September is a good time to ask a question that can easily be missed when businesses start planning for the end of the year:
What will Christmas cost before it starts paying you?
For a business in Hoppers Crossing, in Melbourne’s west, the answer could involve additional stock, larger supplier orders, extra staff, vehicle repairs, materials, freight or simply several weeks of normal operating costs while waiting for commercial customers to pay.
The busiest trading period is still ahead.
That is exactly why the numbers are worth looking at now.
If the business waits until November to discover that a large amount of cash will be tied up in stock, wages and customer invoices, there may be much less time to decide how to manage the gap.
Start with the costs that arrive before the sales
Christmas planning often begins with revenue.
How much might sales increase?
How many more jobs could be completed?
How much stock might move?
Those are useful questions, but they start at the wrong end of the cashflow cycle.
Before estimating what the business might earn, work out what it may need to spend.
A retailer may need to commit to stock well before customer demand peaks.
A workshop could need to order parts and make sure equipment is ready for a busier period.
A trade or engineering business may have material costs attached to jobs scheduled for completion later in the year.
A transport operator may anticipate more kilometres, more fuel and additional maintenance.
A service business may need additional staff before the extra revenue starts coming through.
The Christmas opportunity may be attractive, but the business still needs enough cash to reach the point where that opportunity pays.
Retail stock can change the bank balance before customer traffic changes
A business expecting stronger November or December sales may need to order additional inventory weeks beforehand.
That can create an unusual-looking cash position.
Nothing appears wrong with the business. Current sales may be normal. Yet available cash begins falling because money is being moved into stock for future sales.
Suppose an additional $100,000 of inventory is ordered.
The important question is not only whether the business expects to sell it.
It is what happens after the $100,000 leaves the account.
Can the business still comfortably fund payroll?
What supplier accounts are due next?
Are GST or other tax commitments approaching?
Are equipment or vehicle repayments due?
What happens if some stock sells two or three weeks later than forecast?
Using business cash for stock can make complete sense. The point is to calculate what remains afterwards, rather than treating the stock purchase as the only cash requirement.
Service and repair businesses may face a different build-up
For workshops, repair businesses and other service operators, Christmas preparation might not involve filling a warehouse with stock.
The pressure could come from parts, wages and capacity.
If customers want jobs completed before annual leave or shutdown periods, the business may need to increase throughput later in the year.
That could involve ordering parts earlier, carrying more consumables, approving overtime or making sure equipment is serviced before workloads increase.
A business may also decide to complete major repairs or maintenance on its own vehicles and machinery before the busier period begins.
These costs can arrive before the additional customer revenue.
September planning gives the owner an opportunity to estimate them before the calendar fills.
Commercial jobs can be profitable and still consume cash
Engineering, trade and light-industrial businesses may face another problem.
A customer places a sizeable order or accepts a quote.
The job is profitable.
But the business needs to purchase materials and pay staff before it can invoice the customer.
The invoice may then be on 30-day terms.
That means a job accepted today could require the business to carry the cost of materials and labour for several weeks before the revenue reaches the bank.
If several larger jobs overlap toward the end of the year, the amount tied up can become substantial.
This is why the value of a contract does not tell you the working capital requirement.
A $150,000 job and a $150,000 payment are two separate events.
The business needs enough liquidity to travel from one to the other.
How much cash is tied up between supplier and customer?
A useful exercise is to follow one transaction from beginning to end.
When does the supplier need to be paid?
When will materials or stock arrive?
When will the business perform the work or make the sale?
When will the customer be invoiced?
When does that customer normally pay?
That timeline can reveal where the cashflow pressure is likely to occur.
A business that receives 30-day supplier terms and is paid immediately by customers may have relatively little working capital tied up.
Another business might pay suppliers upfront, perform the work and then wait 45 days for a commercial customer.
The revenue could be identical.
The cash requirement is not.
Preparing vehicles and equipment can create another decision
Businesses relying on vans, trucks, workshop equipment or machinery may use the lead-up to the end of the year to deal with servicing or replacement decisions.
That raises an important funding question.
Should the business use available cash for the asset and then fund additional operating costs another way?
Would asset finance allow the business to preserve working capital for stock, wages or suppliers?
Could an existing asset be repaired rather than replaced?
There is no automatic answer.
What matters is recognising that equipment and working capital decisions are connected.
Using a large portion of available cash to purchase an asset can leave the business short of the money needed to operate that asset during a period of growth.
Likewise, using short-term working capital to fund an asset expected to remain in the business for years may not always be the most appropriate structure.
Looking at both requirements together can lead to a better funding decision.
Customer invoices can create the second half of the gap
Some businesses successfully fund the stock, parts, materials and labour required to complete the work.
Then another cashflow issue begins.
The customer has not paid yet.
For B2B businesses, a growing debtor ledger can make a successful period feel surprisingly tight.
The business has earned the revenue.
It may even have recorded the profit.
But the money is still sitting in unpaid invoices.
Where eligible commercial receivables are a significant part of the business, debtor or invoice finance may be worth investigating.
