September might feel early to be thinking about Christmas cashflow.
For many businesses, it is exactly when the numbers should start being looked at.
A business in Werribee, in Melbourne’s west, may not be experiencing its Christmas trading period yet, but decisions being made now can determine how much working capital is needed in November, December and even January.
A builder may be quoting jobs that need to be completed before the holiday break.
A retailer may soon need to commit to additional stock.
A transport business may expect customers to increase freight volumes.
A service business may need extra staff.
A wholesaler may be planning larger supplier orders.
The industries are different, but the question is similar:
How much money will the business need to spend before the additional revenue actually reaches the bank account?
Start with what is likely to change between now and Christmas
A useful cashflow forecast does not need to begin with finance.
Start with the business.
What is likely to change over the next three or four months?
Will sales increase?
Will stock levels rise?
Are larger contracts expected?
Will more staff be required?
Will suppliers need bigger orders?
Are customers likely to continue paying on their normal terms?
Will the business close or reduce trading over part of January?
The answers help identify whether there is likely to be a temporary funding gap.
For some businesses there may be none.
Others may discover that several expenses are likely to increase well before the associated customer revenue arrives.
Knowing that now provides more time to decide what to do about it.
Trades and construction businesses may fund several jobs at once
For builders, subcontractors and trades, the lead-up to Christmas can create a particular cashflow challenge.
Customers often want work completed before the end-of-year break.
That can mean several projects running at the same time.
Materials need to be purchased.
Subcontractors need paying.
Employees continue receiving wages.
Fuel, vehicles and equipment still need to be covered.
Yet payments may depend on job milestones, progress claims or invoices being approved.
One job may be easy to fund.
Five overlapping jobs can create a very different cash requirement.
Before filling the calendar for November and December, it can help to forecast the amount of cash likely to be tied up across all active projects at the same time.
That figure may matter more than the total value of the work.
Retail businesses need to look beyond expected Christmas sales
A retailer expecting stronger end-of-year sales may need to increase stock before customer traffic actually rises.
The obvious question is how much stock to order.
The less obvious question is what happens to the business’s cash after paying for it.
If $80,000 is committed to additional inventory, will enough remain for:
payroll
rent
suppliers
utilities
GST
insurance
existing finance repayments
unexpected repairs or expenses?
Stock only becomes useful cash again after it is sold.
If some lines move slowly or demand is lower than forecast, money can remain tied up longer than expected.
Christmas stock planning should therefore consider both expected demand and how much working capital the business can comfortably commit.
Service businesses can have a payroll problem rather than a stock problem
Not every Christmas cashflow requirement involves inventory.
A service business might have almost no stock at all.
Its biggest expense may be people.
Additional employees, casual staff or overtime may be required to manage expected customer demand.
Staff could be paid weekly or fortnightly while commercial customers pay invoices 30 or 45 days later.
That creates a timing gap.
For example, a business may need to fund three or four payroll cycles before the revenue generated by those employees is collected.
The more the business grows, the larger that gap can become.
When forecasting staffing needs, calculate not only the additional weekly wage cost but how many pay cycles may occur before the relevant customer receipts arrive.
Transport businesses should forecast the cost of extra activity
For a transport operator, more work can mean more money going out immediately.
Fuel increases.
Driver hours increase.
Tyres and maintenance may increase.
Subcontractors may be required.
Vehicles may need servicing before heavier workloads begin.
Customers, however, may continue paying according to normal commercial terms.
If the business expects freight volumes to rise later in the year, September is a good time to estimate how much additional operating cash those movements could require.
The calculation should not be:
How much extra revenue could we earn?
It should also include:
How much will we spend before we collect it?
A profitable transport contract can still create substantial short-term cashflow pressure.
Supplier terms can change the whole picture
Two businesses can have identical revenue and very different working capital requirements.
One might receive 30-day terms from suppliers and get paid by customers within seven days.
Another might pay suppliers upfront and wait 45 days for customers.
The second business has to carry much more of the cycle itself.
Before placing larger orders for the coming months, review:
supplier payment terms
deposit requirements
delivery lead times
expected customer payment timing
existing stock levels
available cash reserves
current finance limits
There may also be value in asking suppliers whether different terms are available.
Sometimes working capital planning is not only about borrowing more money. It can also involve reviewing how existing commercial arrangements are structured.
Customers may pay differently around the holiday period
A December invoice does not necessarily behave like an invoice raised in August.
The contractual terms may be the same, but customer behaviour can change.
Accounts staff take leave.
Businesses close.
Approvals may be delayed.
Payment runs can change.
If a business normally allows customers 30 days to pay, it can be useful to look at what actually happened over previous Christmas and New Year periods.
Did December invoices arrive on time?
Did some move into January?
Were particular customers consistently slower?
This information can make the cashflow forecast more realistic.
Forecasting an invoice as cash on the day it becomes due can create a false sense of security if the customer rarely pays on that date.
Debtor finance may be worth considering for B2B businesses
A business may complete the work successfully and still have a large amount of money sitting in unpaid invoices.
That is a different problem from needing money to buy stock.
For eligible B2B businesses, debtor or invoice finance may be one option to investigate.
Some facilities can provide earlier access to part of the value of qualifying receivables rather than requiring the business to wait for customers to complete their normal payment cycle.
Depending on the lender, an assessment may consider:
the debtor ledger
age of invoices
customer quality
payment history
debtor concentration
disputes and credits
the nature of the goods or services supplied
The suitability of the facility depends on the business and receivables.
The important distinction is that the business may already have earned the money. The cash simply has not arrived yet.
Stock and supplier purchases may point to another structure
If the cashflow gap appears before a sale occurs, the finance need is different.
