Institute of Certified Bookkeepers

As the summer silly season quickly approaches, it may be prudent to take stock on what impact this may have on business cashflow. For many businesses in the manufacturing and trade industries, the Christmas / New Year period may be a time where they go back to a skeleton staff or may in fact close for a period of time. For other clients in tourism or agriculture, it may be a peak period of activity. Either way, the summer season poses some challenges with regards to cashflow.

Is the Business Winding Down or Gearing Up?

For those businesses that are having a well-earned break, or are scaling back to minimal staff, this will have some obvious impacts on cashflow. What will the impact be of reduced or no sales over the Christmas / New Year period be? Will there be enough money in the bank in mid-December to cover all of the expenses over January that will continue to occur, such as staff wages (annual leave), property rent, loan repayments and possibly increased drawings?

For those businesses that are leading up to a peak period, they may well have the same problem, but at the opposite end of the timeframe. For many seasonal businesses such as tourism, new staff may have to be employed, additional stock may have to be bought, an increase in marketing and advertising expenses may need to be considered. In this case, the business may have some short term cashflow pressure at the beginning of the period, as it may take some time for the revenue to catch up to the additional expenses that have been incurred.

Contemplate the Future by Analysing the Past

In either scenario, a good understanding of the current cashflow position, and some short-term modelling over the next three to six months is a good starting point.

A logical place to start is to look at what has happened in previous years. This will identify the trends and impacts on various ledger accounts, which can then be used as a base line for your forecast.

Then, consider if the income or expenses recorded last year will be considerably higher or lower than the previous year. For example, you may elect to increase income for this period by 10% on the prior year, based on an increased revenue base or market share. Or, you may elect to increase overhead expenses, based on a CPI rate of 3%. This may be a very simplistic approach, but it may be enough in some cases.

Fine Tune and Consider Changes

It pays though, to not just take a blanket approach. Other obvious changes may also be able to be identified relatively easily. If staff numbers have decreased or increased from the prior year, then this can easily be modelled out accordingly, based on expected periodic wage payments. This then has an obvious flow-on effect to things such as SGC expenses, which should be adjusted as well.

Other examples may be a product line increase that may require more stock to be purchased leading up to the peak season. Or maybe there has been a change in occupancy expenses if the business has moved premises over the last year. Have their financing and interest expenses changed due to additional or reduced borrowings from the previous year? These are all important questions to ask in order to fine tune the short-term profit and loss budget.

Don't Forget the Balance Sheet

The short-term profit and loss budget will only address part of the cashflow equation. Balance sheet movements also need to be considered. Once again, prior year movements over the same period can be used as a starting point, but consideration needs to be given based on changes that may have occurred over the previous twelve months. Has the business entered into chattel mortgage or hire purchases agreements? Is there a debt owed to the ATO for outstanding GST or SGC liabilities, maybe even a periodic repayment schedule? Are there expected to be more drawings taken out of the business because the owners have plans for an overseas family holiday?


In many instances, these can be the things that cause cashflow pain over the summer months and take businesses by surprise. The profit forecast may be better than the prior year but failing to take into account increased demands on cash reserves, the impact on the cash position can be significant. Utilising tools such as Calxa which seamlessly integrates with mainstream accounting packages will enable businesses to quickly populate 3-way forecasts to get the true picture.

Reviewing and planning for this now will not only put businesses on the front foot, but it will ensure there are no nasty surprises waiting around the corner. A meeting with the bank manager now to establish a short-term overdraft facility may be a consideration to ensure that the day to day operations of the business are not affected. Or, it may just mean that the overseas family holiday is postponed until next year. Either way, being informed and prepared will ensure that the summer silly season is survived by one and all.

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