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Small Business

Manage Your Business

How to manage cash flow in the holiday season

The holidays reflect an important time for small businesses to take advantage of consumer spending and close out the year on a strong note. In this Smart Holiday Tips Series, Chase looks at different ways take advantage of the holiday surge.

Choose what’s right for your business

The holidays are a wonderful time of the year, but they can also be the most expensive. Between additional inventory, extra marketing, holiday bonuses and client gifts, expenses often run high and bank accounts tend to dip.

At Mixology, an eight-store clothing chain in the New York region, president Jordan Edwards says that even budgeting earlier in the year to build cash reserves doesn't fully offset the double-whammy drain from employee bonuses and extra inventory. "As the calendar year creeps to an end, our competition gets highly promotional," he says, "There are always unforeseen capital needs."

When it comes to planning ahead, Edwards is on the right track. But even with the holidays right around the corner, there are still ways to mitigate the cash drain. Use the following strategies to start next year on the right financial foot.

1. Pare back on new products

A key to managing your cash flow throughout the year is to project your revenue as accurately as possible. As you enter the holiday season, you'll want to pull out and scrutinize that data specifically.

Depending on your cash position today, you may want to re-prioritize your holiday inventory ordering, says Frederique Irwin, founder and CEO of Her Corner, an education-based network for women business owners. "If you're in a cash crunch, now's the time to reinvest in stuff that has really sold before," she says, "It's not the time to take big risks to invest in a new product that you've never sold before and you're not sure if your market would accept."

2. Staff up (and down) quickly

Many firms tap seasonal staff to help with additional sales or other end-of-the-year tasks. But cutting extra paychecks is costly. So while its tempting to make those hires as soon as possible, hold off until you're sure that you need them. Help during the holidays is relatively easy to find, so you shouldn't have trouble getting workers in on short notice.

Alternatively, make the hires, but stay prepared to switch gears. Chelsea Sloan Carroll, owner of Kid to Kid, a used children's clothing and toy boutique in York, Pennsylvania, carefully tracks labor costs as a percentage of sales. "We staff based on our goals for sales increases, but if those don't pan out, we adjust hours quickly to match the demand in store," she says.

3. Push prepayment sales

Many service businesses slow down during the holiday season, but savvy business owners can still bring in cash during those times by selling services that they'll deliver later. Tailor Made Lawns, a lawn care company in Charlotte, North Carolina, for example, offers a discount to homeowners who prepay at the end of the year for next year's lawn care. "Because our sales drop off so heavily in the winter, our biggest struggle has always been paying our bills and making payroll in January," says digital marketing manager Rachel Betterbid. "We try to get extra revenue from prepays during that time to help sustain our revenue while we are technically not generating any new sales."

Retailers and restaurants can get in on presales, too, by pushing gift cards to consumers. Big gift card sales are an immediate boon to your bank account and provide some breathing room before the recipients redeem them.

4. Manage your payments

Scrupulously avoiding late fees is normally a sound practice—but paying bills early can backfire during the holiday season. Instead, check in with your suppliers to see whether you can extend the payment term on invoices or set up a payment plan. "Try to have discipline in the fourth quarter to not immediately pay all your creditors with the cash that you have," says Ted Zoller, director of the Center for Entrepreneurial Studies at the Kenan-Flagler Business School at the University of North Carolina.

Got lots of checks coming in soon? Using your business credit card to pay invoices will buy you a few more weeks until the credit card billing cycle closes—and allows you to potentially earn rewards points, too.

Finally, while throwing a company party and other celebratory events around the holidays is a great morale boost, keep in mind that a financially healthy firm is a gift your employees will appreciate throughout the year. If you're short on cash, opt for modest celebrations, such as an office lunch instead of a restaurant dinner, or organizing Secret Santa gifts. "I'm a huge proponent of holiday parties for workers," says Ken Wentworth, a fractional chief financial officer who works with small businesses, "But it's okay to be transparent with folks about what you can afford."

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