal cash flow pressures often results in financial shortfalls. Hoping for the best is not a strategy—start planning early.
2. Extended shutdowns
Long breaks in sectors like trades, manufacturing, and government slow down payments across the board. With holiday pay obligations and halted invoicing, cash reserves are stretched. In New Zealand, over 50% of invoices for SMEs are paid late.
3. High staffing costs
Retail and hospitality businesses face increased wage bills due to time-and-a-half pay and statutory holiday requirements, which can strain finances.
4. Tax obligations
January and February can bring back-to-back tax payments, creating pressure during a period of slow receivables and high outflows.
5. Inventory mismanagement
Excess stock over the shutdown period ties up cash that could be used for operating expenses or tax payments.
6. Working capital oversights
A lack of focus on working capital during this period can destabilise otherwise healthy businesses.
Strategies for Success
• Plan early: Build cash flow forecasts that include holiday-specific costs and slower payments.
• Communicate with customers: Chase overdue payments before the Christmas break.
• Manage inventory: Avoid overstocking to free up cash for essential expenses.
• Prepare for taxes: Set aside funds early for January and February obligations.
• Seek advice: Speak to your bankers early. Get advice to refine your strategies and explore short-term financing, if necessary.
With thoughtful planning and proactive measures, you can navigate the Christmas period with confidence and enter the New Year on solid financial footing.
