The festive season brings both opportunities and challenges for small business owners. While the cost of living has slightly eased, many households are still feeling the pinch. For businesses, the key to navigating this period is careful planning and strategic decision-making. Here’s how you can manage the volatility and make the most of the Christmas season.
The Challenges of Christmas Volatility
For many small businesses, Christmas disrupts the usual flow of operations. Whether it’s a busy sales period or a quieter time, the season often comes with additional costs, unpredictable consumer behaviour, and operational hiccups. Added to this are cost-of-living pressures, particularly on households managing higher mortgage repayments. While consumers are spending, much of this is just keeping pace with inflation. As a business owner, you need to plan carefully to avoid a Christmas hangover that impacts the New Year.
The Discount Dilemma: Know Your Numbers
Discounts can attract customers, but they can also eat into your profits if not managed properly. For example, a business with a 20% gross profit margin offering a 15% discount would need to increase sales volume by 300% to maintain its position.
To make discounting work:
- Focus on Margins: Know what you can afford to discount without going into the red.
- Strategic Discounting: Use discounts to move older stock, bundle products, or attract new customers.
- Value Creation: Instead of straight discounts, consider value-added options like bundling complementary products or offering free add-ons to boost sales while preserving margins.
Manage Your Christmas Costs
The festive spirit can come with higher costs, including extra staff, promotional expenses, and inefficiencies caused by public holidays. Keep a close eye on your expenses to avoid starting the New Year with financial stress.
Key tips:
- Staff Costs: Ensure casual staff are paid correctly, including superannuation. Use the Fair Work Pay Calculator to get it right.
- Cost Control: Keep promotional and operational costs in check to avoid overspending.
- Efficiency: Plan for downtime and ensure you’re making the most of trading days.
The New Year Cashflow Crunch
The New Year can often bring a quieter period with tighter cashflow. The March quarter is particularly challenging for many small businesses. Here’s how to prepare:
- Build a Cash Buffer: Avoid overcommitting your finances in December to ensure you have enough to cover quieter months.
- Manage Debtors Early: Chase overdue invoices before Christmas. Businesses that follow up early are more likely to get paid than those who wait.
Avoid Trading Stock Headaches
Stocking up for Christmas makes sense but be cautious of over-ordering. Excess inventory after the holidays ties up cash and may leave you with unsold, out-of-season stock.
- Order Strategically: Work with suppliers who can provide stock on short notice.
- Optimise Sales Channels: Ensure your customers can find what they need. If an item isn’t available in-store, consider an online option to secure the sale.
A Christmas Checklist for Small Businesses
To set yourself up for success this season:
- Plan Early: Review your cashflow, stock levels, and staffing needs now.
- Keep Control: Track discounts, costs, and stock closely to avoid unnecessary losses.
- Think Long-Term: Use the season to attract new customers and strengthen relationships with existing ones.
- Prepare for the New Year: Build a financial buffer and address outstanding invoices to start January strong.
Christmas is a wonderful time to celebrate, connect with customers, and grow your business. By staying strategic and focused on the basics, you can make the most of this festive season and set yourself up for a strong New Year.
