Cash Flow Tips for Business Owners During the Holiday Season
The holiday season can do some strange things to your business cash flow.
You may have employee bonuses coming up, additional inventory to purchase, holiday marketing expenses, gifts to buy, and year-end bills hitting around the same time. Depending on your business, you might also have customers taking longer to pay or fewer working days because of holiday closures and time off.
Suddenly, a business that normally has plenty of cash available can feel a little tighter than usual.
That does not necessarily mean anything is wrong with your business. It just means the holidays are one of those times when looking ahead matters.
Here are a few ways to manage your small business cash flow during the holiday season and head into the new year feeling much more prepared.
Start With Your Holiday Business Expenses
Before holiday spending starts, make a list of the additional expenses your business expects over the next couple of months.
That might include employee bonuses, seasonal employees, additional inventory, holiday marketing, client gifts, team celebrations, shipping costs, or other year-end purchases.
Some of these expenses might seem small individually, but together they can make a noticeable difference in your cash flow.
Once you know what you are planning to spend, you can start looking at whether the cash coming into the business will comfortably cover it.
Plan for Employee Bonuses and Holiday Time Off
If you plan to give your employees a holiday or year-end bonus, make sure those additional payroll costs are included in your cash flow planning.
Remember that the bonus itself may not be the only additional cost. Depending on how your payroll is structured, there can also be payroll taxes and other costs associated with that additional compensation.
This is also a good time to make sure your payroll system is working for you. ADP is one of the payroll providers I work with and recommend to business owners who want help managing payroll, tax filings, and employee payments.
Time off matters too.
Employee vacations, your own time away from the business, holiday closures, and fewer working days can all affect productivity and revenue. If your business normally earns less during the holidays, factor that into your expectations instead of planning around a normal month.
Collect Outstanding Customer Invoices
One of the simplest ways to improve cash flow before the holidays is to make sure you are collecting money your business has already earned.
Take a look at your accounts receivable and see which customer invoices are still outstanding. If anything is overdue, now is a good time to follow up.
You do not want an invoice that is already 30 days overdue quietly becoming 60 or 90 days overdue while everyone is out of the office for the holidays.
If you use QuickBooks Online, pull your accounts receivable aging report before the holidays. It gives you a quick look at which customers still owe you money and how long those invoices have been outstanding.
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Getting those invoices collected before year-end puts that cash back into your business when you may need it most.
Look at What Your Business Has Coming Due
Next, look in the other direction.
What does your business need to pay over the next several weeks?
Review upcoming payroll, vendor bills, credit card payments, loan payments, subscriptions, tax payments, and any larger year-end expenses you already know about.
This is where having organized, up-to-date bookkeeping becomes especially helpful. Instead of waiting for expenses to hit your bank account, you can see what is coming and plan your cash accordingly.
Be Careful About Tying Up Too Much Cash in Inventory
If you sell products, the holidays may mean ordering more inventory than usual.
But more inventory is not always better.
Inventory sitting on a shelf represents cash your business has already spent but has not earned back yet. Ordering significantly more than you actually need can leave you with plenty of products and not enough available cash for everything else.
Look at what you already have, what historically sells during the holiday season, and what you realistically expect to sell before placing additional orders.
The goal is not simply to have enough inventory. It is to balance having what you need with keeping enough cash available to run the rest of the business.
Do Not Forget About Taxes
Your bank account balance is not necessarily the amount of money your business has available to spend.
Some of that cash may already need to be reserved for taxes.
Before adding extra holiday spending or making large year-end purchases, make sure you are still setting aside enough for upcoming tax obligations.
I like the idea of physically separating money that has already been spoken for instead of leaving everything sitting together in one operating account. A separate business account can make it much easier to distinguish between money available to spend and cash you are intentionally holding for taxes or other upcoming expenses. Bluevine makes this easy by allowing you to create sub-accounts within your business banking account, so you can keep money for taxes separate without opening an entirely different bank account.
I especially like this for setting aside tax money as you earn it. That way, the money is still there when tax payments come around, but it does not look like extra cash available to spend in your everyday operating account.
And if you are considering Bluevine, there is currently an extra perk for Oak and Ledger referrals. Eligible businesses can receive 3 months of Bluevine Premier free (a $285 value) plus a $500 signup bonus after meeting the applicable eligibility requirements.
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Your tax professional can help you estimate what you may owe and determine whether additional estimated payments are needed. Accurate, current bookkeeping gives them much better information to work with when making those calculations.
Look Ahead Instead of Just Looking at Today's Bank Balance
This might be the most important part.
Your bank balance tells you how much money is available today. It does not tell you what your business will need three weeks from now.
Take a few minutes to estimate the cash you expect to receive over the next couple of months and compare that with the expenses you know are coming.
It does not have to be a complicated financial model.
Even a simple cash flow forecast can help you notice that a large credit card payment, payroll, bonuses, and a tax payment are all expected within the same two-week period.
Once you know that ahead of time, you have options.
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A Little Planning Can Make the Holidays Much Less Stressful
The holidays are busy enough without wondering whether there will be enough money in the business account to cover everything coming up.
A little planning now can make a big difference.
Know what you expect to spend. Follow up on money customers owe you. Review upcoming bills. Protect the cash you need for taxes. And look a few weeks ahead instead of relying only on today's bank balance.
That is one of the reasons I believe bookkeeping should be more than recording transactions after they happen.
When your books are current, they give you information you can actually use to plan your business.
If your books are behind or you are not quite sure what your numbers are telling you, Oak and Ledger can help you get organized and head into the new year with a clearer picture of your business finances.
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