The Christmas countdown is happening, and we are rushing to get everything done to capitalise on all opportunities before the post-Christmas lull. Whether Christmas is a busy period or not, it does cause volatility and dislocation for most businesses. It is not business as usual and that is what causes the problem.
5 Tips for Business
Business owners cope better with predictable and consistent trading conditions, and solutions to issues that arise are easier, it is a very different picture during disrupted periods. Watch out for these five things this Christmas:
1. The headache that is Christmas trading stock – Ho, Ho, No …
If your business sells goods and your activity spikes over Christmas, there will be the temptation to increase stock. It makes sense as long as you don’t go over the top. Having too much post-Christmas stock means you have a lot of cash tied up with stock or will be carrying out of season product. Find suppliers than can work on short notice. Or better still, see if they will place stock on consignment, then you only pay once stock sells. Sometimes it is better to lose a few sales rather than carrying a lot of stock and headaches into the New Year.
Stock management is not just about the cost aspect. Consumers will purchase online if they cannot purchase in store. Retailers can capitalise on this by giving consumers the opportunity to buy online while still in their store if the stock is not currently available or may provide free shipping.
2. The trend to discount
Consumers want a bargain and usually find one. With Black Friday sales stock is usually available. Those consumers waiting for last minute bargains just before Christmas, are left with whatever stock remains.
If you decide to discount stock, it is crucial to know what your profit margins are so you can calculate what you amount you can discount. Carefully consider your strategy and what your business can sustain. Example – a business with 30% gross profit margin that decides to offer a 25% discount needs to increase sales volume by 500% simply to maintain the position they were in beforehand. Quite often businesses end up trading below their break-even point and therefore generate losses.
3. The increased costs of Christmas
Costs increase over the Christmas period. Employing more staff, holiday and other leave costs, downtime from public holidays, and promotional costs all add to the cost of doing business. Keep a close eye on the costs. It is awesome to embrace the Christmas spirit as long as you don’t get a hangover for New Year.
A lot of businesses bring on more casual staff. Make sure you are paying staff the correct pay rates and meeting your Super obligations. Example – Under Retail Award, the rate for casuals (21+ years) starts at $26.76/hr. There is a 3 hour minimum shift for all casual workers. Check the Fair Work website findyouraward to check correct rates.
4. Cash flow headaches into the New Year
Quite often the New Year means quieter trading and also tighter cash flow. The first quarter (Jan-Mar) is usually the toughest quarter for cash flow for the year. Ensure you have a cash buffer heading into the New Year. Don’t over-commit at the end of the year or it will lead to problems in the New Year.
5. Be like Scrooge – chase in those debts
If your customers have accounts, start following up the debtors early. If they are experiencing any cash flow problems, Christmas will increase that pressure. Creditors who chase early and hard get paid first. You don’t want to be the last supplier on payment list – the cash flow bucket may well be empty at that time.
Christmas is a magical time of year. Don’t get caught up in the hype and rush and lose control.
At Accorti Accountants +Advisors we are Business Accountants. We work with clients all over Australia and have offices in Brisbane and the Gold Coast. If you have any questions or need help please contact us now.
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