For a retailer, café, hospitality operator or customer-facing service business in Cranbourne, in Melbourne’s south-east, the end-of-year opportunity can look quite different from that of a manufacturer or large commercial contractor.
There may be more customers later in the year.
More bookings.
More functions.
More gift purchases.
More demand for personal, household or business services before people take holidays.
But on 24 September, that activity is still ahead.
This is the stage for deciding what the business may need to commit before the additional sales arrive.
Stock may need to be ordered.
Staff rosters may need to increase.
Suppliers may require larger purchases.
Equipment might need servicing.
Marketing and other seasonal preparation may begin.
That raises an important question:
How much cash will the business need to spend preparing for stronger end-of-year trading before those extra sales actually reach the bank account?
A busy Christmas can cost money before it makes money
Businesses naturally focus on what a stronger November or December could produce in sales.
But preparing for those sales can require money much earlier.
A retailer might need additional inventory.
A café or food business may increase supplier orders.
A hospitality venue might take bookings that require extra staff and preparation.
A beauty, automotive or other service business could increase staffing or extend operating hours.
A local trade business might be trying to complete more customer work before the holiday period.
The common factor is that the costs can increase before the revenue does.
That is why September planning should start with the expected cash outflow, not simply the sales target.
Retailers should plan the stock build separately from the sales forecast
For a retailer, one of the largest end-of-year decisions may be how much additional stock to carry.
Order too little and the business may miss sales.
Order too much and cash can remain tied up well into January.
Before increasing inventory, consider:
what sold strongly during previous end-of-year periods
what is already sitting in stock
supplier lead times
minimum order quantities
margins
how quickly each product normally turns
whether unsold stock remains useful after Christmas
The aim is not necessarily to minimise inventory.
It is to make sure the amount of cash committed to stock reflects a realistic sales expectation.
A full shop does not mean a full bank account
Inventory can make a business look well prepared.
But stock sitting on a shelf cannot pay this week’s wages.
Once money has been converted into inventory, the business needs to wait for that inventory to sell before the cash starts returning.
If $80,000 is committed to additional stock, the business should also ask what will remain for:
payroll
rent
suppliers
utilities
tax
insurance
finance repayments
repairs
unexpected expenses
The relevant question is not just:
Can we afford the stock?
It is:
Can we afford the stock and still comfortably operate while we wait for it to sell?
Hospitality businesses may need to fund people before the bookings arrive
Hospitality businesses can face a different working capital issue.
They may not need large amounts of long-term inventory.
Instead, the major commitment could be staffing.
If the business expects more bookings later in the year, it may need to:
recruit additional employees
train staff
increase casual hours
plan additional kitchen or floor coverage
extend opening hours
increase supplier orders
Those costs can begin before the busiest weeks arrive.
Hiring in advance may make operational sense because the business wants employees trained and ready.
But wages still need to be funded from the first pay cycle.
That cost belongs in the Christmas cashflow forecast.
Deposits and advance bookings can help, but know what they represent
Some hospitality and service businesses receive customer deposits ahead of future bookings.
That can assist cashflow.
But a deposit is not necessarily free cash available for any purpose.
The business still has to deliver the future service.
Food, staff, suppliers and other costs may arise later.
If deposits are being used to fund today’s expenses, the business should understand what obligations those deposits are attached to.
A strong booking calendar is valuable.
The cashflow plan still needs to provide enough money to deliver those bookings when the date arrives.
Suppliers may ask for more money as orders increase
A business increasing its purchasing may encounter different supplier requirements.
A supplier could have a normal account limit.
Larger orders might exceed it.
Special seasonal products may require deposits.
Some goods may need to be prepaid.
A food supplier may simply be delivering larger volumes each week.
Before committing to increased purchases, look at:
existing supplier terms
account limits
payment dates
deposits
expected purchase volumes
how those dates align with customer sales
The size of the order matters.
The timing of the payment matters just as much.
Businesses with immediate customer payments still need working capital
A retail or hospitality business may not wait 30 or 60 days for customers to pay.
That can shorten the cash cycle significantly.
But it does not eliminate the need for working capital.
The business may still have to purchase stock and pay staff before those customers arrive.
That means the gap occurs earlier in the cycle.
The business is funding preparation rather than waiting on debtors.
For these businesses, the focus may be more heavily on:
supplier purchases
payroll
operating costs
existing cash reserves
expected timing of customer demand
rather than invoice finance.
