Surviving the Christmas Cash Flow Hangover: A Retail Focus

Fast forward to February, to a time when Christmas Day has been long forgotten and the New Year has come and gone. January has been slow and spent recovering or battling your competitors for your slice of the January sales.

You are sitting down enjoying your morning coffee going through your emails, when you are reminded that your December Business Activity Statement is due in a matter of days. What do you do? Did you have the cash set aside? Or does panic set in while you start googling cash flow loans?

As most retailers know, the December Business Activity Statement is often the largest one for the year.  This is due to the higher sales that Christmas generates, which results in a large GST bill and a suitably high pay-as-you-go instalment for the same reason – not to mention the increase in pay-as-you-go withholding as a result of having to take on more staff.

If you wish to survive the Christmas cash flow hangover, you need to:

  • Have a plan.
  • Prepare a cash flow statement.
  • Know you will break even.

What’s Your Plan?

As you approach the busiest time of the year in your business, take a moment to think about what trading is going to be like in the lead up to Christmas, before you rush into increasing your stock and staffing levels.  This is an ideal time to review your labour budgets and sales forecasts.

With the continuing decline in consumer confidence, will the same levels of stock be required as in previous years? Having too little stock will result in loss of sales, but too much stock will necessitate heavier discounting post-Christmas.

Workforce optimisation calls for a sensitive balance of the right people on the floor to servicing needs of your customers, while ensuring productivity and profitability.  Staffing levels should also be considered and the cost/benefit of having too many or too few determined before a decision is made on what that level should be.  For example, will you generate enough revenue from each additional staff member to cover the cost of not only their wage but superannuation, workers’ compensation and pay-as-you-go withholding?

Will You Have Enough Cash?

A critical element of any plan involving your business is a cash flow forecast.  A cash flow forecast estimates the amount and timing of cash coming into and leaving your bank account.  Knowing the time of expected cash inflows and outflows will help you make the important decisions around stock turn and staff levels, as well as ensure that you will have enough money leftover in February 2020 to pay for the dreaded December quarter Business Activity Statement.

What is Your Breakeven Point?

Your breakeven point is the level of sales that equals variable costs (for example, trading stock) plus your fixed overheads.  This is the most important number in your business and should be the key figure you use to determine the viability of your business.  If you are unsure of how to calculate this figure, ask your accountant for assistance.

By knowing breakeven point, you can easily determine what level you can discount any excess Christmas stock, should the need arise, and help avoid selling stock at a loss.

The essential element in making sure your plan succeeds is keeping track of your actual progress against what you had expected.  As trading conditions change, you may need to adjust your plan.  Good luck in surviving the hangover!

Concerned about your financial position? The C&D team has decades of experience helping businesses navigate challenging financial circumstances. Contact us today for an obligation-free consultation on 1300 023 782 or email