While cost-of-living pressures have slightly eased this year, consumers and businesses alike continue to feel financial strain, making careful planning essential for companies navigating the holiday season. Christmas can bring both opportunities and challenges for businesses, so let’s explore what “makes or breaks” the season from a business perspective.
Managing Seasonal Disruption and Volatility
The holiday rush is underway, and as businesses race to capture any remaining opportunities before the Christmas slowdown, many find themselves grappling with dislocation and unpredictability. Christmas disrupts regular operations, creating periods of volatility that are challenging for businesses to manage without thorough planning.
Consumers, facing ongoing living cost pressures, are particularly cautious. Many households with mortgages are feeling the pinch as fixed-rate loans roll over into higher variable rates. Although energy subsidies and lower fuel costs offer some respite, overall inflation—especially for services like rent, insurance, and personal care—remains above target. The Reserve Bank of Australia has hinted that interest rate reductions are still some way off, so consumers are seeking value for every dollar they spend. Ironically, if spending spikes this season, it may delay future rate cuts, as increased spending can further fuel inflation. However, given inflation, consumers will naturally spend more this year just to match last year’s buying power.
The Discount Dilemma
Discounting remains a key strategy during the holiday season, but businesses must approach it carefully. Knowing your profit margins is essential before offering discounts. For instance, a 20% gross profit margin business offering a 15% discount would need to triple sales volume just to break even. Without careful planning, discounts may lead to losses if sales don’t increase significantly.
Discounting works best when you have excess stock, older inventory that needs to move, or if it generates demand and attracts new customers. Value doesn’t always have to come from direct discounts; bundling products can be more profitable. Packaging high-demand items with lower-demand stock or offering quantity discounts can create value for customers without eroding profits.
Holiday Cost Management
Operating costs often rise around Christmas, with increased staffing, reduced efficiency, downtime on non-trading days, and higher marketing expenses. While it’s essential to embrace the season, careful cost management is necessary to avoid a financial “hangover” in the New Year. If hiring casual employees, ensure they’re paid correctly, including superannuation contributions, to stay compliant.
Planning for New Year Cash Flow
The start of the New Year can bring reduced business activity and tight cash flow. Historically, the March quarter tends to be the hardest quarter for cash flow, so building a buffer is essential. Overextending during the holiday rush may lead to issues in the quieter months ahead.
Lessons from Scrooge: Managing Debts
For businesses working with account customers, it’s wise to start debt collection efforts early, as many clients may face financial pressure during the holiday season. Early follow-ups on overdue accounts increase the chances of getting paid, while waiting could mean missed payments if clients run out of cash.
Inventory Management for the Christmas Rush
If holiday sales are booming, businesses may feel tempted to stock up. While this makes sense, overstocking can lead to excess post-holiday inventory or too much cash tied up in stock. Instead, aim to work with suppliers who can provide goods on short notice to avoid tying up funds. Additionally, if items are out of stock in-store, offer customers online options to complete sales, ensuring no missed opportunities.
While Christmas can be a profitable time, it’s easy to get caught up in the excitement and overlook essential business practices. With careful planning, effective cost management, and a focus on customer needs, businesses can make the most of the holiday season without unnecessary setbacks.
Pitt Martin Group is a CPA accounting firm, providing services including taxation, accounting, business consulting, self-managed superannuation funds, auditing and mortgage & finance. We spend hundreds of hours each year on training and researching new tax laws to ensure our clients can maximize legitimate tax benefit. Our contact information are phone +61292213345 or email info@pittmartingroup.com.au. Pitt Martin Group is located in the convenient transportation hub of Sydney’s central business district. Our honours include the 2018 CPA NSW President’s Award for Excellence, the 2020 Australian Small Business Champion Award Finalist, the 2021 Australia’s well-known media ‘Accountants Daily’ the Accounting Firm of the Year Award Finalist and the 2022 Start-up Firm of the Year Award Finalist, and the 2023 Hong Kong-Australia Business Association Business Award Finalist.
Pitt Martin Group qualifications include over fifteen years of professional experience in accounting industry, membership certification of the Australian Society of Certified Practising Accountants (CPA), Australian Taxation Registered Agents, certified External Examiner of the Law Societies of New South Wales, Victoria, and Western Australia Law Trust Accounts, membership certification of the Finance Brokers Association of Australia Limited (FBAA), Registered Agents of the Australian Securities and Investments Commission (ASIC), certified Advisor of accounting software such as XERO, QUICKBOOKS, MYOB, etc.
This content is for reference only and does not constitute advice on any individual or group’s specific situation. Any individual or group should take action only after consulting with professionals. Due to the timeliness of tax laws, we have endeavoured to provide timely and accurate information at the time of publication, but cannot guarantee that the content stated will remain applicable in the future. Please indicate the source when forwarding this content.
By Yvonne Shao @ Pitt Martin Tax
