Business cashflow and the Summer holidays - Part 1

07 June 2016

The commencement of Summer is a time for many business owners to reflect on the past year's activities, plan for the coming year, and (hopefully) take some time off to enjoy the warmth of July - August with family and friends.

However, for many business owners and managers, the lengthy Summer holiday season extending from the middle of July until nigh on the end of August, can bring with it added stresses when it should be happy and enjoyable.

Since most non-retail businesses close for an extended period over the Summer, inevitably cashflow often takes a turn for the worse. This is especially true of small businesses which frequently lack extensive cash facilities. Of course, experienced small business owners know this already; so what can others learn from them?

Tips for ‘de-stressing’ business cashflow at holiday times:

We asked several owners of small businesses for tips on how they prepared and managed their cash position over the Summer holiday shutdown. Here is their advice:

1. Prepare for the impending seasonal business closure well in advance. Send out 30-60 days invoices prior to commencement of the holiday season, to have a reasonable chance of receiving payment soon after the debtors’ businesses have re-opened.

For example, many Southern Hemisphere business owners / and managers make an effort to despatch invoices in the week(s) leading up to Christmas, to ensure they have a reasonable chance of receiving payment on time once the debtors have re-opened in January-February. Doing this can potentially save your business several crucial weeks of deferred income.

Of course, the same applies for the Northern Hemisphere’s July-August break.

2. Closely follow up your debtors promptly after businesses finally do re-open following the Summer break. For example, those invoices sent out prior to heading off on your holiday can now be followed up in short order.

3. Bank facilities (e.g.: overdrafts, credit cards, short-term loans and other forms of finance) tend to be used heavily by businesses to carry them through the cash-lean Summer holiday period. There is nothing wrong with that; it’s a significant reason why these facilities exist. However, be sure you don’t exceed the bank’s approved borrowing limits and arrangements. Nobody likes to have their cheques and payments returned, or to be on the receiving end of an uncomfortable phone call from their banker!

When I was a business banking manager, many of us would usually work through the summer period while our clients’ businesses were closed in order to catch up on administrative tasks. While it was a quiet informal time at the office, we inevitably saw our clients’ overdraft and business account cash balances decline. Routine payments (e.g.: issued cheques, direct debits, etc) would still be automatically deducted, but of course no one was depositing funds into those accounts.

Generally speaking, this was OK and expected by both clients and their bank managers. The clients’ accounts usually remained within their approved banking limits, and even if an account occasionally strayed outside its limit, short-term arrangements were often in place to cover the account until the business had re-opened.

However, if a significantly large payment unexpectedly caused a business client’s account to suddenly become 'out of order' without prior arrangements in place, and the client couldn’t be contacted during their holiday, then the bank manager had a difficult decision to make! This is where the strength of the client-and-banker business relationship is particularly important … but that’s a topic for another blog post.

4. Although it flies in the face of good debtor invoice management, it is appealing to postpone at least some of your creditors’ payments until after your business re-opens and cash is again flowing in. Some business operators may contact their key creditors to seek special payment arrangements at this time, but of course, that’s not always possible, and it also goes without saying that postponing payments has to be done carefully and judiciously. After all, you don't want to gain an unenviable reputation as a poor paying customer!

5. Ensure your staff take their accrued leave during business holiday times. While it may not be directly relevant to cashflow as such, it does reduce the business’ Leave Liability line item in the Balance Sheet.

To be continued in part 2.

Matthew Batt

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