The ups and downs of Christmas cash flow (and a gift from Collins Hume)

Christmas has a psychology of its own.  Christmas and gift giving (aka 'spending') stretches well beyond the designated dates.  For retailers, the sooner we're in the spirit the more likely it is that we'll spend on gifts and entertaining.

As consumers, the lights, decorations and advertising already in the shops remind us that Christmas comes round fast. 

Your financial budget is the money map of the journey your business takes. Your cash flow plan is equivalent to a fuel gauge telling you how much cash is available. This is important, as not only low profit businesses need to carefully monitor cash. The risk of running out of 'fuel' can be highlighted by an up-to-date cash flow plan.

The keys to effective cash flow management are reducing accounts receivable days, maximising inventory turn and establishing reasonable creditor terms. The technical term for the accumulated days in inventory and receivables less days in payables is known as lock up. For a business with $1m turnover, every day in lock up is effectively $2,739 of inaccessible cash flow. Put another way, working together with us, if you reduce lock up by just ten days you'll free up close to $30,000 cash. What would that mean to you?

For many, Christmas is a time of slow-down. The longer the Christmas period stretches, the more sluggish sales become in the last quarter of the calendar year.  Customers influenced by the slow-down delay decisions or purchases till New Year.

So it is important to be vigilant with accounts receivable, inventory and payables knowing that revenue may be slow over the opening months of 2012. Act now by taking a close look at what you can do to pull sales forward before then and during the poor cash flow months of February and March.  Even if the sales don't eventuate this calendar year, some targeted marketing will give you a good base from which to lock in sales in the New Year.

Free cash flow plan offer: Kick start the quality of your business information in 2012!  For any business that signs up for quarterly management meetings, have the fee of your cash flow plan waived offer valid until 22 December 2011.  Call Collins Hume on 02 6686 3000 to find out how.