Christmas not always merry for small businesses

Research by SME lender OnDeck Australia confirms that the festive season – the peak consumer spending period of the year – is not always a lucrative time for small businesses.

If Christmas 2019 is anything like last year, Australians will collectively spend around $51.5 billion between mid-November and 25 December. However, a study by Honeycomb Strategy on behalf of OnDeck Australia, found that the festive season can bring disruption to SMEs.

Three out of five (58 per cent) SMEs say they have been disrupted by calendar events and public holidays such as Christmas. One in ten (12 per cent) report being “severely impacted”.

The problems can arise from a variety of sources including increased costs (17 per cent), delays in debt payments (22 per cent), delays in delivery of products (26 per cent) and even loss of customers to competitors (6 per cent).

Cameron Poolman, CEO of OnDeck Australia, said, “Our research tells us that only one in two SMEs plan ahead for major calendar events. Yet Christmas, in particular, can bring significant additional costs.

“Many SMEs take on additional staff over the festive period. This means managing recruitment and training costs plus a higher than normal payroll expense. Additionally, marketing and advertising costs tend to be inflated in the lead up to Christmas. Taken together, this can put significant pressure on an SME’s cashflow.”

The majority (59 per cent) of small-business owners agree that having straightforward access to funds can help them prepare for major events such as the holiday season.

“Additional funding can be the key that lets SMEs take advantage of opportunities offered by increased consumer spending,” Poolman said.

“A plant nursery, for example, may need an extra $25,000 worth of stock heading into Christmas in order to generate an extra $15,000 in gross revenue. However, if the business doesn’t have the capacity to make the upfront purchase, this valuable opportunity can be lost.”

Traditional lenders slow to respond

An additional challenge facing SMEs is that applying for, and securing finance, can be a time-consuming process. According to the research, over one in four SMEs have had their business negatively impacted by the time taken to secure funding through traditional lenders.

Poolman said, “In the lead up to the festive season, time is critical. If an SME is unable to take advantage of a good opportunity, it’s a fair bet their competitors will. I encourage all SMEs to plan ahead for the Christmas period and understand their cashflow needs. If additional funds are required, the process of securing finance can be surprisingly quick with an online lender.”

Poolman’s five top tips for SMEs preparing for Christmas are:

  1. Consider staffing

Christmas is the busiest period of the year for many SMEs, and you may need additional staff, especially as regular employees may want to take leave over Christmas/New Year. Plan your staffing needs early, and consider asking a recruitment agency for temp support.

  • Estimate, don’t guesstimate, inventory needs

Refer back to previous Christmases for a clear idea of your stock needs. Over-ordering could mean working hard to shift stock in the New Year. Make an informed decision on inventory levels and consider if finance is available to take advantage of volume discounts.

  • Review online channels

Review how well you can manage increased demand through online channels. Ensure your website has accurate figures on delivery times to avoid negative customer outcomes that can tarnish your brand. Plan ahead if additional staff or warehousing space if required.

  • Plan to have adequate festive funds

Plan your cashflow over the holiday season – banks can operate on reduced staffing during peak holiday periods, and your usual point of contact may be unavailable if you need funds urgently.

  • Enjoy some down time

The research confirms that one in two (49 per cent) of SME owners haven’t had a holiday in the last six months. Over one in four (26 per cent) haven’t had a break for at least four years. Use the festive season to take a break, recharge and hit 2020 refreshed and reinvigorated. The wellbeing of SME owners is linked to the success of their business, and if the owner’s light burns out, the business can suffer.

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