The busy festive season is full of cheer & joy, however for many businesses it can be a time of dislocation & volatility. It’s certainly not “business as usual” at this time of year and this change in normal trading conditions can cause issues for business owners if they are not well prepared.
Some things you may need to consider include:
- To discount or not?
If everyone else is having discounts & sales, there is a danger in jumping on board without doing the sums. Knowing your profit margins & how much you can afford to discount is important. A business with a 30% gross profit margin that offers a 25% discount needs to increase sales by 500% just to maintain the same position – this huge increase in sales is highly unlikely to happen as a result of the discount and leaves you out of pocket. Think about your strategy and pricing and do your sums.
- Trading stock
There is always the temptation to increase stock levels at this time of year – after all sales tend to peak for many businesses, especially those in retail, however don’t go too far. Too much stock left after Christmas means you are carrying stock that may be out of season and you have valuable cash tied up in stock you can’t sell. Offering it at a discount after Christmas just negates any extra income you have received in the Christmas lead up. Try to find a supplier who can supply at short notice, or even better stock on consignment terms.
- Chase debtors now
Many business close over the Christmas period for days or even weeks. Keep on top of debtors now and chase businesses up with late payments. Creditors who chase hard & early are generally paid first – so don’t be the last on the list – there may not be much left in the stocking for you after Christmas!
- Spiralling Christmas costs
Business costs tend to skyrocket at this time of year – more staff, more leave, non-trading days, promotional costs, etc etc all push costs up. Make a budget and monitor it to ensure costs don’t spiral. Keep an eye on costs now or the New Year may be a struggle.
- The New Year begins
The New Year often marks the beginning of one of the quietest trading quarters. Sit down and work out your fixed costs for this quarter ahead of time so there are no cashflow surprises. If you have a lighter workload in this time, use it as an opportunity to work on your business – revisit your business plan and make those necessary changes and improvements that you don’t have time to implement during the year.
Most importantly, take some time to reset & recover!
Article Written by Callinda Beale.
Callinda is a member of the Institute of Chartered Accountants
and a Director of South East Accounting.