Back December 7, 2016

Winter Holidays Cash Flow

The Holiday season has already started; as if there weren’t enough tasks to think about and decisions to make, the Holiday hustle just adds up pressure. For some, it is the “most wonderful time of the year”, while for others it is just the most stressful one. How to cope with financial struggle is the thought that keeps managers’ minds too busy to enjoy the spirit of this usually joyful season. Money. Cash. How are we going to make it through?

While most retail businesses see their sales rocket up, other companies, which operate based on medium and long-term projects, don’t necessarily face the same frenzy days. For some, it is a time of calmness and paced down rhythm; which may come as bliss at the end of a busy year, but also as a stress, income-wise.

There are two sides of the same coin, so let’s see how each should be approached so that nothing could spoil the Holiday excitement.


Busy days

Advertising, for instance, is one of the industries that faces work overload during these weeks. Most such businesses are now implementing Holiday campaigns; branding companies, design and web-development studios, advertising agencies are literarily assaulted by requests for different season promotions, ads, corporate events and gifts. This means extra work, extra payments while invoice cashing in doesn’t usually take place sooner than 60 days.

Saying no to a client is not an option when you run a small professional services company. Thus managers find themselves forced into throwing in more cash to pay extra working hours or to hire temporary extra staff. Either way, December and January will see an increase in cash outflows. While more projects mean more revenue, this inflow is not synchronized with the accountabilities. Therefore, cash reserves must be involved to cover the payments until the customers pay the invoices. So make sure you have that cash available. Plan the hiring carefully. Figure out as accurate as you can how many extra working hours the projects require, add an extra “you never know” and build a budget.

If the company’s cash flow still doesn’t look good, cut down whatever expenses you can reduce and postpone not urgent acquisitions (though during this time shopping for that fancy coffee machine becomes extremely tempting).


The calmness of the Holidays

For other small companies providing creative services, the winter season comes with a lower operations rhythm. This, of course, implies diminished revenue, while the fixed costs pile up stubbornly. It happens often that during the Holidays months, activity slows down and this should come as no surprise. Managers need to be prepared and make sure that the cash reserves can cover the constant outflows in the absence of revenue. They also have to be careful about planning ahead several months. New projects usually start at the end of January, which means cash will enter the accounts in February the earliest. So Holidays cash flow planning needs to stretch over 3 or 4 months, in order to make sure the company doesn’t run out of cash during this time.

With a slowed down activity, you can consider reducing some of the operating costs related to the office logistics, for instance. Postpone buying new equipment and you can agree with the team to plan their vacations during this low activity period.

If your cash flow forecast indicates a shortage of liquidity anytime soon, then you need to act as soon as possible. If there are pending payments from clients, now is a good moment to make that ”kind reminder” phone call. You can also offer discounts for clients who pay the invoices sooner than the due date. Just make sure that the discount doesn’t exceed the margin. Contracting a short-term loan may also be a solution, but leave it as an ultimate resource.

The secret for going smoothly and joyfully through this either too busy or too calm time of the year, the Holiday season, is to plan it in advance. Use the cash flow forecast to see how your company’s inflows and outflows will look like during these months and plan ahead the actions that will keep you from going out of business at the dawn of the New Year.


Author: ThinkOut