As the Christmas period come around again I thought a repost of this article I did with PayPal back in 2016. All still very relevant ! Happy reading.

Keeping customers happy is a year-round essential, but keeping your business healthy and yourself in good cheer through the spikes and surprises of the festive season takes know-how. So how do you keep control of your cash flow and steer clear of those common December–January speed bumps?

First posted December 1st 2016

https://www.paypal.com/stories/au/seasonal-sales-what-you-need-to-know-to-manage-cash-flow

When Melbourne couple Kim Peirce and Joseph O’Brien started natural skincare business Babescrub three years ago, they soon noticed its seasonal swings. As people got their bodies ready for summer partying, Babescrub’s Instagram-worthy products began quickly moving out the door.

Soon their online startup was welcoming wholesale enquiries from the US for their body souffles and scrubs, and these turned into orders from major retailers such as Urban Outfitters, Nordstrom, Nasty Gal and, most recently, Sephora.

Today, Babescrub is 99% a wholesale business, says Kim, and exporting to the Northern Hemisphere has done much to help even out its seasonal cash-flow slumps. 

Kim, a former management consultant, and Joseph – who just recently left his corporate job in mining to join the business full-time– have always kept a close watch on the Babescrub balance sheet. “We started the business on just a few hundred dollars,” says Kim who, after taking a cosmetic chemistry course, initially set up her business in her home kitchen in 2012.

Now they have an Australian manufacturer in tow that ships big orders directly, and Babescrub runs from a warehouse with a team of six covering marketing and sales, picking and packing.

Pre-Christmas orders and the great Australian summer deliver a sales uptick, so finding smart ways to manage such fluctuations is part of Kim and Joseph’s success story.

Managing cash flow with PayPal Working Capital

When sales spikes increase demand, Kim and Joseph rely on PayPal Working Capital. “We started using just a small amount – it was so instant and seamless, the money was in the bank and we didn’t feel the repayments because they were deducted from our wholesale customers’ payments to us.” They have since accessed bigger cash injections which have helped them to grow Babescrub.

“Another strategy that has really helped us is not having customers on terms – we get payment upfront. Just a handful of our big US customers are on account,” says Kim. “So we’ve paid for the product when we’re shipping it. That’s how we’ve stayed cash flow positive.”

Kim and Joseph draw confidence from their strong backgrounds in business analytics, which have given them an edge when it comes to weekly and longer-term budget forecasting and cash management. Fans of Xero accounting software’s seamless integration, they understand the importance for small businesses to “really know their numbers because they help you make decisions for the next week, the next quarter and the next year”. 

“We love Xero because it’s local and when we want to modify anything, they’re always ready to help,” says Kim.

9 cash-flow tips from Xero worth celebrating
There are numerous tactics businesses can use in December and January to help with cash flow and manage the spikes, says James Solomons, head of accounting at Xero. “Many businesses shut down in this time, which can lead to a cash flow slump and, in turn, they delay paying their suppliers – it can become a vicious circle,” he says.

1.Reduce payment terms and offer incentives

Research shows Australian small businesses typically are being paid 26 days late, so finding ways to encourage customers to pay on time around Christmas and New Year is particularly important.

James says it’s the season to ask for earlier payments. “If your terms are typically 14 days, take them down to 7; 30 days goes down to 14,” he suggests, adding that providing incentives in the form of discounts for early payments is another means of getting dollars rolling your way.

2.Invoice immediately

Waste no time in sending out invoices or chasing up slow payers, urges James. “And don’t wait until just before Christmas to send them the statement.” Good accounting software allows you to automate statements and friendly reminders.

“It should be set and forget. Make sure you’re on busy customers’ radar a few days ahead of payment being due,” he says. And if they miss the payment date, James recommends a prompting phone call or SMS so it doesn’t skip their mind. “At this time of year, back-office tasks can go right to the back,” he says.

3.Make it easy for customers to pay you

“I’m surprised by how many businesses still run on cash, including EFT, and don’t offer other payment methods.”

4.Watch out for spikes in demand!

Online businesses inevitably have less control over demand than others, which makes predicting required stock levels at Christmas trickier. The must-have is a good inventory solution, so you don’t sell something that isn’t available. Ask your suppliers for lead times well in advance, James says. Who could forget last year’s pre-Christmas drone sell-out?

5.Keep checking your web analytics

Beyond budget forecasting or looking back on last year’s trends, your website analytics deliver helpful clues for what’s happening now and what may happen next. Which pages are people visiting? At what point in the buying cycle are they dropping out?

6.Forecast and budget in detail

While some businesses scamper to keep up with demand, others may need to simply keep things ticking over. “You need a good handle on what’s going on for your business over the festive period. You may need to budget for a decrease in cash collections and an increase in outflows in the form of holiday pay, leave loadings or public holiday rates,” James points out. Do you need to close half the business for a couple of weeks or run it on a “skeleton staff”?

7.Plan some contingency cash

For businesses that foresee a cash shortfall, James also suggests invoice factoring, where unpaid accounts are sold on to a third party at a discount, and having an amount of working capital to draw on.

8.Put peace of mind high on your agenda

Something that’s often overlooked is the emotional side of business, James notes. “The happy business people at festive barbecues are always the ones who have their business finances in order. “Smart budgeting and forecasting makes for a better frame of mind and, ultimately, a better business.”

9.Note down what you have learnt

James’ important final tip is to use the January down time to make a few notes about what went right (and not so right!). “This means months down the track when you’re planning the 2017 festive season, you won’t just be looking at numbers,” he says.

The PayPal service is provided by PayPal Australia Pty Limited (ABN 93 111 195 389) which holds an Australian Financial Services Licence number 304962. Any information provided is general advice only and does not take into account your objectives, financial situation or needs. Please consider the Combined Financial Services Guide and Product Disclosure Statement available at www.paypal.com.au before acquiring or using the service.

PayPal Working Capital is provided by PayPal Credit Pty Ltd ABN 66 600 629 258