Cash flow: Managing the holiday influx

Each year a few days in December could mean the difference between a good year and a bad year for retailers, and for those who end up in the black, it’s also a time when important decisions need to be made on to how to best utilize the sudden cash influx.

“For anybody in retail, December is a real make or break month,” says Cuneyt Gulerce, president of Janan Boutique, a Toronto-based outerwear retailer. Gulerce predicts doing 25 per cent of his annual sales each December, and approximately 80 per cent between September and April.

Gulerce adds that this year December was even busier than in years past, as America’s Black Friday begins to catch on north of the border.

“This has been the first year that it’s really been embraced by the Canadian consumer and Canadian retailers,” he says.

While each small business owner will have to decide for themselves how to best utilize the extra cash — whether it’s reinvesting in the business, paying down debts or saving for a rainy day — Gulerce’s family run business has been dealing with that dilemma for 30 years.

“The goal of the money we earn specifically during the Christmas season is to pay for all our receivables, pay down our line of credit if it’s being used, and also to pay ourselves,” he says. “It’s just to start fresh and make sure there are no black clouds over our heads (in the new year), but at the same time setting money aside to pay taxes and all that good stuff coming up in April.”

No matter how a small retail business chooses to spend the extra holiday capital, it’s important that the strategy is consistent with the business’s goals, argues Rob Mitchell, assistant professor of entrepreneurship at the Ivey School of Business.

“For me it’s about planning,” he says. “Plans vary based on goals, and because goals are variable, plans are going to vary. The important thing is to have a goal, and have a plan that’s consistent with that goal.”

Mitchell explains that decisions surrounding how to spend the extra holiday capital will vary based on a company’s risk profile. For example, some businesses might want to use the extra funds to invest in the business and explore new verticals, while more risk averse companies should consider saving it for a rainy day.

“With growth comes risk, so for those taking risks, they’re going to be taking the risk of not having a contingency fund, but it might be worth it to them to grow (the business),” he says. “Because those goals differ, the nature of the investment in the business is going to differ.”

Mitchell adds that for those who want to save their extra capital for a rainy day, he recommends a safety net equivalent to six-months worth of expenses.

“If you run out of cash, you die. It’s that simple,” he says. “So you’ve got to be able to plan ahead and manage cash flow.”