These facilities can potentially provide earlier access to part of the value of qualifying invoices rather than requiring the business to wait for the normal customer payment cycle.
Suitability depends on the business, customers, invoices and lender requirements.
Stock and supplier funding may need a different approach
If the funding requirement occurs before the sale rather than after it, the options may be different.
A retailer may need inventory.
A wholesaler may need to increase supplier orders.
An industrial business might need parts or raw materials.
Depending on the circumstances, working capital finance, trade finance, a line of credit or another commercial funding structure could be considered.
The important part is not deciding in advance that the business needs a particular product.
First identify where the money becomes tied up.
Then consider which funding structure best matches that part of the operating cycle.
Forecast the whole Christmas cashflow cycle
A useful forecast should look further than expected December sales.
Consider the likely movement of money from now until normal trading resumes after the holiday period.
That includes:
stock, materials and supplier commitments
wages, overtime and additional staffing
fuel, freight, vehicles and equipment costs
expected customer invoices and realistic payment dates
rent, tax and existing finance commitments
the amount of working cash the business wants to preserve
customer shutdowns or slower payments around Christmas
January payroll, supplier and restocking requirements
The lowest forecast cash position is often more useful than the highest projected sales month.
That is the point where the business can see whether existing reserves and facilities are likely to be enough.
September planning does not mean borrowing in September
Reviewing finance early does not mean a business should draw money months before it needs it.
The goal is preparation.
If a potential funding gap is identified now, the business has time to understand what may be available, what information would be required and what the finance would cost.
It may discover that existing cash reserves will be sufficient.
The owner may negotiate different supplier terms.
Customers may agree to deposits or staged payments.
An existing lender may have enough capacity.
Or additional finance may be appropriate.
The advantage is that the decision is being made before cash becomes urgent.
Do not assume every customer will pay on the due date
Cashflow forecasts often become too optimistic because an invoice due on a particular date is treated as money in the bank on that date.
Real businesses do not always work like that.
If a commercial customer normally pays five or ten days after the due date, use that behaviour in the forecast.
If another customer’s December payment has historically slipped into January, consider that too.
A realistic forecast is more valuable than one that looks good.
This becomes particularly important around Christmas when customer staff can be on leave and normal payment approval processes may slow.
Include January before deciding whether the plan works
A business may successfully fund its stock, wages and operating costs through November and December and still run into difficulty after Christmas.
January can bring another sequence of outgoing payments.
Staff return.
Suppliers need paying.
Rent and finance repayments continue.
Tax obligations remain.
Stock may need replenishing.
Meanwhile, some December customer invoices may still be outstanding.
This is why the funding calculation should continue until customer receipts and trading patterns are expected to normalise.
The Christmas period is a cycle, not a single date.
Five questions Hoppers Crossing businesses may ask while planning ahead
Can I organise finance for Christmas stock before I actually need to place the order?
Potentially. If the likely purchase amount, purpose and business position can be established, it may be possible to review funding options in advance. Lender requirements vary.
Can cashflow finance help if I need additional staff later in the year?
Some business finance structures may allow funds to be used for eligible payroll and operating costs. The lender will generally consider the business’s financial position, purpose of funding and ability to support the facility.
What if my business needs both equipment and additional working capital?
It can be worth considering the requirements separately. Asset finance may be appropriate for eligible equipment while another facility may be considered for stock, wages, suppliers or receivables, depending on the circumstances.
Can I access finance against unpaid commercial invoices?
Eligible B2B businesses may be able to consider debtor or invoice finance. The lender will generally assess the debtor ledger, customers and underlying transactions.
Should I wait until November before reviewing Christmas cashflow?
If the business already expects larger supplier orders, additional staffing, materials or stock requirements, there can be value in reviewing the numbers earlier. Planning does not require the business to borrow, but it provides more time to understand the available options.
Know the cost of the opportunity before committing to it
For businesses in Hoppers Crossing VIC, preparing for the end of the year can involve very different cashflow pressures.
One business may need additional retail stock.
Another may need parts and payroll.
Another could be funding materials for commercial jobs.
Another might simply have too much cash sitting in unpaid invoices.
Thrive Broking can help Hoppers Crossing businesses review the expected timing of those costs and receipts and compare working capital, trade finance, debtor finance, asset finance and other commercial finance options across our lender panel where appropriate.
The goal in September is not to assume Christmas will create a cashflow problem.
It is to calculate what the opportunity may cost before it starts paying the business back.
A Broker’s Observation
One of the figures I would want to know before a business commits to a larger end-of-year trading plan is how much cash it wants to keep untouched.
That question is different from asking how much cash it has.
A business might technically have enough money to buy the stock, repair the vehicles and fund additional wages.
But if doing all three leaves almost nothing available for an unexpected expense or slower customer payment, the plan may be tighter than it first appears.
Working capital planning is not only about finding enough money to pay the next bill.
It is also about deciding how much breathing room the business wants to preserve while it pursues the opportunity.