Guide for small business surviving Christmas is a tall order for a problem that creeps up on business every year. You know all year it’s coming but you hit December and have been so busy being busy it’s suddenly here. It’s a tough time for all businesses, for many service based businesses things almost stop for two months, in retail you have stock to fund now for the Christmas/New Year sales plus extra staff costs.
It’s not too late to take steps now and remember cash flow is king so get that cash flow forecast underway. You need to take into account some businesses shut down over the Christmas period so payments to you will be delayed, you have staff costs, rent, general expenses & 15th January Provisional Tax & GST payments due.
So let’s look at some steps you can take:
Accounts Receivable. You need to get that money in now before everybody shuts down or large businesses start delaying payments as they too have to watch cash flow over this period and they start using creditors as a bank – cheap no interest finance. So get on the phone and start collecting the money owing on invoices already issued, it’s always easier to get it in during November than in December. Be careful giving too much time to pay or too much credit at this time as many businesses struggle & fail over this period.
Accounts Payable. Now as part of the cash flow forecast, map out all bills and what is due when, take into account staff/rent/power etc. costs and set up a schedule of what needs to be paid and when. If you foresee a problem then hopefully you have a good relationship with the supplier and can negotiate some payment terms or an extended deadline. Most businesses are open to discussions before it becomes overdue and appreciate the contact rather than having to chase.
Invoicing. Very few customers pay exactly on due date so you need to take into account the delay from invoicing and payment when running your cash flow forecast.
Now something to bear in mind is invoice funding where companies either loan on your business-business invoices or buy them outright. It takes a little bit of work to set the account up but if you think you’ll need to do it now is the time to apply and get the paperwork sorted so you are ready to go next month. There are a couple of Xero Add-Ons which just suck the information they need for your application straight from Xero. Different companies work different ways but basically you issue an invoice to another business, send the details to the invoice funder who pays you a percentage 80/90% of the invoice value the next day and they fund it for a set number of days at a rate around 10%’ish.
So what you could do, with good business clients, set up the funding account then invoice mid-December and finance that invoice until say late January when they would usually pay. You get the money now to tide you over for a small percentage cost.
Tax. GST & Provisional tax is due 15th January so plan for that now. If you think there is going to be a problem with either contact the IRD before that date as they have many more options to help you before the payment is due than if you call them once overdue. Now with Provisional Tax consider Tax Pooling to spread the cost over time if you think it’s going to be a problem. Tax Pooling is basically companies (called intermediaries because they act as an “agent” between you & the IRD) manage the purchase of tax credits with the IRD and use them to pay your tax. In other words the company arranging the “tax pool” offsets your tax debt against tax paid in advance or tax overpaid by others (yes believe it or not some do!!). You arrange terms & repayments with the Tax Pooling Company to pay it off. There is an “interest charge” the Tax Pool Company charge but that will be less than interest penalties charged by the IRD for late payment.
Accounting. Make sure you know the rules about entertaining, client functions, staff functions, staff gifts & staff bonuses and the such like. There are many rules and some quite detailed & specific & often not what you may think. Check with your accountant about what is deductible and at what percentage and whether any staff gifts are captured by Fringe Benefit Tax, a quick call could save you lots in the long run.
Limited Power of Attorney. If you are heading away and the business is running whilst you’re away then consider a Limited Power of Attorney. If you get sick, stuck or unable to make business decisions for any reasons give somebody you trust the ability to make certain decisions for you based upon your Power of Attorney. If important business decisions need to be made & for whatever reason you are not able to make them then the business goes into limbo and may even fail. Give your Accountant, Lawyer or trusted business associate or family member POA to make those decisions for you. You can make the POA very specific as to what they can & can’t do and you may also cancel it at any time.
Staff Contracts. Make sure you review your staff contracts and that you understand the public holiday & overtime rules & that your contracts reflect this. You need to be sure staff are paid & rostered correctly as penalties have risen in recent years & staff are now more aware of rights & the remedies available to them. Do it right.
WIFI. A related matter but also important, be wary of public or free wifi when logging into bank, accounting or work servers whilst away as these are by no means safe. Set up an overseas data plan with your phone provider and use this.
Should you have any questions or need a hand with anything discussed here do not hesitate to contact us.
So take a little of your precious November time to set up systems to manage your December/January time and have a safe & happy holiday season.