How to Manage Cash Flow During the Volatile Holiday Season…


According to a new study of nearly 300 U.S. small businesses by my company, Kabbage, one-third of small businesses surveyed reported Q4 as the most profitable time of the year for their company. The findings do vary by industry, however: 74 percent of online retailers and 71 percent of brick-and-mortal retailers cited these last months as their most profitable time of the year, while restaurants, bars and caterers (47 percent) said the same thing, and 38 percent of transportation companies did likewise.

The data also reveals that profits still soar despite higher costs. The data shows that 42 percent of small businesses surveyed said their costs increase as much as 25 percent.

While inventory and marketing, unsurprisingly, are some of the top costs, entrepreneurs polled said their increased costs were due also to the addition of seasonal staff as well as end-of-year gifts for employees for their contributions to the company. Nearly one third of those surveyed said they spend more on employees in the form of holiday gifts and dinner parties during Q4.

Finding ways to appreciate and value staff should be a year-round endeavor, but small business owners clearly see the season of giving as the perfect time to increase their spend on gifts and events to reward their employees and express gratitude.

Increased Q4 costs

The transporation, construction, IT/software and accounting/finance industries led other categories surveyed in the increased costs they expected in Q4, in the form of holiday gifts and parties for their employees. The percentages for the proportion of companies in each segment that said this were:

  • Transportation (80 percent)
  • Construction (54 percent)
  • IT/Software (55 percent)
  • Accounting and finance (44 percent)

Related: Nine Cash Flow Management Best Practices For Entrepreneurs

However, following the old adage, “It takes money to make money,” the data showed other top-operating expenses across industries. That data, broken down to expenditures, and the corresponding percentages, included:

  • Purchase of more inventory: retail (71 percent); manufacturing (57 percent); restaurants (48 percent)
  • Increased advertising spend: professional services (50 percent); real estate (50 percent)
  • Hiring of seasonal staff: restaurants; and brick-and-mortar retail (26 percent).

Tips on managing your cash flow

To help you manage your cash flow during this period of rising Q4 expenses, here are a few things to consider now as well as throughout the year:

Diversify your income streams.

Finding new streams of income that can help diversify the business and reduce risk volatility can help in your peak season. Look for related value-adds that you can easily offer.

For example, if you’re a retailer, can you offer an easy and affordable gift-wrapping option or personal gift messaging for an additional charge? If you’re a restaurant, could you provide a valet service to enhance your diners’ experience?

Diversification is also important for seasonal businesses to add, to help their cash flow during the off-season. For instance, a construction company could introduce the service of adding insulation to homes during the winter when the building season may be slower. A lawn care service could offer snow removal and plowing in colder, snowier regions. And tax accountants could add payroll or bookkeeping to their menu of services to create new money-making opportunities.

There are other examples; just be sure to test the new service or product to make sure the demand can be met, to avoid overextending yourself in an unfamiliar line of work.

Get help with cash-flow management.

While Q4 may be a booming time of year for some companies, they may need to budget for revenue slumps in the coming months when they allocate the profits from the holiday season.

Forecasting for slumps will allow you to reserve portions of the higher profits from Q4 to ensure your cash flow is always positive. Keep an eye out for surprises and maintain an adequate cash “cushion.” For those cash-flow dips, new lending solutions, from invoice factoring to lines of credit,are available on the market. These can allow you to bridge gaps in cash flow and allow you to take the exact amount of money you need when you need it to maintain  your cash safety position.

Be sure to research all options and find a partner that’s trusted and provides transparent terms that outline the total cost of capital.

Consider a flexible workforce.

A good employee is a business’s most valuable asset. To retain the employees critical to your business and grow without overextending head-count costs, consider that freelancers or temporary labor can provide you with many services and the flexibility you need without requiring you to spend as much money for additional full-time employees.

For example, hiring a virtual assistant could be just as effective at monitoring email and phone messages as a full-time assistant could. A flexible crew could prevent disruptive layoffs following your peak season when slower times require lower overhead costs.

The survey tells us that small business owners face benefits and challenges in the last three months of the year around cash flow. The good news is that the profits of the season help to manage the increased costs but also serve as a good reminder that the pace of business can and will change from season to season.

Related: Best Practices for Growing Cash Flow With Zero Business Development

The continuous management of cash flow is key to riding out the highs and lows and to ensuring that business owners can adequately service their customers and still reward themselves and their staff at the end of each year.

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