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How small businesses can boost their cash flow heading into the holidays

if “location, location, location” are the first three rules of real estate, the first three rules of small business money management are “cash, cash, cash.”

And if managing cash flow is important any time of year, it’s even more challenging during the critical holiday season.

In every business, there’s a lag between money going out of a business and money coming in, between expenses and income. The holidays intensify that problem since you may have to order holiday merchandise in August and September and might not get paid until December. This year, with supply chain problems, it’s harder to figure out when customers will be shopping and what they’ll be buying.

Even those in professional service industries may see a cash flow problem at the end of the year. Business often picks up in the last quarter – meaning more costs in staffing and expenses – but you might not get paid until January.

How can you improve your end-of-year cash flow? With two important steps: increasing the amount of money coming in, and reducing the amount of cash going out. If you’ve got more money in your bank – longer – you’ll have more flexibility to respond to this year’s unpredictable holiday conditions.

Encourage and make “pre-sales.”  Wouldn’t you like to have your hotel fully paid for the holidays well in advance? Your salon’s staff time paid by early November for services in late December? Well, find ways to encourage customers to buy, book, and pay early. Offer discounts for prepaid services or products when purchased early in the season – such as $100 worth of goods or services for $80 when paid before Nov. 15. You may have lower profit margins, but you’ll have cash sooner.

Offer early-season deals. Why wait to offer deals until Black Friday or Small Business Saturday? Offer special deals and hold special events before the height of the holiday rush. If you can get customers to buy from you early, you’ll turn over merchandise faster, reduce stress during your busiest periods, and improve cash flow. 

Push gift cards and gift certificates.  If you’re not offering gift cards or gift certificates, start now.  After all, gift cards are, in essence, pre-sales. You get the money in your account long before a customer purchases the actual product or service. Gift certificates aren’t limited to merchandise or personal services, such as salons or spas. Even a business service could offer a gift certificate. While it may seem like a strange gift, your law firm could offer a gift certificate for drawing up a will. 

Reduce or eliminate billing. If you typically bill your clients for goods or services, you’re not going to see that money for 30 or 60 days or more. Billing is fairly typical in business services and in construction, but you tie up your funds like that. Instead, request prepayment or require payment on delivery. You’ll have your money faster and less paperwork too.

Accept credit cards. When you accept credit cards, you enable more customers to pay you immediately, and you get the money in your bank fast – often the day after processing. Yes, you pay a small transaction fee for this benefit, but you don’t have to worry about checks bouncing or invoices not getting paid. If you don’t already accept credit cards, you can easily sign up as a merchant with a service like Square or Quickbooks GoPayment.

Purchase carefully.  What do you realistically need this season: products for your retail or e-commerce store, supplies and staff for your service business, vehicles for your catering company? Examine past sales records, do your research and forecast sales. Be conservative.

Negotiate payment terms.  Ask your vendor to extend the amount of time you have to pay your bills, ideally to Net 60 or Net 90. Or for large bills, ask for installment payments.  This may not be typical, but it doesn’t hurt to ask, especially if you’re a good customer.

Pay by credit card. This automatically provides you with longer payment terms, keeping more money in your bank account during the holidays. If you’re deciding between vendors, look for ones that accept credit card payments, or ask if they’ll take a credit card.

Get a line of credit.  A line of credit from your bank acts like a credit card, but typically with much lower interest rates. If you have good credit and a good relationship with your bank, ask now for a credit line.

Arrange for a vendor to directly fulfill your customer orders. Why buy and hold inventory, especially if yours is an e-commerce business? Instead, see if you can find vendors who ship products once the order has been placed. You hold little or no inventory, and receive cash before you make the expenditure. You’ll likely have a smaller profit margin – vendors may charge more for the product as well as the fulfillment service – but you tie up far less money and reduce risk.

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