In the US, the holiday season of Thanksgiving and Christmas is fast approaching. But no matter where you live in the world, you should use the holidays to give thanks for the positives in your life and your business. Yet you can never forget the seasonal business cash flow and activity demands that are approaching, so to be prepared – you need to start the planning now.
Even though these last few years have not been great financially for entrepreneurs, it always helps to look at the cup as half full, rather than half empty. We often forget that one person’s loss is a gain for others. Here are a few of the many things that entrepreneurs should be thankful for this holiday season, to keep the challenges in perspective:
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The economy continues to rebound. The stock market reached a new all-time high in 2013, and is finally providing some liquidity relief to concerned investors and startups alike. Home prices are slowly coming back, and consumer spending reached a new high of almost $11 billion in May 2013.
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Venture capital investments are returning to startups. Venture capital firms raised $4.1 billion for 35 funds during the first quarter of 2013, an increase of 22 percent compared to the level of dollar commitments during the fourth quarter of 2012, according to a report from Thomson Reuters and the National Venture Capital Association (NVCA).
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New focus on a sustainable planet. The continuing rise in the price of fuel, combined with the ongoing evidence of global warming, has highlighted the need for alternative energy sources, and green products. Startups are springing up all over to capitalize on these opportunities.
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Incentive to do something you love. Lots of people tell me they are sick of the corporate grind, and they long for the opportunity to take their favorite activity or hobby, and make a business of it. Now many of them are doing it. Some are finding something more exciting after being laid off dead-end jobs.
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Holidays mean more time for the family. Keeping a sense of balance between work and family is always a challenge. With the workload reductions, some of you now have had the time to re-introduce yourself to your family and friends.
But remember, nothing happens in your business unless you make it happen. In all businesses, especially startups, cash-flow is king. Here are some key tips to optimize your cash flow in anticipation of these busy holiday periods:
- Start with re-sizing per-unit profitability. Margin is everything. Unless your volumes are in the millions or higher, the difference between manufacturing cost and customer price better be 50% or greater. That should be true even if your customer is really a distributor. Otherwise, sales, marketing, and operational costs will kill you.
- Next comes sales volume by channel. Here is where you need a “bottoms-up” estimate from the people in your organization who have to deliver. This forecast is really their commitment. It’s tempting here to simply calculate one percent market share, and assume anyone can do at least that much. It’s not credible and won’t happen.
- Don’t forget that pesky overhead. Even with a slow economy, it’s amazing how fast office space costs add up, in conjunction with insurance, utilities, and administrative help. Then there are computer costs, trade shows, inventory, and special holiday promotions. Check industry average statistics to make sure you are in the right range.
- Holiday sales fluctuations eat cash. Sales surges means more inventory is required to cover the ups-and-downs. Every dollar in inventory is a dollar less in cash available, maybe even two dollars less if your gross margin is 50%. If you try to vary the number of employees to match, that costs even more cash for hiring, and later resizing.
As I suggested in the beginning, the business year has been a good one so far, and the coming holiday season has the potential to make it even better. Don’t let the demands of seasonal fluctuations spoil the party. Do your planning now, and drive your business to new highs, rather than letting the demands drag you down. How prepared are you to make this season a success?
Marty Zwilling
Disclosure: This blog entry sponsored by Visa Business and I received compensation for my time from Visa for sharing my views in this post, but the views expressed here are solely mine, not Visa's. Visit http://facebook.com/visasmallbiz to take a look at the reinvented Facebook Page: Well Sourced by Visa Business.
