Christmas is a little over 3 weeks away and everyone is in a rush to get everything done and capitalise on any remaining opportunities before the Christmas lull. But busy period or not Christmas causes a period of dislocation and volatility for most businesses. This usually means it is not business as usual and for many businesses, it is the change that causes big problems.
Here are some traps to watch out for:
1. Ho, Oh, No. The trading stock headache.
If your business activity spikes over the Christmas period then there can be a temptation to increase stock levels. Good idea unless you go too far. Too much stock post the Christmas period and you will either be carrying product that is obsolete of all your cash is tied up in trading stock. Try to work with suppliers who can supply on short notice. Better still, see if some of your suppliers will supply you on consignment where you only pay them once the stock is sold. It might be better to miss a few sales than carry a trading stock headache into the New Year.
Managing your trading stock is not just about managing cost. A recent study by the Australian Centre for Retail Studies at Monash University found that 61% of the people who went to a traditional retail store but then bought online did so because the retailer didn’t stock what they needed.
2. The discounting wars.
Avoid discounting in during Christmas. The BIG sale signs are already up and this will continue in the run up to Christmas. But don’t join in if you don’t have to. If everyone is discounting then it may sound like a good idea but know your profit margins and how much you can afford to discount. By discounting your margin away during peak trading season you may not have any profit left to carry you into the New Year. For example a business with a 30% gross profit margin that offers a 25% discount needs a 500% increase in sales volume just to maintain the same position . The outcome generally is the business is trading below breakeven point and generating losses. So think carefully before you go discounting and who wants to be the cheapest anyway as more people look for service and quality these days.
3. The Christmas cost hangover.
Costs tend to go up over this time of the year e.g. staff, leave costs, downtime from non-trading days as well as increased promotion costs so costs push up, and up, and up. Keep an eye on them. It’s great to get into the Christmas spirit as long as you don’t end up with a New Year hangover from it.
4. New Year cash flow crunch.
The New Year period will lead you into a quieter trading period and a tighter cash flow period especially up until the kids go back to school. Then the March quarter tends to be the toughest cash flow quarter of the year with everyone struggling to keep up with household expenses cash is tight. So you need to have some cash buffer going into the New Year. Don’t over commit yourself before the end of the year and end up in trouble in the New Year.
5. Take a lesson from Scrooge
If you have account customers, start your debtor follow up process now. If your customers are under any cash flow pressures like most people are during this period, the Christmas period will only increase that pressure as most people use their cashflow surplus to pay for family holidays and Christmas gifts. The creditors who chase hard and early will get paid first. Don’t be the last supplier on the list – their pockets may be empty by then.
Christmas is a special time of year for you and your family to enjoy. Don’t get caught up in these business Traps. Take control of your business and enjoy the Festive Season.