If you run a small business, the holidays seem like they’re already here. Yes, I know, it’s not even Halloween, but studies show that about 40% of shoppers begin their holiday shopping before jack-o-lanterns are even lit. For small businesses, the greatest holiday challenge may not be getting shoppers in their door, or finding enough staff to help out, but managing the ups and downs of cash flow.
Of course, in every small business, there’s typically a lag between expenses and income throughout the year. But it’s especially true for seasonal retail, ecommerce, service, and hospitality businesses that rely on holiday sales for a good chunk of annual revenue.
After all, holiday inventory or supplies, and the bills for them, may arrive in September, but your customers won’t show up and pay until November, December, or even January.
What can you do to steady the holiday cash flow roller coaster?
First: get money coming in sooner.
** Encourage pre-sales. Wouldn’t you like to have your hotel or salon fully booked and paid for well in advance of the holidays? Offer discounts for pre-paid purchases early in the season—such as $100 worth of goods or services (nonrefundable) for $80 when paid before November 15. You may have lower profit margins, but you’ll have cash sooner.
** Hold early season sales events. Sponsor in-store events before the height of the holiday rush. If customers buy from you early, you’ll turn over merchandise quickly, ease your busiest periods, and improve cash flow.
** Offer gift cards. Gift cards are, in essence, pre-sales. By selling a gift card (or certificate), you get the money in your bank account long before a customer actually purchases the product or service.
Second: get paid faster.
** Reduce billing. If you bill your clients for goods or services, you typically don’t receive payment for 30-90 days. The holidays are a tough time to tie up your money. Instead, request pre-payment or require payment on delivery. You’ll have less paperwork during this busy season, too.
** Accept credit cards. By accepting credit cards, you enable more customers to pay you immediately. You get the money in your bank fast—often within 48 hours. Yes, you pay a small transaction fee, but you don’t have to worry about checks bouncing or unpaid invoices.
** Take mobile payments. Mobile credit card readers from Square, Intuit, PayPal, and others enable you to accept credit cards even if you’ve never accepted them before. They’re also great if you’re on the go: selling at holiday, crafts, or street fairs, or running a food truck.
Next: pay later, without getting in trouble.
** Negotiate payment terms. Ask vendors to extend the amount of time to pay your bills, to at least to 60 or 90 days instead of the typical 30 days, ideally without incurring additional interest charges. No, it’s not standard practice, but they might be willing to work with you. It doesn’t hurt to ask.
** Request installment payments. For large invoices, ask vendors if you can pay in installments over three to six months instead of one lump sum. Once again, this isn’t necessarily standard practice, but a vendor might be open to installment payments rather than longer payment terms.
** Pay by credit card. This immediately provides you with longer payment terms, keeping more money in your bank account during the holidays. You’ll probably pay some interest, but this gives you more flexibility during a critical period. Ask vendors to accept credit card payments and seek out vendors who do.
** Arrange for vendors to fulfill your customer orders. This is a great business model, especially if you run an ecommerce retail site. You do the marketing and customer service, but the manufacturer or vendor fulfills the order once placed. This way, you buy and hold little or no inventory. Yes, you’re likely to have a smaller profit margin on each sale —vendors may charge more for the product on top of the fulfillment service—but you tie up far less money and reduce risk.
Managing cash flow is always critical to small business success, but it’s especially important when you’re facing the holiday crush.
Copyright, Rhonda Abrams, 2016
This article originally ran in USA Today on October 12, 2016
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