Preparing for the Christmas Shutdown Period: Do you have enough cash to see you through until the 20th of March 2025?

As the holiday season approaches, many businesses in New Zealand gear up for the Christmas shutdown. This period can be both an opportunity and a challenge as cash flow for many businesses slows down due to the holiday break. To ensure your business stays on solid ground, it's crucial to prepare early. Below are key considerations for navigating this time smoothly.

1. Understand Your Cash Requirements from Now – March 20th, 2025

The time between now and March 20th, 2025, spans not just the holiday season but also the summer months when business activity, for many businesses, often slows down. Forecasting cash flow during this period is essential to avoid being caught in a surprising cash hole in the New Year when your bank manager is also likely to be on holiday. Consider upcoming expenses such as wages, rent, supplier payments, and tax obligations, and balance them against expected income.

2. Expect Delays: Payments Come in Slowly in January

You may be busy in the lead up to the Christmas break, but businesses often face delayed payments in January due to the widespread Christmas shutdown. While your business might be ready to return to work in January, many of your clients and customers are still on holiday. This means payments from December’s work could take longer, tightening your cash flow in January. Ensure you adjust your cash flow plan to account for this.

3. Close Your Cash Gap

Where possible, negotiate payment terms with your Suppliers and Customers to reduce cash gaps. ​​Aim to collect the cash for the completed work before needing to pay your suppliers. Where this is not possible, close the gap between when cash goes out and comes back into your bank account. ​

​For example, if your supplier requires payment within 7 days, and you don’t collect customer payment until the 20th of the month following, there is a significant cash gap. ​Whereas, if your supplier requires payment on the 20th of the month following the invoice date, and your customer is required to pay within 7 days of an invoice, the cash gap is more likely to be filled.​

​Be sure to include payment terms in your Quotes. And once the job is complete, send the invoice on the same day to get the cash in quicker.

4. Run a Worst-Case Cashflow Scenario

It’s always wise to prepare for the worst. Run a cash flow scenario where payments are delayed longer than expected, sales underperform against your budget, and expenses remain steady. This will help you identify potential cash shortfalls and take pre-emptive action, whether that means cutting non-essential expenses or securing additional finance.

5. Prepare for Slow January Sales, Payments Arriving in February

Historically, January is a slower month for many businesses, it often isn’t a full trading month. Remember that the work you do in January won’t be paid until February which should be the first month when regular cash inflows resume. It is likely to be a small cash intake after a slow start to the year in January.

6. If required, ensure you have funding facilities in place…before you need it!

Having an overdraft facility or other financing options available before you need it is essential. This extra buffer can help you cover any short-term cash shortages and give you peace of mind that your business can meet its obligations even if payments are delayed. Talk to your bank or financial provider early to ensure these facilities are in place well before Christmas.

Other Important Considerations for the Lead-Up to Christmas

• Tax Obligations: Be mindful of any tax payments that might fall due during the shutdown period, such as GST or provisional tax. Ensure these are accounted for in your cash flow planning.

o    Provisional Tax payments (second instalment for March balance dates) – Due 15th January 2025

o    GST for the period ending 30 November 2023 – Due 15th January 2025

o    Employer Deductions for the period ending 31 December – Due 20th January 2025

o    FBT for the period ending 31 December 2024 – Due 20th January 2025

o    GST for the period ending 31 December 2024 – Due 28th January 2025

• Employee Leave and Wages: With many employees taking annual leave during this time, it’s essential to plan for leave entitlements and payroll. Ensure that you have set aside enough to cover holiday pay.

• Supplier Relationships: Communicate early with your suppliers about their shutdown periods to avoid surprises in terms of stock availability and delivery delays.

• Stock Levels: If you are a retail or service-based business, assess your stock levels ahead of time. You may need to order supplies well in advance to avoid any disruptions in January.

• Customer Communication: It’s a good idea to notify your customers of your shutdown dates well in advance. This helps manage their expectations and ensures any final orders or projects are completed before you close for the holidays.

  
  

By planning thoroughly, you can enjoy the Christmas break knowing that your business is in a strong financial position to navigate the quieter months ahead.

If you need support with your cash flow planning, please get in touch!