RSM New Zealand

Avoid cash flow issues over the holiday period

The festive season is the busiest time of the year for many industries, but while it can be seen that “business is booming” to most, behind the scenes there may be cash flow issues.

For some industries, the rush probably started a few weeks/months ago – renovators and hairdressers getting last minute makeover work, mechanics servicing or fixing cars in time for holiday trips – and of course the retail and tourism sectors are in their element.  The holiday period can account for a significant amount of sales for some businesses.

While being busy at Christmas may sound like a good problem for small business owners to have, it brings its own challenges – do you have enough stock? Have you rostered on enough staff?  Will you have the cash flow to get more stock or staff if needed?  And the big one for many – can you afford to pay your provisional tax bill in mid-January?

Businesses that take a proactive approach to managing their cash flow can take some of the stress out of the festive season by:

  • Prompt invoicing and payment collection
  • Emailing invoices with detailed descriptions to avoid confusion
  • Making sure payment terms are clearly stated
  • Encouraging direct payments to bank accounts
  • Using mobile devices to access accounts and check-in during the day to keep on top of cash flow
  • Outsourcing debtor collection
  • Sending statements
  • Using accounts receivable reports to manage cash flow.

A regular forecast on paper (or screen) rather than in your head can definitely help you sleep better at night. 

For some, last minute preparation is not enough and they prefer to prepare a regular cash flow forecast which assists in predicting when and where any cash flow issues may arise.  A forecast does not have to be too detailed and a simple spreadsheet can be an important tool in helping ensure money is set aside for when and where it is needed. 

Are your 2 or 6 monthly GST payments sneaking up on you and catching you by surprise?  By using a cash flow forecast, you can see where and when your payments will be required and have the funds ready.  If you are regularly late on these payments, think of how much you could save by avoiding penalties applied by the IRD.

If you are worried about the upcoming festive season and how you will manage, now is the time to seek assistance – we are here and ready to help! 

 

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Authors

Craig Cooper
Partner - Auckland