The cost of living has eased somewhat over the past few months, but consumers continue to feel financial pressure. For businesses, effective planning is crucial to navigating the volatility that comes with the holiday season. 

With Christmas just around the corner, businesses are racing to seize any remaining opportunities before the holiday slowdown. Whether it’s a busy period or not, Christmas often brings a level of disruption and unpredictability for many businesses. As a result, it’s far from “business as usual,” and for many, this volatility can present challenges. 

At the same time, cost of living pressures continue to weigh on consumers. Employee households, in particular, are struggling with rising mortgage costs—exacerbated by the shift from fixed-rate loans to higher variable-rate loans. 

While energy subsidies and falling fuel prices have provided some relief, underlying inflation remains stubbornly above the Reserve Bank of Australia’s (RBA) target rate. With the RBA holding interest rates steady for now and signaling it may be a while before they’re comfortable lowering rates, consumers are looking for value before making any spending decisions. 

Ironically, a recent Roy Morgan poll suggests that despite these concerns, people are still likely to spend more this Christmas. However, some of that increased spending is merely to keep up with inflation—buying the same goods and services as in previous years now costs more. If consumer spending continues to rise, it could delay any potential rate cuts, keeping the economic pressure on for longer.

 

The discounting trend

Consumers are always on the lookout for a bargain, and it’s often easy for them to find one. If you decide to discount your products—or if market conditions force you to—it’s crucial to understand your profit margins to know what you can afford to give up. For example, a business with a 20% gross profit margin that offers a 15% discount would need to see a 300% increase in sales just to break even. In the worst case, this could lead to trading below breakeven and incurring losses.

That said, discounting can boost sales if you have a clear grasp of your numbers, are clearing out excess or older stock, are creating demand, or are attracting new customers.

 

The Christmas cost hangover

Costs often rise during the Christmas season. With the need for extra staff, lower efficiency, downtime from non-trading days, and increased promotional expenses, the overall cost of doing business tends to increase. It’s easy to get caught up in the festive spirit, but it’s important to avoid a “New Year hangover” by staying on top of cost control.

Many businesses also hire casual staff during this time. It’s crucial to ensure you’re paying employees the correct rates and fulfilling your Superannuation Guarantee obligations. Be sure to use the pay calculator to verify that everything is accurate.

 

New Year cash flow crunch

The New Year typically ushers in a slower trading period and tighter cash flow, with the March quarter often being the most challenging. It’s important to have a cash buffer in place. Avoid overcommitting before the year ends to ensure you don’t start the new year facing financial strain.

 

Take a lesson from Scrooge

If you work with account customers, begin following up on debts early. For customers facing cash flow issues, the Christmas season can make matters worse. Creditors who pursue outstanding payments promptly are more likely to be paid first—don’t let your business be the last on the list, as the funds may be gone by then.

Christmas is a wonderful time of year, but don’t get swept up in the excitement and overlook the fundamentals.

 

Trading stock headaches

If your business sees a surge in activity over the Christmas period and you sell physical goods, it might be tempting to increase your stock levels. While this can be a smart move, be careful not to overdo it. Excess stock after Christmas can result in carrying out-of-season products or tying up too much cash in inventory. Work with suppliers who can provide stock on short notice to help manage this.

Managing your inventory isn’t just about controlling costs—it’s also about meeting customer demand. If customers visit your store but can’t find what they’re looking for, make sure you have an online ordering option available to capture the sale.

If you would like to chat about managing cash flow, tax or costs, talk to us anytime at Bates Cosgrave.