How to boost your cash flow before the holidays
While “location, location, location” are the top three rules for real estate, the top three rules for small business money management are “cash, cash, cash.”
And while cash flow management is important at any time of the year, it is even more important during the critical holiday season.
In every business, there is a mismatch between the money that comes out of a business and the money that comes in, between expenses and income. The holidays intensify this problem, as you may need to order holiday items in August and September and may not get paid until December. This year, with supply chain issues, it’s harder to know when customers will shop and what to buy.
âº Holiday Shopping: Why Small Businesses Should Start Preparing Now
âº Supply chain issues: What are they and how will shortages impact the holiday shopping season?
Even those who work in the professional services industry can experience a cash flow problem at the end of the year. Business often picks up in the last quarter – which means more staff costs and expenses – but you might not get paid until January.
How to improve your cash flow at the end of the year? With two important steps: increasing the amount of money coming in and reducing the amount of money going out. If you have more money in your bank – longer – you’ll have more flexibility to deal with the unpredictable conditions of this year’s vacation.
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Get more money coming
Encourage and make âpre-salesâ. Wouldn’t you like your hotel to be fully paid for the vacation well in advance? The time of your salon staff paid in early November for services at the end of December? Well, find ways to encourage customers to buy, reserve, and pay early. Offer discounts on prepaid services or products when purchased at the start of the season, such as $ 100 in goods or services for $ 80 when paid for by November 15th. You may have lower profit margins, but you’ll get the money sooner.
Offer early season offers. Why wait to run deals until Black Friday or Small Business Saturday? Offer special offers and organize special events before the holiday season. If you can get customers to buy from you sooner, you’ll return merchandise faster, reduce stress during your busiest times, and improve your cash flow.
Push gift cards and gift certificates. If you don’t offer gift cards or gift certificates, get started now. After all, gift cards are essentially pre-sales. You get the money in your account long before a customer buys the actual product or service. Gift certificates aren’t limited to merchandise or personal services, such as salons or spas. Even a business service could offer a gift certificate. While this might seem like an odd gift, your law firm might offer a gift certificate for drafting a will.
Reduce or eliminate billing. If you typically bill your customers for goods or services, you won’t see that money for 30 or 60 days or more. Billing is pretty typical in business services and construction, but you tie up your funds like that. Instead, request prepayment or request cash on delivery. You will also have your money faster and less paperwork.
Accept credit cards. When you accept credit cards, you allow more customers to pay you immediately, and you get the money quickly in your bank, often the day after processing. Yes, you pay a nominal transaction fee for this benefit, but you don’t have to worry about bad checks or bills that go unpaid. If you don’t already accept credit cards, you can easily sign up as a merchant with a service like Square or Quickbooks GoPayment.
Reduce cash outflows
Buy with care. What do you really need this season: products for your retail or e-commerce store, supplies and staff for your service business, vehicles for your catering business? Review past sales records, do your research, and forecast sales. Be conservative.
Negotiate payment terms. Ask your supplier to extend the time you have to pay your bills, ideally at Net 60 or Net 90. Or for large bills, ask for installment payments. It might not be typical, but it doesn’t hurt to ask, especially if you’re a good customer.
Pay by credit card. This automatically gives you longer payment terms, keeping more money in your bank account during the holidays. If you are deciding between providers, find out which ones accept credit card payments or ask if they will accept a credit card.
Get a line of credit. A line of credit from your bank acts like a credit card, but usually with much lower interest rates. If you have good credit and a good relationship with your bank, apply for a line of credit now.
Have a supplier process your customers’ orders directly. Why buy and hold inventory, especially if it is an e-commerce business? Instead, see if you can find vendors that ship products after the order is placed. You have little or no inventory and receive money before you spend. You will likely have a lower profit margin – vendors may charge more for the product as well as the fulfillment service – but you incur much less money and reduce risk.