How to enjoy the festive season AND avoid the January “valley of death”

Christmas is coming - and for many businesses in industries like construction that means they are heading into the annual “valley of death” - and it’s even more “deadly” than usual.

Funding the Christmas/summer holiday break has always been challenging for industries that have an annual shutdown. ? Even for those who trade through January, there’s a big lump of costs to pay as people take some downtime for the festive season.

The number of zombie businesses is on the rise

More businesses than usual are “zombie businesses'' - they still look like they are functioning, but they are really on the way out.? They don’t have the cash flow or reserves they need to pay extra December costs - and then survive with no income until the end of February.??

This year the summer break is looking like being even harder than ever - because:

• Costs are rising on everything from energy to wages - and the Federal Budget in October warned that it’s going to get worse.
• Purchased deliveries are disrupted
• Staffing is disrupted by COVID and shortages
• The festive season comes with extra costs overheads of holiday pay and leave loadings.

So - coming into Christmas 2022 -? many more companies than usual are not prepared to manage these increased costs at a time when their debtor cash flow is about to dry up until the end of February.??

This year is NOT going to be like past years - and If your business doesn’t have good cash flow management practices, it could be at risk due to increased disruptions and costs WITHOUT you knowing it.

Even if your business has good cash flow management, you could still be at risk if one of your key customers or suppliers is struggling.???

Get prepared now - so your festive season doesn’t leave your business with a major financial hangover

Some steps you can take to prepare include:

1. Do an extra level of cash flow analysis and modelling to check you’re covered. ? With more businesses paying slower than ever before, do some contingency planning to cover an extra month - at least to the end of March. ? Most modern accounting packages include a Cash Flow Forecasting tool.? If not, get in touch with me for a spreadsheet tool.

2. In these difficult times, the work of SME finance management needs to include risk Management.

• On the customer side, you need to be proactively managing slow payment and minimising the risk of defaults. ? Offer afterpay?, arrange to outsource the risk (so the finance company carries the risk?)
• On the supplier side, you need to be managing your creditors and scanning for risks that the failure of a key creditor could cause.

3. Do a discreet “health check” on your key suppliers - are deliveries landing later / less reliably? What sorts of conversations are happening when you place orders?? Have you checked their published credit rating. (Look at tools like CreditorWatch )

4. Know your margins - and review any festive season discount programs you’re planning.? Make sure you fully understand their impact on your cash flow.? For example, if your profit margin is 30% and you offer a 25% discount, you need to generate a 5000% increase in sales volume - otherwise your margin goes down and you could make a whole lot less than you expected.

5. Be careful to avoid over-ordering. It’s tempting to increase stock levels high if you sell goods over the holiday period. However, excess stock can end up being out of season, costing you money and leaving your cash flow crippled.

Put extra finance in place early

If you’ve done this homework and you’re concerned that? January could turn into your cashflow Valley of Death, then it’s time to get some additional finance in place.? It will be a whole lot easier BEFORE you have a crisis.???

The right working capital strategy can make your festive season festive - instead of a nightmare.? If you’re scared of where you might end up in February 2023,? then message me today to book your free Working Capital Strategy session.