Managing cash flow during the festive season: small business tips

Managing cash flow is always challenging, but the festive season can make it even harder. Bank holidays, irregular hours, busy roads, and customers spending more all create ups and downs for small businesses. So, how can you avoid the cash flow crunch? How can you stay in control and make the most of the holidays? Here are five tips to help you thrive this festive season.

1. Plan carefully 

A solid plan should guide all small business activities, especially when preparing for the Christmas season.

Start by reviewing your business performance from previous years. Identify strong sales days and periods when business was slow. This gives you insight into cash flow fluctuations and helps you plan accordingly.

If this is your business's first December, track sales each day and week to inform future planning and forecasts. Depending on your business, sales may rise in December and drop in January, so plan based on that trend and monitor performance closely for better insights.

Once you understand how the festive season impacts your business, consider the following in your plan to help cut unnecessary expenses:

• Adjust inventory: Increase stock of popular items during busy times and reduce orders when it’s quieter to avoid overstocking and tying up cash

• Delay non-urgent purchases: Postpone buying non-essential supplies or equipment until after the holiday season

• Flex your rota accordingly: If you employ staff, adjust your rota to ensure you have the right number of employees for both busy and quiet days

• Pause subscription services: Temporarily cancel or pause subscriptions such as software or memberships that aren't essential during the holidays

2. Negotiate and define payment terms

The more you can build certainty into when and how you’re paid, the better. Christmas is a busy time for both your suppliers and your customers or clients, so settling invoices or responding to correspondence may be less predictable.

To help with this, ensure your payment terms are clear. Set deadlines and follow up at the appropriate time if you haven’t received payment. It’s your responsibility to invoice promptly - so don’t let busy days affect essential administration.

You could also consider accepting partial payments or incorporating this into your pricing model. For example, you could charge a deposit upfront and bill the remaining amount after completing the work or delivering the goods.

And last but not least, make it easy for people to pay you. Avoid any barriers between your business bank account and your customers - ensure you can accept card and cash payments, and consider adding online payment methods like PayPal to avoid missing out on sales.

3. Consider financing options

Several financing options are available for small businesses, and some can be especially helpful during this busy and unpredictable time of year. Here are a few to consider to help improve cash flow:

Business credit card

If cash is tight or unexpected costs arise, consider using a business credit card. Like a personal credit card, it can cover expenses when you don’t have the cash on hand. If you need more stock or raw materials, a credit card can help cover those costs now, and you can pay it back once business returns to normal

Invoice finance

If invoices aren’t being paid on time and it’s causing problems, invoice finance may help. It works as a loan on unpaid invoices, with the lender providing a cash advance based on a percentage of the unpaid amount. Knowing that money is coming in can help create predictability during the holidays and beyond

Business overdraft

If you're just breaking even and worried about going over your account balance, a business overdraft could be an option. While it can be expensive, as you're typically charged for each day you're in the overdraft, it’s cheaper than an unauthorised overdraft. Designed for short-term borrowing, it could work well if you only need it for a month or two

Business line of credit

A business line of credit works like both a business loan and a credit card. You receive a credit limit that you can draw on, and you only pay interest on the amount you use, not the full limit. The application process typically includes setting a repayment date, offering added flexibility

4. Offer December promotions and new year incentives

Don’t forget about marketing at this time of year. Although it may seem unnecessary with lots of eager customers ready to spend, there’s also a lot of competition, and customers are always looking for the best deal or bargain.

To stand out, consider offering December promotions. Use the festive season to bundle products or services, encouraging customers to buy more and increase your average sale. Try flash sales to draw customers to your shop or website, and use email marketing to promote deals to existing customers. 

While no one wants to think about January during the festivities of December, you can get ahead by planning your new year incentives. Think about offers that might encourage spending and start drafting social media posts and emails in advance. Where possible, encourage customers to buy early and pay sooner to help when business slows in the new year. 

5. Prepare for post-holiday lulls

Some businesses enjoy very busy January’s - think gyms, personal trainers and accountants. But for many, especially in retail and hospitality, it can create challenging trading conditions. The more you can prepare, the better. 

Consider putting any extra profits from the holidays into a business savings account. With higher interest rates than a regular business bank account, you can make your business’s money go further. If you’ve taken on additional debt over Christmas, develop a repayment strategy to start 2025 on the right foot. 

It’s also worth preparing for potential refunds and returns. Many customers may want to return unwanted gifts in January, so setting aside cash in advance helps cushion this.

By following these tips, you can navigate the rollercoaster of the festive season and look forward to a happy new year.