A time for reflecting, resetting and planning

Christmas and the New Year are a time for re-evaluating, planning and getting a fresh start. Craig Hudson from Xero presents some things to think about over the holidays. ~ WizeOwl

As we start to wind up for the year and put plans in place for our business resolutions for 2018, it’s important for small businesses to take a look at their business environment and the broader macro conditions in New Zealand to be prepared for a successful year ahead.

Christmas cash flow crunch

Xero recently conducted some research of more than 1000 SMEs. It found that nearly one in two small to medium enterprise (SME) owners have gone without any pay when cash got tight. An additional 17 percent of SME owners have maxed out their credit cards to cope with cash flow problems.

The research also showed that 28 percent of businesses don’t have any provision in place for when times get tough. Another six percent are unsure of whether they do or not, or what they’d do in tough times.

Avoiding the financial year hangover

But this isn’t denting confidence, with 71 percent of SMEs not expecting their revenue to drop over summer. As the country slows down for the silly season, experts say the trick is for businesses to give their finances a little love and attention now so they don’t go into the new year with a financial hangover.

The time to act is now. Small businesses should try and get all their invoices done pre-Christmas to avoid a cash flow hangover. If invoices aren’t processed before Christmas, there is likely to be no one there in January to receive the invoice. This creates a roll-on effect of chasing late payments and can lead to cash flow troubles.

While 80 percent of SMEs told us they are not concerned about managing their cash flow over summer, it is still concerning that the number of business owners who’ve gone without pay or maxed out their credit card is high. This tells us that more preparation can be done.

Almost a third of businesses do not know whether they can survive a tough patch in their business, or withstand any surprises life may throw, so businesses should think about seeking professional advice as an option.

Six out of ten SMEs reported not receiving cash flow advice, but having an accountant or bookkeeper to work with your bank and manage financial pressure and stress is always helpful, and I’d strongly encourage this.

Accountants and financial advisors can actively manage your credit control and debtors and provide advice, which could be the difference between being able to pay your team and staff, or going into the new year with a tight wallet.

Planning for the year ahead

SMEs should use the downtime during the Christmas break to prepare a three-month budget, review the work coming up, work currently in progress and do as much invoicing as soon as possible, and ensure reminders are set for unpaid invoices.

A little forward thinking and planning can help lessen the pressure and stress in the new year, and it can be anything from implementing new tools, such as payment services to help get paid faster, to seeking professional advice or help to manage cash-flow.

As a small business you never have time off even during the holidays. However, the silly season is when business slows down for most. It’s a great time to take a moment and reflect on what’s been good, and prepare for what’s ahead in the new year.

Business Confidence

As we look at the broader environment, we are seeing business confidence is alarmingly at the lowest it’s been in nearly a decade. While we hope this is short lived, the latest ANZ business confidence report points to uncertainty of the impact of the new government policy, softening of the housing market, tightening of credit, reduced migration and the slowdown of construction all possible contributors.

These were previous growth drivers and we are now seeing them run out of steam.

If this continues, we may see many negative impacts on small business. These could include a decrease in spending, impact on cash flow, and small business jobs. Small businesses should speak to their accountant or bookkeeper if they are concerned, to ensure they are best placed for any impact.

Review, Re-set, revive

So use this Christmas and new year period to review and re-set your priorities. Get on top of your finances. Also, consider ways you can use technology and cloud online software that you can access from anywhere to make your business more efficient, give you greater transparency, and most importantly, give you time to spend on your business (and at the beach), not on the books.