The business may need to purchase inventory.
A wholesaler may need to pay a supplier.
A retailer may be increasing stock.
A business may be importing goods.
Depending on the circumstances, trade finance, working capital finance, a line of credit or another business funding structure may be considered.
The finance product should follow the business problem rather than the other way around.
That means first understanding:
Where does the cash leave?
How long is it tied up?
What event brings the money back?
Only then does it make sense to start comparing funding structures.
A large opportunity can create a larger funding gap
One question from the Christmas cashflow discussion is particularly useful for growing businesses:
If your biggest customer doubled its order tomorrow, could you afford to deliver it?
For one business, the answer might be yes.
For another, doubling the order could mean doubling material purchases, increasing payroll, paying more freight and carrying a much larger debtor balance.
The business may have the capacity to do the work operationally but not enough available working capital to comfortably fund it.
This is why growth and cashflow need to be considered together.
Turning away profitable work because the business cannot fund the delivery is one problem.
Accepting every job without calculating the cash requirement can create another.
Planning allows the owner to see the difference.
Existing facilities should be stress-tested before they are needed
A business may already have an overdraft, line of credit or cash reserve.
The question is whether it will be enough if activity increases.
If an overdraft normally sits at 70 or 80 per cent of its limit during ordinary trading, there may not be much capacity left when stock, payroll or materials increase.
Look at the existing facilities as part of the forecast.
How much is normally used?
What amount is genuinely available?
What other payments will draw against it?
Would an unexpected repair or delayed customer payment push the business to the limit?
Reviewing this before the busiest period can expose a gap that is difficult to see from today’s bank balance.
Plan for January while planning for Christmas
One of the most important parts of Christmas cashflow planning is looking beyond Christmas.
The business might perform strongly in November and December.
But what happens in January?
Some customers may still owe money.
Trading may temporarily slow.
Suppliers may need paying.
Payroll resumes.
Finance repayments continue.
Rent continues.
Tax obligations remain.
Stock may need to be replaced.
For some businesses, January can be the point when several months of earlier decisions finally meet.
This is why the forecast should continue until normal customer receipts and normal trading patterns are expected to return.
The required funding amount may look very different when January is included.
How much working capital might the business actually need?
A simple way to begin is to build a week-by-week forecast.
Estimate expected cash coming in.
Then list cash expected to leave.
Include:
payroll
stock purchases
materials
supplier accounts
freight
fuel
rent
tax
equipment costs
loan repayments
other operating expenses
The lowest forecast cash position can provide an indication of the potential funding gap.
Then add a reasonable buffer for timing differences or unexpected expenses.
The aim is not to borrow the largest amount available.
It is to understand what the business may genuinely require.
What should be prepared if finance may be needed?
Lender requirements vary, but businesses may benefit from having the following information ready:
recent business bank statements
current turnover
financial statements or management accounts
debtor ledger
creditor ledger
ATO position
existing finance
upcoming orders or contracts
stock or material requirements
supplier terms
customer payment terms
amount required
purpose of funding
expected repayment source
date the funding may be needed
Having this available can also help distinguish between a temporary seasonal need and a longer-term working capital problem.
Is Christmas causing the problem or revealing it?
This is another useful question.
If the business normally operates comfortably and only requires additional working capital during a predictable seasonal build-up, the issue may genuinely be temporary.
If cash is tight every month, Christmas may simply make an existing problem more visible.
The business may need to look at:
pricing
margins
slow-paying customers
stock levels
supplier terms
tax provisions
existing loan repayments
debtor collection
current facility limits
Additional finance may still be appropriate, but it should be considered within the broader position.
The goal should be to improve the funding structure rather than simply move the same cashflow shortage into February.
Five questions Werribee businesses may ask while preparing for Christmas
Is September too early to plan Christmas cashflow?
No. If the business expects stock, materials, staffing or supplier commitments to increase later in the year, September can be a useful time to forecast what may be required.
Can working capital finance be used for wages and suppliers?
Some business finance facilities may allow funds to be used for eligible payroll, supplier and operating expenses. Permitted purposes and assessment requirements vary between lenders.
What if we expect a large increase in customer orders?
It can be useful to calculate the cash required to fulfil those orders before committing to them. If existing reserves are insufficient, working capital options may be worth investigating.
Can unpaid invoices help us access finance?
Eligible B2B businesses may be able to consider debtor or invoice finance. Lenders generally assess the receivables, the customers responsible for paying them and the broader business position.
Should we use our own cash or arrange finance?
That depends on available cash reserves, the size and duration of the funding gap, existing commitments and the cost of finance. The first step is understanding how much operating cash would remain after funding the expected increase internally.
Plan the gap before the commitments are made
For businesses around Werribee VIC, the lead-up to Christmas can affect different industries in very different ways.
A retailer may need stock.
A builder may need materials.
A transport business may need fuel and additional driver capacity.
A service business may need more staff.
A B2B operator may simply be waiting too long for customers to pay.
Thrive Broking can help Werribee businesses review the expected cashflow cycle and compare working capital, debtor finance, trade finance and other commercial finance options across our lender panel where appropriate.
September is not about assuming a business will need finance at Christmas.
It is about identifying the possible gap early enough to decide what, if anything, needs to be done.
A Broker’s Observation
Businesses often forecast extra Christmas revenue before they forecast the extra cash required to create it.
I would reverse that thinking.
Before adding the expected December sales, work out what September, October and November may require from the business first.
Stock, materials, staff and suppliers can all demand cash well before the customer revenue appears.
Once those costs are mapped against realistic customer payment dates, the business can see whether the Christmas opportunity fits comfortably within existing resources or whether additional working capital deserves consideration.