How SMEs can manage the Christmas Crunch 

Christmas can be an expensive time for small businesses for various reasons: so can you anticipate and reduce the season's financial impact?

The holidays are upon us and it’s a busy time for SMEs as we approach the end of the year.

These festivities are upon us, but with research showing that last year’s average cost of Christmas for these organisations hit upwards of £20,000, it’s easy to see why businesses could find themselves in a pinch. Caroline Langron, managing director at Platform Black explains.

The festive pinch

On top of normal expenditures businesses often find themselves at the mercy of additional seasonal expenses including staff bonuses, increased stock requirements and paying wages early. Rent quarter is also on its way in the New Year, adding extra pressure. What are the main areas businesses need to plan for?

Supply and demand

During this busy period, many businesses will be focusing on meeting customer demand, especially those offering retail or food products, for example. An increase in demand is welcomed by most, if not all SMEs over Christmas, but making sure that adequate stock or services are in place is a must and this relies on cashflow.

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In addition, SMEs often find they are subject to late payments, which inevitably has significant impact on cashflow available to meet supply and demand.  Only 22% of SMEs reported they were paid on time, in a recent survey, leaving many businesses waiting on essential income needed to support their business and maintain healthy working capital.

All hands on deck

Recruitment and staffing is likely to be high on the list of priorities too, as the festive season calls for more hands on deck to manage increased demand. As well as taking time and funds to recruit, this increase in staff can strain cashflow and impact levels of operation across the business.

All paid up

Very often businesses will be looking to pay staff early, ahead of the Christmas break, or to deliver seasonal bonuses. Meanwhile their cashflow can be hindered by customers also facing the same cashflow pressures. Releasing working capital tied up in unpaid invoices can help ease the burden of these early salary runs as well as bonuses where applicable.

Rent quarter

With rent quarters due in March for many businesses, planning for the first quarter of the year will also most likely be underway, on top of the Christmas activity.

Amidst the festivities, the holiday season is an expensive time for SMEs. With all of these considerations and 2016 planning on the go, it’s understandable that businesses could experience a funding gap when it comes to cashflow. It can leave organisations having to pick up the slack in January and February, which isn’t a great way to start the year.

Looking ahead

Planning how to fund the festive season, and beyond into 2016, is a must. It’s not too late to start now and put plans in place for the New Year. For some businesses this will mean speaking to the bank about credit or longer term loans. There are also complementary options available which offer SMEs non-bank support.

Alternative solutions, like invoice finance and supply chain finance, lend themselves well to seasonal peaks like Christmas, as they offer flexibility for businesses to access working capital speedily, without longstanding commitments. Very often businesses find that they can receive funding in less than 24 hours, freeing up vital reserves which could go some way towards helping the holidays run smoothly.

Invoice trading

Invoice trading is different from invoice factoring or invoice discounting, because SMEs can use it for selected invoices or for all invoices. Users receive an immediate cash advance rather than waiting 30, 60 or even 90 days for their customers to pay. The SME pays a small percentage on each invoice. It offers businesses choice and flexibility to manage cashflow and also grow.

Supply chain finance

Alternatively, supply chain finance enables businesses to support their key suppliers with same-day payment. The facility allows suppliers to receive early payment of their invoices underwritten by their customer, thus aiding cashflow at this critical time of the year.

Further reading: Show SME the money – funding options explained