How firms can survive the Christmas ‘blackout’

Is the period around Christmas the most dangerous time of year in the cash flow cycle of SMEs?

Leigh Dunsford, co-founder of Waddle, says even if a business has had ‘‘a great trading period leading up to Christmas, and a healthy stack of money owed to you, you likely won’t see this money until closer to February next year’’.

Co-founded in 2014 by three high-school mates, Dunsford, Simon Creighton and Nathan Andrews, Waddle’s cloud funding software technology integrates with cloud-accounting software providers and enables borrowers to close cash-flow gaps by automatically tapping into funds locked up in receivables.

‘‘Cash-flow cycles can make or break businesses of all shapes and sizes,’’ says Dunsford. Waddle has coined the term the Christmas ‘‘blackout period’’ for small businesses for this time of year because it relates to a similar process of halting trading, or in this case invoice payments – not a halt in trading, rather an analogy for the payments slowdown, he says.

‘‘You don’t know what you don’t know until you’ve been in business long enough to experience extended periods of stress, ranging from sudden drops in sales, nonpayments, unexpected bills, production halts, and the list goes on.’’

Waddle recently passed $100 million in loan value. It has already achieved 70 per cent of last year’s total loan volume in just four months this year – a 175 per cent increase in lending volume compared to the same time last year.

Complementary Medicines Group (CMG) once went through post-Christmas blues.

‘‘Christmas is a time for tighter deadlines and longer staff absences,’’ says Craig Fallshaw, founder of CMG. ‘‘From years gone by, our standard Christmas postscript resembled something of an empty aircraft hangar. The overflow of customer requests was a haunting memory to a battalion of staff too exhausted to celebrate the year’s end.’’

Founded in 2010, CMG provides services to the complementary medicines, food and over-thecounter pharmaceuticals industries. It had a turnover of $13.8 million in the last financial year.

‘‘We were a company that experienced the dreaded Christmas blackout,’’ Fallshaw says. ‘‘For when the clock reached 5pm on that last trading day before Christmas, the phones went quiet, deliveries stopped, even the general ledger ground to a terrifying halt. This day affected the staff. The following weeks and months affected everything else.’’

Added Dunsford: ‘‘We see signs of a slowdown heading into late November with customers drawing on loan facilities increasing right through to mid-December. ‘‘The period lasts until the end of February. As businesses come out of the January break, they begin ramping up operations again, so there is still a small lag in payment times as businesses divert capital to wages and marketing expenses.’’ He says mid-February usually indicates movement in payments again.

He says this period heavily affects SMEs that deal with corporates: ‘‘Try to sell to as many customers as possible and when concentrated to a few buyers you should seek to put in place trade credit insurance to protect your income from customer insolvencies.

‘‘Now, even if you have insurance in place this won’t solve your cash-flow problem immediately as you’ll still need capital to operate until your insurer pays out. Try and plan for a scenario that allows for one large customer to fall over. Will you have adequate capital to cover the gap?’’

He says high-growth businesses are the most at risk in the earlier stages, from one to three years trading. ‘‘It’s crucial in these phases to get some outside help, bury the ego and surround yourself with some key mentors or advisers who can point out the bumps you’re likely to experience.’’

And what of companies with minimal activities over this period?

Shahid Majeed, the founder of E-LEAD, an organisation that enhances the capabilities of future leaders, says because his business is a start-up, ‘‘the Christmas period is going to be challenging’’. ‘‘Our activities are minimised over this period to allow for the severe reduction in cash flow.’’

Majeed started E-LEADat the end of 2016, and it turned over less than $200,000 in the last financial year. ‘‘We are facing the combined challenge as both a start-up and a business which relies on funding from the corporate sector,’’ he says. ‘‘To cope, our business minimises our activities during this period.’’ He will have to generate revenue from business and external funding and support from earlier months to be able to support himself and the business.

‘Cash-flow cycles can make or break businesses.’

Leigh Dunsford