Service businesses may have a mixture of payment cycles
Not every local service business is paid immediately.
A business may serve both individual customers and commercial clients.
For example, a repairer, cleaner, maintenance contractor or other service operator could receive immediate payment from some customers while providing account terms to others.
That can make the cashflow forecast more complicated.
The business should distinguish between:
sales likely to become cash quickly
and
sales likely to sit in accounts receivable.
If commercial work increases later in the year, the business may find more money tied up even while total revenue rises.
What if additional sales require extra equipment?
A customer-facing business may also decide that it needs equipment before the end-of-year period.
That could include:
commercial kitchen equipment
refrigeration
point-of-sale equipment
vehicles
workshop equipment
tools
furniture
other business assets
There is an important cashflow decision here.
Should the business use its available cash for the asset?
Or should eligible equipment finance be considered so more working capital remains available for stock, wages and suppliers?
There is no automatic answer.
The decision depends on the asset, finance cost, available cash and the other commitments the business expects over the coming months.
Do not use the entire cash buffer preparing for a forecast
A business may be confident that December will be strong.
But forecasts can change.
Demand may arrive later than expected.
Customers may spend differently.
Weather can affect some businesses.
A major supplier delivery could be delayed.
An unexpected repair may arise.
If almost all available cash has already been committed to preparing for one expected outcome, the business may have little room to adapt.
This is why it can be useful to decide on a minimum cash buffer before placing larger orders or committing to additional costs.
Build three versions of the Christmas forecast
Late September is a good time to model different outcomes.
Expected trading
Sales and customer activity increase broadly as anticipated.
Stronger trading
Demand increases more than expected and additional stock or staffing is required.
Slower start
The stronger trading period begins later than forecast and the business has to carry additional stock or staffing costs for longer.
The third scenario is particularly useful.
If the business can comfortably manage a slower start, its plan may have enough flexibility.
If a two-week delay creates immediate pressure, it may be worth reconsidering how much cash is committed upfront.
A stronger December could still lead to a tight January
Businesses should not view Christmas Eve as the end of the forecast.
Retail and hospitality businesses can have their own January cashflow challenges.
Some Christmas stock may remain unsold.
Employees may have leave arrangements.
Supplier bills from December may become due.
Rent continues.
Finance repayments continue.
Tax obligations remain.
The business may then experience different customer traffic after the Christmas period.
The correct question is not simply whether the business can fund its Christmas preparation.
It is whether the cashflow plan still works when January is included.
Stock discounts can be useful, but cash has a value too
Suppliers may encourage businesses to commit to larger orders by offering volume discounts.
Those discounts can be commercially attractive.
But compare the saving with the amount of cash being tied up.
Saving 5 per cent on a larger order is not automatically a good decision if the additional stock takes months to sell and leaves the business short of operating cash.
Ask:
Would we still choose this quantity if the discount were not offered?
If the answer is no, the discount may be influencing the purchasing decision more than actual customer demand.
Supplier terms may be worth negotiating before finance is considered
Working capital planning is not only about borrowing.
Businesses may be able to reduce the gap through better commercial arrangements.
Could the supplier:
split deliveries
accept staged payments
extend terms
reduce the deposit
allow a higher account limit
Could the business order part now and the balance later?
Small changes in supplier timing can reduce the amount of cash that needs to be committed at once.
Customer deposits can also reduce the gap
For service businesses taking larger bookings or customised orders, deposits may be appropriate.
A deposit can help cover some of the preparation costs and provide greater confidence that the customer is committed.
This might be relevant for:
functions
customised products
significant repair work
project-based services
large orders
The arrangement should make commercial sense for the particular business and customer.
Where deposits are appropriate, they can reduce the amount of working capital the business needs to provide itself.
Working capital finance may be considered where the timing creates a genuine gap
If the business forecasts a temporary funding requirement associated with additional stock, staffing, suppliers or operating expenses, working capital finance may be one option to investigate.
Depending on the lender and circumstances, options may include:
a business loan
line of credit
overdraft-style facilities
other commercial working capital structures
The appropriate option will depend on how much is required, what it will be used for, how long the gap is expected to last and how the business expects to repay it.
The purpose should be clear.
A temporary requirement associated with additional profitable trading is different from using new debt to continually fund ordinary losses.
Trade finance may be relevant for larger supplier purchases
Where a wholesaler, retailer or distributor has eligible stock or supplier purchases, trade finance may also be worth considering.
