While Christmas is a time of rejoice for most retailers, it’s also the time when small businesses are most likely to become insolvent.
Businesses in sectors such as services or manufacturing suffer losses because many shut down for a couple of weeks. While they are shut down, they’re still paying wages and fixed costs, such as rent and loan repayments. For these businesses, there’s a lot of money going out during Christmas, but not a lot coming in!
The financial pain typically comes in February, when businesses return to normal trading.
They find they don’t have the cash to meet obligations, which could lead to insolvency.
So what can businesses do to improve cash flow?
1. Make a Plan
Owners should do a cash flow forecast to determine if the business will struggle during the Christmas holiday break.
2. Talk to the Bank
Approach the bank about the possibility of getting a short-term overdraft extension. Banks will be more receptive to this if they can see the business owner is putting a proper plan in place.
3. Get Invoices Out
Owners should get their accounts in order and send out invoices well before Christmas.
4. Follow Up Invoices
Likewise, owners should follow up on all invoices that have already been sent out and not paid.
5. Talk to Suppliers
Negotiate with suppliers to hold off paying them until mid or even late February, to buy breathing space.
6. Collect your Debts by legal action
If a bill is more than 60 days outstanding, seek the support of a law firm’s debt recovery service, like ours.