Affording the silly season

Cash flow is always a challenge for business, particularly for businesses in their first few years of operation and  especially during the looming silly season.

But here's some good Christmas news.

There are any number of signifi cant areas where savings can be made and some semblance of operational peace of mind experienced. Holiday pay, especially the statutory holidays, is always a signifi cant cost-gobbler, as are the usual costs  associated with the festive period: client gifts, cards, staff gifts and end-of-year party, along with additional  security and overtime payments for longer opening hours.

So how do these costs measure against the benefit for the business? Are all these outgoings really necessary? This is also a period for enforcing your terms with clients. The softer you are, the more likely they will see  you as a very cheap and easy finance facility, a money-lender without the margins. Stock levels are also worth keeping a sharp eye on. Stock, after all, can be thought of as cash sitting on the  shelves, and any prudent business ought to regard it as such in determining what constitutes a comfortable level to maintain. This is a time for getting invoices out early. Since most businesses aren't staffed until the second week of  January, the likelihood of clients paying invoices sent after Christmas by the 20th of the following month is  greatly reduced.

Tax deadlines, of course, also shift.

The IRD allows the payment of GST normally due on December 28th to  be held over until January 15th. But watch out: if your operation is on a monthly GST cycle, the next due date  is January 28th. There are other areas that can chew through cash, but which could be more easily managed. The purchases of  new assets, for instance, should probably be held over until the cash returns to normal levels. The usual  cash outgoings for overheads, as well, may be affected by the summer holidays. Ensure you and your  suppliers have the same understanding.

Push them for discounts or options for delaying payment. Looking ahead is crucial to preparing for and managing your cash. I often work with clients to prepare or  assist in developing cash flow forecasting models. These need not be overly complex or time-consuming – a  simple spreadsheet can even suffice – especially if you're working with a skilled advisor. What I usually suggest is a minimum 90-day rolling forecast based on the likely timing and amounts of cash  coming into the business from customers, and of course the relevant costs during the same period. For  servicebased business at least, staff costs are usually a known quantity. Overheads are usually predictable, too. The trick is to compare the forecast with past experience to ensure your business has picked up the full spread  of income and expenses. (Don't forget to include the below-the-profi t-line items, such as asset  purchases, loan draw downs/repayments, injections or withdrawals of capital by owners.) And don't forget tax obligations.

Once you have this set up, you should adjust the numbers based on your plans for the coming year. This will  provide a strong indication of your daily cash position over the coming 90 days. That's where you can start planning how to deal with any periods where you may be in a cash shortfall position, including, of course, the  period soon to be upon us.

And here's a present you can even give yourself. Taking what we've just looked at a step further, you can  also project your cash fl ow for all of 2010. This will, as well as help keep order through the silly season, help  in planning and managing your cash so you can then focus on growing your business and maximising your outcomes in the coming months. Merry Christmas!