The big guy in the red suit is not the only person who needs to be organised at this time of
year. Businesses can’t afford to get too carried away over the silly season. There are a few
things that, if not taken care of, could hurt you early on in the New Year.
I am sure your accountant has had many a conversation with you about the importance of cash flow,
but we are entering a funny time of year where everything (with the exception of retail and FMCG)
slows down, which plays havoc on our normal cash cycles. We also have tightening credit and bank
overdraft limits to contend with, which means that anyone who does find themselves short of working
capital will likely have limited options open to them.
It is important to remain positive, a year of relatively low interest rates has provided some relief to
home owners, so we should expect a rise in consumer spend this Christmas and a much needed lift
in the economy. But we still need to be pragmatic - the last thing anyone wants now, as we enter the
holiday period, is to be right up against their overdraft limit.
It's only just gone December so take the opportunity to have another look at your forecasts (and
management accounts) for the next few months. If anything has been missed, there is still time let the
bank know and put a plan in place that will get you through the next couple of months.
Have you identified and budgeted for the extra costs that can fall over this holiday season, such as:
Team perks, including Christmas gifts and the end-of the year team function. Read more about what is tax deductible at the end of this article.
Holiday Pay. The biggest pay period falls in December so you need to factor this into your forecast. Some businesses may very well need to pay their staff earlier as a result of the public holidays that fall over the next few months, disrupting your cash cycle.
Bonuses. Some employment contracts have these built into them and typically these are paid out at the end of the calendar year, or the end of a quarter.
Don't forget the taxman will also be collecting. For the majority who have a 31 March balance date the following taxes are generally payable by 15 January 2014:
- Provisional Tax
- GST for the 30 November period.
It's also important you use these next couple of weeks to do everything you can to get money through
Invoice like a demon. Get the last of November's invoices out within the next 48hrs and any subsequent ones out the door as quickly as possible; before all the disruptions kick-in. Every day that goes by will drastically reduce your chances of getting paid before Christmas. Leave it too late and you could be waiting until as late as February and that's a long time to be without cash. Remember the disruption continues after Christmas with people on extended leave, school holidays and Provincial Anniversary Days.
Reel in those overdue accounts. Make this a priority and get a campaign underway today or you risk being hurt by additional delays in payment. Start with the most recent accounts, and work backwards. Instruct your accounts team to be firmer this month; for example, many invoices state an interest penalty for late payment, so this is the perfect time to act on it.
Keep an eye on stock levels. This is crucial, particularly for busy retail businesses. Reconcile your inventory daily to ensure your accounts are accurate. Reordering stock that isn't moving ties up your cash and running out of stock results in lost sales opportunities. Either situation will hurt your cash flow, so it is important to know exactly where you stand.
Plan your staffing requirements. Again, crucial at this time of year, with some businesses having to almost double their staff numbers to meet demand. Have you finalised the work rosters and have these been communicated to your various branch, store or warehouse managers and then on to their staff? To get through this busy period you will need your team to turn up on the right day at the right time. For good measure, make sure the contact details for all staff members are on hand. This will make it easier to call in extra help if someone calls in sick or if more people are needed on the shop floor. New or temporary staff will also require some basic training, which should also be factored into work rosters.
Knowing what to expect, and having a plan to deal with the unique challenges that come with the
holiday period will ensure everything keeps ticking along as it should, freeing you up to still enjoy the
holiday season. You need this time to recharge your batteries because it's usually when you're
outside the detail that your strategies become so much clearer. Collect your thoughts. Think about
what's in store for 2014 - for you, your industry and how your competitors are likely to react. In the
meantime make a list of what needs to be done and start ticking them off - it's only 18 days until
*Some staff perks are fully tax deductible under the Entertainment Expenditure regime, others are
subject to Fringe Benefit Tax. Here are how some of the common office Christmas traditions
are generally treated:
Team Christmas Party - 50% deductible
Team gifts (food and wine) - Fully deductible, provided FBT is payable on the gifts. If not then the cost of the gifts is 50% deductible.
Team gifts (cash) - Fully deductible, but still subject to PAYE i.e. businesses should typically gross up and include this in their payroll.
Team gifts (other) - Fully deductible, but majority still subject to FBT unless the de minimis exemption applies
Client Christmas meal - 50% deductible.
Client gifts (food and wine) - Fully deductible, provided it is for the sole benefit of the client.
Client gifts (other) - Fully deductible.
Mike Atkinson is a Director at Bellingham Wallace Chartered Accountants.