A Business Owner's Guide to Managing Holiday Cash Flow

Summary

• The holidays can strain your business's cash flow, as expenses rise, revenue patterns shift and year-end financial goals pile up
• The good news is you can prevent seasonal cash shortages — with careful planning, access to credit, an empowered workforce and strong digital cash-management tools.
• Plus, working closely with a business banker ensures better forecasting, improved liquidity and stronger financial performance heading into the new year.

The holidays are busy for small business owners, as they gear up to serve a demand increase, finalize year-end expenses, and aim to finish on a strong financial note. And the lynchpin that connects these seasonal needs is company cash flow.

"The most important thing is planning for your cash flow needs during the holidays," says Gregory Jasinski, business banker with Northwest Bank in Buffalo, New York. "Plan for the best and worst case scenarios, and be prepared for both."

It's not uncommon for small businesses to incur additional expenses as the year ends, whether that's funds for extra inventory or supplies, incentives or bonuses for staff, or even capital investments to offset pending tax bills. At the same time, revenue may increase dramatically due to holiday purchases.

The bottom line: Anticipating cash flow fluctuations and leveraging the appropriate banking expertise and tools can ensure that a sudden cash crunch doesn't mar your holiday season.

Cash management and holiday hiccups

Seasonal sales often play a crucial role in a company's financial health. According to a survey from Intuit, 61% of small business owners say holiday revenue is vital to the success of their businesses, and nearly a quarter report that they'll face a challenging year if they miss their holiday sales goals.

Facilitating these goals requires deftly managing company cash flow to pay for additional products in advance and hiring seasonal staff to meet the increased demand.

"One of the risks small businesses face is having a cash flow shortage right when they need to purchase inventory or pay employees," Jasinski says. "That has a reverberating effect that can impact your business well into the new year."

But increased expenses aren't the only cash concern. Small business owners often find themselves purchasing equipment or investing in other capital needs in the final months of the year to balance out their tax picture. Companies that generate a significant amount of revenue at year's end need tools to put that money to work, such as high-yield savings accounts or CDs that offer attractive interest rates.

5 ways to improve holiday cash flow

Cash flow management is essential year-round, but the demands of the holiday season bring additional pressure and needs for small business owners. Here are five ways to improve cash management this holiday season:

1. Start preparing now

As Jasinski notes, preparation makes the difference between anticipating cash needs and being caught off guard. He advises that small businesses model their fourth-quarter revenue and expenses, considering both potential positive and negative outcomes. "Having a plan in place for end-of-year cash needs is of the utmost importance," he says.

2. Establish a line of credit

A line of credit ensures that your business has access to cash for expected and unexpected needs. "It provides that increased liquidity so that you can make payroll or pay a supplier invoice," Jasinski says. At Northwest Bank, we offer small business lines of credit that only require payments if you draw on the loan — and there's no cost to establish one.

3. Empower your employees

Proactively caring for your employees by offering sales incentives, holiday pay, or year-end bonuses can alleviate some seasonal stress and ensure everyone is working toward the same revenue goals. The incentives are an expense that companies need to plan for, but they can yield dividends in terms of financial performance. "By empowering employees, you're giving them skin in the game, so that if they win, the company wins," Jasinski says. "Businesses that really take care of their employees see the benefits on their bottom line."

4. Take advantage of digital tools

Cash flow visibility is a key component of successful cash management, enabling you to monitor your accounts and transactions in real-time. At Northwest Bank, we offer a suite of digital tools that simplify cash flow management and help you identify anomalies that could disrupt your business. Some of the tools include:

• Your online banking portal. Northwest Bank's online and mobile banking services enable small business owners to check balances, make payments, transfer funds and more.
• Debit/credit card controls and fraud protection. Get notified immediately when suspicious activity is detected on your debit card, credit card and related accounts.
• ACH and positive check pay. Denote your regular transactions with vendors and receive a list of check and ACH payment exceptions that require approval to complete.
• Remote capture for check deposits. Ensure you're collecting revenue as soon as possible with remote check deposits via our mobile banking apps.
• Northwest Bank Treasury Pro. Our cloud-based treasury services platform, which provides everything needed to manage your ACH and wire payments.

5. Connect with your business banker

"We are a relationship-driven bank, and our bankers are in constant conversation with our business customers, asking questions and determining how we can help," Jasinski says.

Managing cash flow through the holiday season may seem like another item on a long to-do list. But with Northwest Bank's digital tools, access to lines of credit, investment options and in-house expertise, you can better navigate seasonal cash fluctuations and head into the new year with a strong financial foundation.

Connect with a Northwest Bank business banker today to learn more about how your small business can prepare for this holiday season.