According to data, January is the worst time of year for businesses to get paid with only 38% of small businesses reporting they are cash flow positive in January.
Most of the country goes on holiday in January, so this can be a tough time for New Zealand businesses with cash flow issues, holiday expenses, and delayed invoice payments. This is especially true for small businesses (SMEs). However, with some forward-thinking, you can plan effectively for the January cash flow dip.
#1. Stay on top of Invoicing
In January, businesses reported that 62% of invoices were overdue, with payments averaging a delay of 12 days. Late invoice payments can be one of the biggest challenges for businesses, not just in January, but year-round.
To help prevent this, ensure you send out invoices promptly and offer convenient payment options to encourage faster payment. Where possible, consider incentives like small discounts for early payments or late fees for overdue accounts.
You can also use automation tools and accounting software, such as Xero or MYOB, to streamline invoicing and send payment reminders. These platforms can reduce admin time. Furthermore, look at setting up a prepayment system. This can ensure you have a continuous cash flow coming in, reduce the risk of non-payment and shows customer commitment.
#2. Plan for Seasonal Changes
If possible, I suggest building a reserve fund during busier months to cushion your business through slower periods. You can do this by automating small transfers into a savings account to make the process easier. But preparing for January should start well before the new year by creating a cash flow forecast.
Managing and forecasting your cash flow enables you to plan for growth, steer clear of financial challenges, and handle unexpected situations. Cash flow management is the process of making sure you have enough money coming in, to help avoid financial troubles. While a budget can lay out the financial plan for your business, a cash flow forecast can help predict the future health of your business, plan for slower months, prioritise critical expenses (such as wages and rent) and defer non-essential spending until cash flow stabilises.
#3. Find Other Means of Income
Businesses that operate without a budget will often find themselves reacting to financial issues as they arise, rather than proactively managing their finances. If cash flow is tight, you could consider approaching a bank for a loan that you can pay back during busy periods, or ask for an overdraft.
Alternatively, you could get creative with your income streams by planning promotions during slower periods, selling excess inventory, or exploring new services that align with your business. For example, hold a post-holiday sale to encourage spending or offer discounted packages for early bookings.
#4. Negotiate With Suppliers
Suppliers may be open to extending deadlines or setting up payment instalments for loyal customers. If cash flow is tight, reach out to your suppliers to discuss flexible payment terms. Negotiating with suppliers during a cash slump can provide immediate relief by giving you flexible payment terms and can help free up cash for critical expenses like payroll and rent. But you don’t have to wait till budgets are tight to do this.
Don’t let cashflow concerns leave you sweating through the holiday period! Putting some forward-thinking strategies in place can help you prevent cashflow challenges throughout the year.
Want to know how your business is performing regularly? Take control of your finances today and set yourself on the path to success. Get in touch for a free, no-obligation chat.
