10 tips against the January hole

The months of November and December mean the final spurt for Swiss small and medium-sized companies: processing orders, sending an invoice with each delivery and booking sales are now in the foreground. Massive, partly unplanned material purchases, maximum working hours and often overtime are necessary in the last quarter to serve all customers.

Many companies pay out the 13th month's salary and other bonuses with the December wages. They thank their employees with a nice Christmas event and their customers with small gifts. And all invoices with a due date of January 1, such as those from insurance companies, arrive on time for the holidays.

Gap between revenues and expenses

It all adds up to quite a bit of money! And money hardly comes in for a while: The invoices that were still sent out quickly give the customers a payment deadline until the new year, and payment deadlines are no longer strictly adhered to anyway. But the wages for the great end-of-year job, the invoices for material purchases and the costs for all the festivities still had to be paid in the old year. And most SMEs often close for the holidays until after New Year's week. That's when a gap opens up between income and expenses, eats away at the liquidity cushion and - voilà - here it is, the famous "January hole"!

How to avoid the January hole

In contrast to the waistline, the cash register is in a state of consumption in January. The start of the year after the company vacations is notoriously difficult. The room for maneuver is limited, expectations are high - the mood is one of hangover. It doesn't have to be, and here are 10 tips on how to avoid, or at least mitigate, the January slump by taking action now.

1. Financial and liquidity planning: Even a relatively simple financial plan shows the liquidity surplus or deficit on a monthly basis, even looking ahead. This does not require sophisticated software, but a simple table with income and expenses is usually sufficient. It is important to make the presentation monthly and realistic, in order to also recognize short-term bottlenecks or surpluses.
2. Cut spending: Sounds banal, but to avoid the January hole, expenses can be cut. Everything that is "nice to have" should be omitted completely the later in the year, or at least postponed to the two middle quarters.
3. Optimize revenue: Just as banal, you can try to increase revenue at the beginning of the year. Winter discounts, special promotions and stock sales help; the customers will thank you because they are usually also in the January hole.
4. Compare providers of interchangeable services: Autumn is a good time to compare the terms of interchangeable services: Insurance, energy, telephone and Internet, mobility are all monotonous products today and only the providers think it is important that we buy from them. For the typical Swiss SME, however, the offer is uniform and can be easily compared and exchanged. Cancellation in the fall and conclusion of new contracts at the beginning of the year can bring noticeable savings and welcome gifts.

Cushion the January hole

1. Steady wage payments: In order to break the end-of-year peak in salary payments, it is possible to spread the 13th month's salary over all months. Furthermore, it helps to pay the bonus only in the spring when the annual financial statements are available.
2. Check discount: "2% discount for payment in 10 days" is an annual interest rate of 72% - can the SME afford it? Do customers really pay faster because of this? Better to abolish and actively agree with customers on payment terms that are attractive for both sides - such as down payments and interim payments.
3. Supplier Credit: Conversely, the SME can try to negotiate more favorable payment terms with its own suppliers. In doing so, consider the mutual dependency and also include unusual solutions - e.g. exchange of goods instead of monetary payment.
4. Negotiate credit limits: Immediately arrange meetings with the house bank and two other banks. An overdraft limit for the current account is the ideal instrument for cushioning liquidity fluctuations and costs only if it is used; then, however, it is quite expensive. Therefore, compare offers and negotiate hard. Especially with new customers, banks are willing to do a lot that they hardly ever offer to existing customers.
5. Advance invoices: Anyone who has to make large advance payments and offer long payment terms for negotiation or industry reasons should consider factoring. Here, a financial institution, or in the case of a crowdlender several investors together, advances an outstanding invoice to a supplier for the period of time until the customer pays. Usually only up to 85% of the invoice amount is covered, but in most cases this is enough to cover material and labor costs, plugging the hole. The cost is relatively high, but it is only for a short time.
6. Rent capital goods instead of buying them: Companies whose production depends on a few large investments, such as expensive machinery or a complex building, can consider "leasing" as a financing alternative. The company selects the investment object, but the lessor then buys it and leases it to the company. The lessor then leases the asset to the company, which then pays regular payments from the benefits generated by the asset: The chicken pays for itself with the eggs it lays, so to speak. Intended for new acquisitions, existing capital goods can also be sold to the lessor and then leased back to free up liquidity quickly and effectively.

Conclusion

Regardless of whether you avoid or cushion the January hole: Good preparation and efficient execution are important. Getting advice is not a bad idea. Because the famous "January hole" does not have to be!

This article is published in cooperation with System credit (www.systemcredit.com), a Swiss fintech startup that shows SMEs simple ways to suitable financing with fair conditions, independent of providers. As participating lenders are Bank Cler and swisspeers. Click here for the offers.