Keeping tabs on Christmas costs

Christmas comes but once a year, and that might well be once too often for many small-business owners, who can find the festive shutdown – and all the pre-shutdown celebrations – a big drag on their cashflow.

Think about it. For at least two weeks of the year, your business will shut down completely so you might have no revenue at all coming in. On top of that, you’ll still be paying your staff and you might even have some additional staff costs through leave loading.  Meanwhile, all your suppliers will still need paying, the rent on your premises won’t pay itself and the utility companies will still expect payment for electricity and water.

Plus, your staff will expect a Christmas party to end all Christmas parties and for the last week or so before the shutdown, your staff will go on to autopilot in anticipation of their break. Suddenly, Ebenezer Scrooge looks less like a figure of contempt and more like a management guru.

The key to surviving the festive binge is to keep a tight rein on your Christmas costs and manage your cashflow. Here are a few tips for doing just that:

1. Make sure you invoice before the festive shutdown

If you don’t want that cashflow drag to flow into the new calendar year, make sure you invoice for all work done before the Christmas shut-down starts; preferably well before. Don’t delay sending invoices until the new year – that way you’re locking in several weeks of extra delay in getting paid.

2. Avoid big-ticket purchases

If you’re thinking of buying large items of plant or equipment for your business, avoid making the purchase until your cashflow stabilises in the new year. You don’t want to be faced with a hefty bill for an item which you can’t pay until post-festive season revenues pick up.

3. Collect your debts

In relation to invoices already issued, try to get as much cash in before Christmas as possible. With many customers’ accounting departments closing for between 2 and 4 weeks, you know you won’t be getting paid at any point in that period so chase your debts now and chase them hard with a view to leaving your debtors ledger as light as possible come mid-December.

4. Don’t overspend on gifts

If you’re giving gifts, there are a few things you need to decide:

  • How much are you prepared to spend?
  • Who is on your list? This could include staff, customers, suppliers or even key intermediaries like your bank manager or accountant.
  • How much do you want to spend per recipient?

Remember that giving gifts is all about building relationships; rewarding effort put in through the year and building goodwill for the year ahead. Your festive indulgence now should lead directly to increased sale or productivity or reduced costs in the year ahead. Remember also that most gifts are tax deductible which helps with keeping costs under control. So, don’t overspend and only give gifts if you think your business will benefit in the long run!

5. Don’t raid the tax and super piggy bank

With so many public and staff holidays, not to mention long hours in the office in the run-up to Christmas, it can be easy to overlook the payment of taxes such as GST as well as superannuation. Don’t forget there is a BAS due in February (complete with GST payment) and a Super Guarantee payment due 28 January so no matter how tight your cashflow, set aside adequate funds in a holding account, and don’t dip into it. The ATO does not make a friendly creditor!

Mark Chapman, Director of Tax Communications, H&R Block

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