When you are planning for the Christmas period, cash flow is both the last thing and the most important thing you will be wanting to think about. A retail business loan could be the answer to poor cash flow as well as being an early Christmas present and a New Year’s boost.
In order to get the maximum benefit from Christmas sales it’s important that your business is fully prepared for anything that might happen and this includes planning your Christmas retail strategy and then monitoring what happens. Amending it as you go.
One of the best ways you can do this is having a financial cushion to fall back on when you need it most because if anything goes wrong you cannot afford to lose any opportunity to maximise this period of the year when up to half of your annual sales turnover can occur.
Step 1. Getting a retail business loan
It doesn’t matter what your retail business is, whether it’s tech products, clothing or a restaurant, a retail business loan can ensure that you are prepared to take advantage of increased sales, growth or just survival.
Funding Guru are specialists in finding finance that other financiers often don’t look for. So if you have been turned down for business loans in the past we can usually still help.
Just like a small business loan, it can be used any way you like, whether it is for business expenses, rapid expansion or for settling advanced purchases. You choose to spend it how you want to.
If you are a business that has a high turnover of cash then you could also look to apply for a business cash advance loan.
Step 2. Creating a Christmas retail strategy
Set Budgets & Forecasts – Creating a budget that sets out expected sales, purchases, targets and costs is a good way of taking into account the expected inflows and outflows of money. This will include the payment terms you have with customers and the risks of late paying.
Marketing & advertising budgets – Your Christmas success will be dictated by effective marketing to make the most of your sales opportunities. If you are marketing direct to the public then your promotions need to be shinier than your competition. And this means both online and offline marketing efforts.
Monitor – Continue to monitor your results often and compare it to your cash flow budget and forecast. This means you can deal with any shortfalls in cash and amend your budgeting to suit without getting a nasty surprise at the end of the month.
Invoice promptly – If you are in retail B2B then as soon as any work is completed, make sure they are invoiced straightaway and establish that there will be no problem in getting them paid on time. Receiving invoices late is the number one excuse for customers not paying on time. You might even consider adding an option for paying the invoice early in exchange for a discount.
Reach out to customers and suppliers – Having a good working relationship with your customers and suppliers can often be the key to ensuring payments are made and accounts are not put on hold. Keep suppliers informed of your projected sales figures and what you will need to cope with demand. Keep customers on side and ensure your invoices are not held up.
Buying stock – If your forecasts look good, then you can take the opportunity to buy in bigger quantities from your suppliers and take advantage of better rates – one area where a business loan can prove more than effective prior to the Christmas rush!
Step 3. Monitoring your business cashflow
If you are lucky Christmas can bring in a large proportion of your annual sales, especially for companies in the retail sector. Yet it arrives with a lot of pressure, demanding that your capacity is as optimised as your demand.
Increased sales also mean increased costs; more materials, more labour, more overheads. And at the same time businesses have to deal with:
- Purchase payments
- Staff parties
- Staff holidays
- Visiting customers (and giving them gifts)
- Advertising campaigns
This means less time spent in the office and less time left to access and mitigate financial constraints, including invoices and administration. It results in a considerably more stressful time than any other where late payments and unhealthy cash flow are found in abundance.
Doing this without the assistance of a retail business loan can be a difficult task, your business might not grow, or maybe it could fail, without it.
Step 4. Identifying potential pain points in your cashflow
You can prepare your budgets and forecasts, but there will always be some mitigating circumstances that force you to find a quick financial solution.
Late payments – Your payment terms with customers might be longer than those you have with your suppliers, causing a temporary offset where you owe substantially more money than you have coming in. This is made worse by suffering late payments from older invoices. This can seriously affect your trading capacity at a time when you need it most.
Early wages – A common theme at Christmas is bringing forward the payment of staff wages. But this can make a huge dent in the amount of cash you have left in the bank for paying for stock and other expenses, exposing you financially if customers don’t pay.
Weather – The age-old problem of poor weather can seriously affect your productivity levels, it can cause staff to be absent, vehicles to breakdown and higher than expected heating and utility bills as well as broken or burst pipes. Then you have delivery constraints due to hazardous transport conditions and delayed deliveries can mean delayed payments.
Slow sales – Sometimes despite the best efforts of your marketing and sales teams – or just due to one of the factors above – sales just don’t measure up to pre-Christmas forecasts. This means you have a lot of stock to pay for and fewer invoices/less cash coming in to pay for them.
Extras – Don’t forget to decorate the office or shop, buy the after-work drinks, the gifts to clients and cover for staff absence (Christmas is the most popular time for sickies) all help to chip away at your cash flow.
Step 5. Looking ahead, beyond the festive period
Clearly, Christmas is an expensive time of the year for most retailers. Getting your finances right before the season begins is a good way to prepare for whatever comes your way, both good or bad and to take advantage of the options for buying in bulk.
It could take more than just January to get your finances back in order again. Historically, retailers can find it even more difficult in December and January despite getting as much as 40% of their annual profits from this period. Pressures include;
- Strong competition
- Widespread discounting
- Rental payments falling due.
Big businesses like Woolworths and HMV were found out at this time of the year and rent, alongside sliding sales, were the chief culprits. It can often be January when retailers finally fail because of mounting financial pressure.
Step 6. Using a retail business loan to aid cash flow
A retail business loan can help mitigate the risks of any cash shortfall leaving you unable to meet liabilities, either in the run-up to Christmas or if there is a lull in the New Year.
A short-term loan (1-3 months or up to 12 months) can help businesses suffering from late payments or supply chain problems in December.
If you experience some of the pain points outlined above it might mean you don’t have enough money to pay employees, suppliers, subcontractors, rent or your VAT bill. It can easily be the final straw for some businesses at this time of year. A business loan, agreed in advance can minimise the effects of any problems your business can run into.
You get the money you need now without risking the operations of your business to make money at one of the busiest times of the year. With your profits, you can then pay back your business loan.
It means that your company doesn’t have to close its doors in the New Year and that Directors and business owners can enjoy the festivities of the season with a bit of breathing space, without extending your liabilities.
A retail business loan can exist alongside other forms of finance like credit cards or overdrafts. They aren’t necessarily competing with them, although they can offer better lending rates than both. A retail business loan can also be arranged to cover much bigger sums too.
Have the best Christmas sales ever
The real key for retailers at this time of year is to ensure they plan their finances early, ensuring that all cash flow forecasts are fleshed out and any potential pain points are mitigated. Continuing to monitor throughout also helps to update and improve your forecasts.
Having a retail business loan available means that whether your projections are positive or negative you are in a position to ensure you get the best deal through either short-term cash flow shortfalls or maximising your profits and continue to thrive into the New Year.