Christmas is the season of giving which, for many businesses, brings plenty of festive cheer.
From hotels and restaurants to manufacturers and tech providers, December delivers an uptick in demand right the way through the supply chain.
But while this is good news, it brings challenges of its own.
The increase in demand can make it more difficult for firms to fund the extra stock, raw materials and staff needed to get through the holiday season. Meanwhile, with payments often even slower during the Christmas period, businesses can find their cash flow squeezed both by customers and suppliers.
This makes keeping on top of cash flow increasingly difficult for businesses, particularly when it’s followed by a New Year slump in activity.
For small to medium-sized businesses, particularly those in the retail or hospitality sectors, it’s vital that they have the working capital – the amount of money needed to cover day-to-day costs – to make it through Christmas and beyond.
So how can businesses prepare their working capital for the festive period?
Plan ahead as much as possible
Before and during the Christmas rush, it’s important that firms have a clear view of their current cash flow, and what support they might need to cover an increase in demand. Many find it helpful to undertake a more regular cash flow review during busy periods, so they can monitor any peaks and troughs carefully.
Businesses should look to undertake more regular stock checks, too. Using last year’s performance is a good guide on what demand could look like this year, although it’s never a guarantee. It’s also important involve staff in conversations about what extra support they might need to manage stock levels and provide the customer service required.
Know what funding options are available
There are a number funding options available to businesses to make sure that a sudden spike in demand or a pause in payments doesn’t have a detrimental impact on cash flow.
Invoice finance and asset-based lending, for example, can be valuable finance solutions for businesses that need to access cash quickly and flexibly.
Invoice finance allows firms to access up to 90 per cent of the value of an invoice within 24 hours of it being issued. The lending amount increases with the value and number of invoices your business sends, allowing your business extra cash to manage increased seasonal demand.
One London business that’s utilising finance solutions is Danilo Promotions, a calendar and greeting card designer and publisher in Waltham Abbey. The business produces themed calendars from football clubs including Arsenal and Chelsea, to pop stars Taylor Swift and Cliff Richard. It also holds the honour of having created the first ever official Elvis Presley calendar.
Naturally, demand spikes ahead of Christmas as the turn of the year approaches, so it needs to flex its finance solutions to help them meet that. Danilo uses an overdraft that changes throughout the year. At peak times, it’s expanded to £1.25m, as it places more orders and hires more staff, but it’s then reduced to £250,000 during times of lower demand so it’s not paying any unnecessary charges.
This is an innovative approach to using traditional financing solutions, but it’s a good example of how businesses can make financing work for them while also boosting their ability to meet seasonal demand.
If unsure, seek advice
For businesses, Christmas is a time where profits can increase significantly, but if you have any doubts about how to maintain a healthy cash flow over the festive period, speak to an expert.
They can ensure that you take the opportunities that Christmas brings without potentially damaging cash flow, allowing you to focus on having the right products and prices to appeal to customers, rather than on the finances they need to project their working capital. They can also help you forecast into the New Year so you have a solid plan to fall back on in what can be a quieter period.