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How End-of-Year Finance Can Help Your Business

end-of-year business finance

While there’s a lot of emphasis on planning for the end of the financial year, the end of the calendar year is also a time when businesses need to plan ahead. Let’s look at some of the challenges SMEs can face in the last few months of the year.

Get ready for the busy Christmas season

If you’re in retail, you probably get a big boost in sales in the last few months of the year. According to Australia Post, 15% of annual e-commerce sales occur between the beginning of November and mid-December. 

If this is the case for your business, you’ll need to stock up on inventory. But you might not have the cash on hand to do this if you’re coming out of a slow period. A growing number of businesses are turning to unsecured business finance to get the funds they need to get ready for their busy seasons. 

If you’re planning to purchase inventory, use our Return on Investment Calculator to estimate your ROI.

Keep up with staffing needs

As well as stocking up on inventory, some businesses will require more staff to handle the busy end-of-year period. While hiring and training staff will require extra funds, it can take a while to see the results of having more hands on deck. In this case, short-term business finance can help you bridge the gap between getting new staff on board and increasing your revenue.

Overcoming cash flow challenges in the new year

If you sell your products or services to other businesses, it’s likely that you get very busy in the final months of the year. This is usually followed by a lull between mid-December and mid-February. Although you can get a healthy number of invoices out before the end of the year, you might not see the funds until February. This includes shut down periods in January, so accounts payable staff might not be around when your invoices are due.  

Xero accounting research shows that January is the worst month for late payments. In January 2018, the average payment time for a 30-day invoice was 39 days. The first months of the year are also the worst for cash flow. More than 50 per cent of businesses experience negative cash flow (when cash going out exceeds cash coming in) in January and February. While for all other months, more than half of businesses have positive cash flow. To add to the stress, SMEs that pay GST quarterly need to make their payment at the end of February when cash flow is at its lowest point.

New year, new focus

Many business owners take time to reflect on the past six months and plan ways to grow in the new year. Initiatives might include boosting marketing efforts, buying new tools, machinery or equipment, and hiring and training staff. While these efforts can grow revenue, there will be a gap between spending money and seeing a return.

Questions to ask before the end of the year

Before the end of your calendar year, you will want to consider your business finance needs. 

Questions to ask yourself include:

  • Do you need to increase your inventory to meet the end-of-year sales rush?
  • Do you experience cash flow challenges in the first months of the new year? 
  • What are your plans for the new year and how will you finance them?

Author:

All the thoughts, ideas and musings from the Moula team! Covering everything from work/life balance to general finance tips plus everything in between!

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