Knowledge Centre » Holiday Cash Flow Lessons You Should Resolve To Follow


Everything goes into overdrive during the holiday season when you’re a business owner — and the window of time you have to do everything somehow miraculously shrinks to become even smaller. 

The problem is, although Q4 can be a hugely prosperous season, it can also be a source of unusual cash flow patterns – which will turn into problems if you don’t understand what’s going on. Our data at Forward shows that the average small business owner has a razor-thin margin of just $7 between their inflow and outflow, which means there’s little room for error.

Even if Q4 isn’t your high season, any seasonal business can learn cash flow lessons from its peak periods. This will let you leverage your strengths so you can make the most of every key season. 

Why cash flow changes during the holidays

To understand holiday cash flow lessons, you need the why. As an SME (small to medium-sized enterprise), there are a few core reasons why your cash flow might be far out of whack from normal during the holiday season. The same goes for any type of seasonal business during which a substantial portion of income is earned during key periods.

It takes money to make money

The holiday season is a peak time for retailers, e-commerce sites, restaurants, shipping, distributing, manufacturing and other industries.

While these are all different industries, one of the main holiday cash flow lessons is that it requires a cash outlay in order to bring more cash in. The key is accounting for and managing these costs in order to stay cash flow positive.

Expenses that can increase during the holidays

Here are just a few areas where expenses rise during a seasonal push:

Labor: As storefronts are open longer hours and distributors work overtime to fill orders, they need people to staff their operations. This is reflected in hiring spikes documented by U.S. Bureau of Labor Statistics data. Although seasonal employees are generally hourly workers who do not receive benefits, they still have to be paid. 

Inventory and materials: If you’re selling more during the peak season, you’ll need to make sure you can meet the demand for products. This means increased spending on raw materials, production runs, packaging and anything else needed to stock shelves or perform the services that your business provides.

Marketing and advertising: To drive people to spend at your business instead of your competitors, you might find yourself ratcheting up spending on marketing and advertising. Among higher spending during the peak holiday season, though, businesses will find higher costs for advertising, too. Competition for customers’ eyeballs online or in print drives up prices. During Q4, you’ll find higher CPCs (cost-per-click), which is how most platforms, including Facebook and Google, charge advertisers for acquisition. Your normal advertising campaign could cost an additional 25% – or more.

Space: As the trend of pop-up stores continues – what some call “nomadic retail” – many direct-to-consumer (D2C) ecommerce brands choose to rent space during the peak season. Not only is this an unusual, extra expenditure, but rent is at a premium during the Q4 shopping period.

Other factors impacting cash flow during the holidays

Just like you, other businesses whose peak seasons coincide with the holidays may also experiencing higher-than-usual expenses. Everyone is shelling out more, really — your customers included.

Look at the full scope of your business, from supply chain to transaction. For instance: Your suppliers are spending more on logistics to get their raw materials to you. You’re spending more to staff your operation to sell to customers and your customers are spending more in virtue of holiday season gifting.

In this circle, everyone has money they owe — and debt is higher.  If you have outstanding debt to collect before the holiday season begins, there’s a chance that your invoices may run past due. This will negatively affect your cash flow.
One of the most important holiday cash flow lessons is that if you’re running your business according to a cash flow forecast that doesn’t take into account past-due debts, you could find yourself at in the red during this crucial time – putting your business at unnecessary risk.

5-holiday cash flow lessons for smoother peak seasons any time of the year

Let’s mitigate cash flow disaster. We can break cash flow lessons down into a few sub-categories to keep your eye on:

Holiday cash flow lessons for sales

How can you make sure you make the most of your peak sales period. Here are two simple ideas:

Estimate sales. 

Use historical data from prior years in operation to create sales projections. This will help you understand the discrepancy between your expected increased expenditures and, hopefully, increased sales. If you don’t have strong records – or any records – consider asking professional trade associations to connect you with other business owners in your industry who might be able to help you craft realistic ideas.

Encourage presales.

As one issue with holiday cash flow stems from debt collection, and another with lack of positive cash flow, presales can help address both of these issues directly. That means taking pre-orders for products (which can also help you avoid overproduction), pushing gift cards, or booking prepaid services. You might have to offer a discount or incentive to do so, but even a slightly reduced margin can be offset by ensuring sales and receiving cash faster.

Holiday cash flow lessons for debts

Going back to it taking money to make money, you also need to watch what you spend while you’re capitalizing on the holidays or any seasonal period.

Track debt. 

You should always have a handle on your outstanding debt – not just when you pull your balance sheet quarterly. In the period leading up to and during the peak season; however, it’s especially important that you know who owes you money and if it’s past due. If the holiday cash flow lessons have taught us anything, it’s that the people who owe you money aren’t going to prioritize paying you during the holidays.

Incentivize payment.

With that in mind, consider incentivizing those who do have outstanding invoices to pay you. If you can, you’ll want to start this practice well in advance of the holiday season. Although that’s not possible for all business owners, it’s a standard practice of trade credit (what you might know as “net terms”) to offer small percentage discounts to vendors who pay early. When everyone is worried about expenditures during Q4, you might be able to strike a deal.

Holiday cash flow lessons for once the dust settles…

At the end of it all, you want to be careful about how you manage cash flow throughout the year. As a seasonal business, the funds you just earned also have to fuel you through the leaner times as well.
Spend correctly. Sure, easier said than done. But if you find you’re in the black from holiday sales, use your profits wisely. Keeping in mind that you’ll likely spend the first few months after your high season collecting debt, put off reinvesting your profits into your business (or paying yourself or others out – understanding free cash flow can help). That buffer could very much come in handy if your payments don’t come in. Remember that positive cash flow is the main indicator of business health and that 60% of businesses who fail blame cash flow.

Study cash flow closely and make the most of every lesson

The sum of these cash flow lessons should point to one thing: that you need a good way to manage your cash flow. The first thing that every business owner should be doing is making certain to run cash flow forecasts year-round to set themselves up for success in the holiday season – or whatever your peak season is.

It’s not weird quack stuff to say you need to “understand” your cash flow. We’re not talking about giving it therapy and asking it its feelings. It’s a question of studying daily and monthly patterns and understanding not only how your business spends, but also how you manage money.

The best way to get insights is to use an advanced cash flow management tool with those data points built in. ForwardAI Predict integrates directly into QuickBooks Online (QBO) to assess your cash flow and key performance metrics —  giving you the insights you need to put your cash flow lessons to work for you.

The information in this article is not financial advice. This content is general while every financial situation is unique. It does not replace the expertise that comes from working with an accountant, bookkeeper or financial professional. 


Stock image via Pexels. Santa copyright North Pole Enterprises 2018.


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