Post Christmas may not be so merry
The Christmas-New Year period can be a time of high stress for many small to medium businesses.
Irregular sales either side of Christmas combined with sizeable wages and tax commitments early in the New Year means December to March is traditionally a corporate danger zone.
Businesses that budget properly have the best chance of managing their cash flow and getting through this period. However, businesses that struggle leading up to Christmas could find the additional stresses imposed by the unique Christmas trading period, the final nail in the coffin.
The first danger point comes just before Christmas when some businesses realise they are unable to pay their wages bill for the Christmas break because sales did not meet expectations. The second danger point comes at the end of January, which is traditionally quietest month of the year, when they face paying their suppliers for goods received in November and December.
The major factor that is impacted from the Christmas-New Year period is the timing of payments. A widely accepted business practice is that the payment period starts the month after an invoice is received. For example, a December invoice is due for payment on 31 January.
The timing of Government BAS payments further complicates the situation. Normally quarterly BAS payments for March, June and September quarters are due by the 28th day after the end of that quarter. Because of the Christmas break, the Australian Taxation Office gives businesses until the end of February to meet the December quarter payment. However, the March BAS payment is then due at the end of April—just two months later—making two BAS payments due in two months.
Getting through the Christmas New Year period requires strong budgeting practices to ensure bills can be paid as they fall due. For some companies, pre-Christmas can be the busiest period of the year. However, managing the post-Christmas business hangover requires significant planning.
As always, the earlier insolvency practitioners are contacted, the more likely the business can be salvaged. Or if it can’t be saved, the greater the return will be to creditors and ultimately the less financial impact on business owner.