The beginning and end of the year represent two extremes of the human condition. As the year draws to an end, we celebrate extravagantly and we spend. Australians are thought to have spent $8.9 billion on Christmas gifts last year. In the New Year, we redeem ourselves with healthy living – we cleanse, we detox and we also resolve to cut down on spending.
The resolution to spend less has an adverse effect on the small business community. This, coupled with the fact that small businesses are also trying to recover from the excess of the Christmas, means cash flow and liquidity often suffer at the beginning of the calendar year.
To combat this, small businesses should consider a detox – don’t worry it’s not as difficult as a three-day-juice cleanse, but it will help prepare for the year ahead. Here are four strategies to help your business recover from the excess of Christmas.
Budget, budget, budget & plan, plan, plan
Plan ahead – Its simple advice that often falls on deaf ears.
Review your books and take note of any peaks and troughs, they’re likely to repeat themselves and don’t forget to include a buffer for any problems or emergencies that may arise this year.
Change your payment procedures
One of the most common causes of cash flow issues is late payments. When your customers are slow to pay (or don’t seem to want to pay at all), the business will suffer.
There are a number of simple procedural changes you can implement to improve cash flow:
- Invoice early – every day you delay is one more day you won’t be paid for your work.
- Incentivise – consider incentivising customers who pay on time. This could help ensure you receive payments when you need them. Assess the situation, consider what is common practice in your industry e.g. are competitors offering discounts? If so, then it makes sense to do it too.
- Don’t be too proactive – pay your bills when they are due and not before. American Express found 48 per cent of Australian small businesses pay a bill within two weeks of receiving it and 20 per cent pay it as soon as they receive it. By proactively paying bills when they come in you tie up your cash flow unnecessarily.
If you’re not already doing these things, start today. You can review all of your policies and procedures while you’re at it.
Ask an alternative lender
Even good financial management and planning is not enough at this time of year and businesses may need a short term injection of finance to recover from the excess of Christmas.
There are a number of alternative financing options available to small business owners, here are just a few:
- A bank overdraft – is a really easy way for a small business to access credit to manage working capital. The interest rates on a bank overdraft are generally about one to two per cent more than the standard interest rate.
- A short term small business loan – these generally come with a fixed interest rate. Nowadays, alternative lending platforms offer an unsecured line of credit, which means you don’t need property or assets to borrow against.
- Factoring or advances – a financial transaction where a company can sell invoices to a third party to meet its immediate working capital needs.
- Trade Creditor – often suppliers will offer a trade credit facility or a loan when you place bulk orders from that company. The supplier will generally conduct an extensive review of your company’s credit history before providing the loan so a good financial history is required.
Look after yourself
The beginning of the year can be a stressful period, particularly if you have resolved to give up caffeine, so look after yourself.
Get enough sleep, exercise and eat well – simple but important advice that will do wonders for you and your business.
About the author:
Lachlan Heussle is the Managing Director of Spotcap Australia and has more than 15 years’ experience in financial services, both in Sydney and New York. He has witnessed the profound impact technology can have on financial services and is passionate about using technology to support Australian small businesses. Twitter: @LachlanHeussle LinkedIn: https://au.linkedin.com/pub/lachlan-heussler/24/a66/14
