As we start the countdown the days until Christmas to ensure that you start 2024 with a healthy cashflow position there are a few actions that business owners can be taking now:
a. Management of customer invoicing and payment
With many businesses closing over the Christmas period or having a decline in cashflow in January (due to the closure) it is important as a business that you time your invoicing effectively as it may leave you short if you are awaiting payment until February.
2 Simple actions to take are:
- Invoice work during the month as soon as possible. Don’t wait until the last workday of the month to complete all your invoicing. If you invoice through the month this will give your customers time to make payment prior to Christmas rather than waiting until they start trading again in the New Year.
- Follow up your Debtors. Ensure your accounts team is making contact with customers early in the month to understand when they will be able to pay current invoices and/or if they will need a payment plan. I always remember when I had a young staff member managing debtors and I asked why they were so successful at minimizing the debtors’ days. The reason was that they picked up the phone and spoke with the clients to see what the clients challenge was and resolved issues and secondly, they didn’t mind having these conversations as the accountants had prepared the work to a high standard and therefore there was not a question about the clients not making payment.
b. Staff Leave
Now is the period that many team members look for a break to spend with family and friends and enjoy the wonderful weather we have here on the Sunshine Coast.
With this comes the cashflow requirement of leave payments (which will drain the cashflow whilst there is no work being prepared). Remember to ensure that you have this, and the Superannuation set aside so there are no surprises in January.
With leave, ensure that you have reviewed your HR processes as to what needs to be paid for the team.
Lastly, is ensuring that you are reviewing rostering of staff to match with the work demands over the period. If your business is one that slows down, are there projects or a list of what you have been meaning to do that could be scheduled so that time in the slow period is maximized.
Likewise, if you are a business that is busy over the Christmas period and have you scheduled enough staff so you are not paying significant amounts in overtime that will reduce your business profitability.
c. Christmas Bonus
Is now the time of year that you give a Christmas Bonus to your team?
Remember for tax deductibility it needs to be processed through payroll with tax withheld and Superannuation is paid on the gross amount.
If you are giving gift cards or gifts instead of a bonus these should be under $300 in value and not ‘entertainment related’ if you wish to claim a tax deduction.
d. Manage Savings
It is important that when you are making decisions for large purchases in your business over this period that you are taking into account that you may experience a profit decline for January and February if you are closed for a period of time, demand for your product declines or you’re affected by the weather.
We often see businesses make decisions to pay extra dividends, significant director bonuses or purchase cars etc. as they see the profit in the bank at Christmas. However, this cashflow balance is needed to fund the January/February period as it is often over inflated.
My recommendation is that you hold off until mid-February to make these decisions when you have time to consider what has happened over the Christmas/New Year period and you have your BAS paid.
If you are having holidays remember to ensure you have scheduled payment for wages, superannuation and supplies etc. that you have deadlines as the consequence of late payment can have significant consequences.
e. Stock Management
If you sell stock, make sure you are talking with suppliers and forward planning your work to ensure that you have the stock available for the team to continue working when needed. There is nothing worse for cashflow than a delay in being able to finalise work for invoicing as you have not been able to complete due to stock issues.
You need to also take into consideration if your supplier is closed for a longer period compared to your business.
If you have stock that is taking up space and now is a becoming old you could look at discounting while customer interest is up to make room for newer stock or to improve your cashflow.