What Makes Or Breaks Christmas For Business?

The cost of living has eased over the past year, but consumers are still under pressure. For business, planning is the key to managing Christmas volatility.

The countdown to Christmas is on. We’re in the midst of a rush to maximise any remaining opportunities before the Christmas lull. Busy period or not, Christmas causes a period of dislocation and volatility for most businesses. The result is that it is not ‘business as usual’ and for many, volatility can create problems.

As well as this, there are cost of living pressures impacting consumers. Employee households are the hardest hit experiencing mortgage cost fuelled increases, spiked by the rollover of fixed rate loans to higher variable rate loans. While there has been some relief from energy subsidies and a reduction in fuel prices, underlying inflation remains persistently above the RBA’s target rate.

The Reserve Bank of Australia (RBA) are keeping rates on hold for now. They’re also hinting that it will be some time yet before they are comfortable reducing rates. The irony is that if we all spend up big, there is a risk this elevated spending will further delay rate cuts. But, while we might spend more, some of this increase is simply to compensate for inflation.

The discounting trend:

Consumers expect a bargain and can generally find one. There has been an increase in annual sales. We’re talking Black Friday, Click Frenzy and AfterPay Day, and a lot of businesses have to jump on them to stay relevant.

If you choose to discount stock (or the market forces you to), it’s essential to know your profit margins to determine what you can afford to give away.

For example, a business with a 20% gross profit margin that offers a 15% discount, needs a 300% increase in sales volume simply to maintain the same position. Worst case scenario is that a business trades below its breakeven point and generates losses.

On the flip side, increased sales from discounting can be great if you know your numbers, have excess or older stock that needs to be moved, generates demand, or drives new customers to you.

Also, you should think about how you create value; it does not always have to be a direct discount on a product.

The Christmas Cost Hangover

The costs of business tend to go up over Christmas. You’ll have more staff, lower efficiency, downtime from non-trading days, public holiday rates and increased promotional costs. And while it’s great to get into the Christmas spirit, it’s important to control your costs and not end up with a New Year hangover.

Many businesses also bring in casual staff during the Christmas period. It’s essential that you pay staff at the correct rates and meet your Superannuation Guarantee obligations. Learn more about your obligations here.

New Year cashflow crunch:

The New Year often leads into a quieter trading and tighter cashflow period. The March quarter is often the toughest cashflow quarter of the year. So, it’s important that you keep a cash buffer and don’t over commit yourself in the run up to the end of the year.

Take a lesson from Scrooge:

If you work with account customers, start your debtor follow up early. If your customers are under cashflow pressure, the Christmas period will only amplify it. The creditors that chase debt hard and early will get paid first. Don’t be the last supplier on the list; the bucket might be empty by then.

Trading stock headaches:

If business activity spikes over the Christmas period and you sell goods, then there is a temptation to increase stock levels. This makes sense as long as you don’t go too far! If you have too much stock post-Christmas, you will either be carrying product that is out of season, or you will have too much cash tied up in trading stock. Try to work with suppliers that can supply on short notice.

Managing your trading stock is not just about managing cost. If your customers are in your store but can’t find what they need, have an online option available in store to take the sale.

Want to talk about how the Christmas period could affect your business?

Get in touch with our business advisers today!

This is general advice only and has not been prepared with your situation and needs in mind. For individual and personalised advice, we highly recommend that you seek out proper professional advice from your accountant.