4 Top Tips To Keep Cash In Your Business Over Christmas
There are four steps companies should take in the leadup to Christmas to ensure they’re not caught up in the annual spike in insolvencies that occurs each February.
Unfortunately, I expect a large increase in the number of insolvencies reported in February 2011 – over and above the usual jump in insolvencies at this time.
Insolvencies rise every February and March – businesses who have traded hard to get through to Christmas then fall into a cash flow hole over the break and rely on their GST and PAYG money to get them over the Christmas shutdown period.
Then they are in trouble when they have to pay BAS in late February.
This year these normal difficulties will be exacerbated because, as an ongoing effect of the GFC, banks have tightened their credit line and many companies are lowering their rates and margins substantially just to keep volume going through their businesses.
This will have a knock on effect to many SMEs.
Companies know that over Christmas cash flow is tighter as debtors take longer to pay and many businesses shut down for a few weeks, but this December/January we anticipate it will be much worse than previous years.
(Listen to Michael on BNET discussing this issue)
Top four actions businesses can take to avoid the new year insolvency spike:
1. Secure additional working capital now (i.e. overdraft extension). But because this will be a lot tougher this year, you may have to consider:
2. Look hard at selling non-core assets so you can inject the proceeds into the business
3. Clearly communicate your payment expectations with customers well before the Christmas period
4. Stress test your business now to see what payment plans you may need to negotiate with creditors and take a very aggressive look at your overheads to determine if they could be reduced
Businesses need to sweat their working capital more aggressively in the run up to Christmas.
You need to set and manage your customers’ expectations well before the break. Many companies stop taking calls to the accounts section in the week leading up to Christmas, so to try to get payment then may be too late.
In previous years, companies have got through this tough period by securing an overdraft extension, but that will not be easy to come by this year.
To avoid cash flow holes, we suggest businesses look at selling non-core assets to put cash back into the business – this will provide a buffer over the difficult Christmas period.
For example, if you own your business premises and you know things may be tight you may look to sell and lease back to release equity back into the business – if this is the case you would need to do it now so the funds are there for you to access by that difficult February period.
Vantage Performance is currently performing stress tests in a number of Australian businesses to help them deal with the Christmas period.
Throughout November and early December, businesses need to ensure they communicate very clear expectations to their customers regarding timing of payments.
Without this, many businesses will be pushed to breaking point.
Vantage Performance specialise in improving business performance and executing corporate turnarounds. We work with companies going through major growth or change, helping them to improve profit and performance. We also advise underperforming companies or those in financial distress, helping improve cash flow, profitability and value of the business. Vantage Performance was awarded Turnaround of the Year in 2008 and 2009 by the Turnaround Management Association of Australia for its work with troubled companies.