Some facilities may assist with eligible domestic or overseas supplier transactions.
Requirements vary between lenders and transactions.
The business should compare the cost and structure of finance with the alternative of committing its own cash.
The aim is not automatically to borrow.
It is to decide how much of the business’s existing liquidity should be tied up before the additional sales occur.
Debtor finance may matter for businesses with commercial customers
For businesses selling primarily to other businesses rather than consumers, customer invoices may create another gap.
Once eligible goods or services have been supplied and commercial invoices are outstanding, debtor or invoice finance may be worth investigating in some circumstances.
The lender may look at:
customer quality
invoice age
payment history
debtor concentration
disputes
overall debtor ledger
This can be relevant where sales increase later in the year but cash remains tied up in commercial receivables.
Review old stock and old debtors before adding new borrowing
Before seeking additional working capital, businesses may be able to release cash already trapped within the operation.
For a retailer or wholesaler, that might mean identifying slow-moving inventory.
For a B2B service business, it may mean following up overdue invoices.
For another business, it could involve reviewing unused subscriptions, unnecessary expenses or supplier arrangements.
Finance can help address a genuine timing gap.
It should not prevent the business from also looking for opportunities to improve its existing cash cycle.
24 September is still about preparation
Businesses should not be acting as though the Christmas rush is already here.
For most, there is still time to make decisions gradually.
Stock forecasts can be refined.
Staffing can be planned.
Suppliers can be contacted.
Customer booking patterns can be monitored.
Cash reserves can be reviewed.
Finance can be investigated if required.
The benefit of doing this now is that the business does not have to make every decision at once later.
What information may help if finance is being considered?
Requirements vary by lender, but useful information may include:
recent business bank statements
financial statements or management accounts
current turnover
expected end-of-year trading
stock requirements
supplier quotations
supplier terms
staffing forecasts
existing finance commitments
current cash reserves
debtor and creditor ledgers where relevant
ATO position
amount required
purpose of funding
expected timing
repayment source
A business that can clearly explain what the money is for and when the additional trading is expected to convert back into cash is in a much better position to assess the available options.
Five questions Cranbourne businesses may ask while planning ahead
Is late September too early to prepare for Christmas trading?
No. This is still the planning stage, but businesses that may need additional stock, staff or supplier capacity later in the year can start estimating those requirements before making commitments.
Can working capital finance help with extra stock and wages?
Potentially. Some commercial finance facilities may be considered for eligible stock, payroll, suppliers and operating expenses. Requirements and permitted purposes vary between lenders.
Should we buy Christmas stock now?
That depends on supplier lead times, historical demand, existing inventory, expected margins and available cash. Businesses may benefit from comparing several purchasing scenarios rather than assuming all expected stock needs to be ordered immediately.
What if we are paid immediately by customers?
The business may still have a working capital requirement if stock, payroll and suppliers need to be funded before customer demand increases. The gap simply occurs before the sale rather than after it.
Should we use our cash or arrange finance?
That depends on the amount required, the business’s cash reserves, other upcoming commitments and the cost of finance. The important calculation is how much operating liquidity remains after the proposed expenditure.
Prepare for stronger trading without using every available dollar to get there
For retailers, hospitality operators and service businesses in Cranbourne VIC, the Christmas cashflow challenge can begin well before the first genuinely busy trading week.
Stock may need to be ordered.
Staff may need to be recruited and trained.
Suppliers may need larger commitments.
Equipment may need attention.
Thrive Broking can help Cranbourne businesses review those expected cash movements and compare working capital, trade finance, asset finance, debtor finance and other commercial funding options across our lender panel where appropriate.
On 24 September, the goal is not to treat Christmas as though it has already arrived.
It is to make sure the business can prepare for the opportunity without using so much cash beforehand that normal operations or January become unnecessarily tight.
A Broker’s Observation
For a customer-facing business preparing for Christmas, I would not begin by asking how much more it expects to sell.
I would ask how much it plans to spend before those customers arrive.
If the business intends to put another $100,000 into stock, add staff and complete equipment repairs, what does the cash position look like afterwards?
And what happens if the increase in customer demand starts two weeks later than expected?
Christmas preparation should leave the business ready to take advantage of stronger trading.
It should not leave so much money committed in advance that the business loses the flexibility to respond when the real trading pattern becomes clear.