Running a business can bring its own set of unique challenges, especially when it comes to managing cash flow. As a business owner, you are likely familiar with the seasonal nature of cash flow in your business and January presents unique cash flow challenges for most businesses (unless in the Christmas trade).

After the holiday season, businesses often face a surge in expenses, such as paying for unused holiday accrued, year-end bonuses, Christmas do, referral thank you gifts to name a few. Additionally, there may be increased costs associated with inventory replenishment and new year marketing campaigns. For March year end businesses, January 2024 marks the first blow for the increase in corporation tax rates at up to 26.5%.

At the same time, consumer spending tends to dip in January, as people recover from holiday expenses and tighten their budgets. This can lead to a decrease in revenue for businesses, further exacerbating cash flow issues.

To effectively manage cash flow in January, businesses need to be proactive and implement strategies to mitigate these challenges. In this article, we will explore some valuable tips for effectively managing your cash flow leading up to January and keeping your business financially stable.

small business owner managing cash flow

Common cash flow issues in January

Cash flow is the lifeblood of any business. It refers to the movement of cash in and out of your business, including revenue from sales and expenses for operating costs, supplies, and other expenditures. Effective cash flow management is crucial to ensure your business stays financially healthy and can meet its obligations.

When cash flow is mismanaged or neglected, businesses can face a range of problems, including difficulty paying bills, missed opportunities for growth, and even bankruptcy. That’s why it’s important to prioritise cash flow management and develop strategies to navigate any challenges that arise.

Strategies for managing cash flow on the lead up to January

1). Improving invoicing and payment processes

Efficient invoicing and payment processes are essential for managing cash flow effectively. As Benjamin Franklin and the entire business community would say: Time is Money. Ensure that your invoicing is accurate, timely, and contains all the necessary information. Consider offering incentives for early payments, such as discounts or rewards, to encourage prompt payment from your customers.

When it comes to the process of paying, there are now plenty of secure online payment services you can offer your buyer that don’t leave you hanging on a cheque. We recommend GoCardless, an online direct debit service that takes control of the whole collection process on your behalf.

Additionally, if you have customers with outstanding payments, follow up promptly to collect those funds. You can automate your credit control with apps like Chaser – a simple to use software that has completed transformed our own credit control!

Read how we reduced our client’s time spent on credit control by 90%.

2). Review last year’s data

By examining your financial statements from the previous year, such as the income statement, balance sheet, and cash flow statement, you can identify trends and patterns. This historical data provides insights into what the next few months ahead tend to be like for your business. For instance, you can determine if January is historically a slow month for revenue or if there are specific months when expenses tend to spike and adjust what you do, like managing your inventory, accordingly.

Our 5 minute cashflow tool can help you clearly see fluctuations in cash each month and build a pattern.

Download our free cashflow tool

3). Budgeting and cash flow forecasting  

To gain a clear understanding of your cash flow situation, it’s crucial to create a cash flow forecast. This involves projecting your expected cash inflows and outflows for the month of January. By doing so, you can identify potential gaps in cash flow and take proactive measures to address them.

Skip the steps of creating your own, or searching the internet for a cash flow planning tool, we have one you can download for free here.

It only takes 5 minutes to review and update this. During this period, we’d recommend you do this weekly.

Start by identifying your fixed expenses, such as rent, utilities, and insurance. These are expenses that remain relatively constant throughout the year. Next, consider your variable expenses, such as inventory costs, marketing expenses, and payroll. Track your year end company tax bill, suppliers due, pensions etc.

Once you have a clear picture of your outgoings, compare them to your projected income. This will help you identify any cash flow gaps and take proactive measures to address them.

By regularly monitoring your cash flow and making informed decisions, you can avoid any surprises and ensure your business remains financially stable. Especially with so many outgoings!

 

4). Setting targets for 2024

Setting targets and goals for a business, including determining the sales required for 2024 and breaking them down into weekly targets can help you work backwards on what you need to achieve each month.

Additionally, considering the need for a business valuation can be valuable in determining the overall health and value of the business.

5). Utilising technology for cash flow management

As briefly touched on above, in today’s digital age, technology can be a powerful tool for managing cash flow. There are numerous software solutions available that can help you track and analyse your cash flow, automate invoicing and payment processes, and generate financial reports. By leveraging technology, you can streamline your cash flow management and save time and effort.

Our top recommendations for apps that aid in cash flow management:

  • Xero accounting software – It has built in cash flow statements, reports..
  • Chaser – Automated invoice chasing
  • Futrli– Tailored cash flow reporting, scenario planning and debtor chasing
  • Dext – Track every receipt and expense easily

6). Negotiating with suppliers and vendors

It can be beneficial to negotiate with your suppliers and vendors for extended payment terms or discounts in the new year. By extending payment terms, you can delay cash outflows and create some breathing room in your cash flow. Similarly, negotiating discounts can help reduce expenses and improve your overall financial position.

It’s important to approach these negotiations with transparency and open communication. Explain your cash flow situation and explore mutually beneficial arrangements that can help both parties. Building strong relationships with your suppliers and vendors can also lead to long-term benefits, such as preferential treatment or better terms in the future.

7). Review your upselling and marketing strategy

January can be a challenging time for sales, but it’s also an opportunity to review your upselling and marketing strategies. Here are some tips to consider:

  1. Focus on existing customers: Upselling to existing customers is often easier and more cost-effective than acquiring new ones. Identify opportunities to offer additional products or services to your existing customer base. Provide incentives, discounts, or loyalty programs to encourage repeat business. You could even follow up on sales made over the Christmas period with personalised recommendations to show customers how these additional items can enhance their experience or provide savings.
  2. Create targeted marketing campaigns: Develop marketing campaigns that specifically target customers who may be more likely to make a purchase in January. Offer promotions, discounts, or limited-time offers to attract their attention. Use data analytics to identify customer segments that have historically shown increased interest or spending during this period.
  3. Leverage social media and online platforms: Use social media and online platforms to promote your products and services. Engage with your audience, encourage user-generated content, and leverage influencers to expand your reach. Consider running targeted ads on platforms where your target market is most active.

By reviewing and optimising your upselling and marketing strategies, you can boost sales and revenue during January, positively impacting your cash flow

Read our detailed articles on how to create a digital marketing strategy and how to build a referral marketing strategy to grow your business.

8). Consider increasing your prices

How you do this depends on your product or service, and demand.

For example, you could increase your pricing if you believe customers will pay more. It may lead to reduced sales—but you could make more money.

You should research three areas for pricing:

  • Your costs and what you need to make a profit
  • Competitor pricing
  • Pricing in your target market.

Equally, you could reduce prices or offer discounts. After doing your research, try to find that pricing sweet spot.

Read our article on increasing your prices which includes our winning 1-3% formula.

Final thoughts: Schedule time for your finances ahead of January

Managing cash flow is vital to any business, but it is the difference between success and failure if you aren’t proactive and monitor your trends.

Make time for your finances. Schedule an hour or two each week to work on your financial forecasts.

Follow the points we’ve suggested above, but don’t forget to access professional advice whenever and wherever you feel it’s necessary. You can book a free 1-2-1 with one of our Principal Advisers here.

Book a free 1-2-1

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