The holiday shopping season is a critical time for most retailers. In fact, Black Friday, the day after Thanksgiving that is generally considered the first day of the holiday season, gets its name from the fact that it traditionally begins the period when stores go from “red” to “black” ( profitability).
How important is the holiday season for retailers? Although it varies by industry, some retailers are more reliant on fourth quarter sales than others. For example, toy stores and jewelry stores typically generate more than a third of their annual sales (35%) during the fourth quarter of the year, according to data from the US Census Bureau. Other retailers whose success is based on a profitable fourth quarter include department stores, electronics stores and clothing stores.
While Christmas shopping still seems a long way off, small businesses need to prepare for it now. Holiday marketing takes up a big chunk of a company’s annual budget, and small business owners need to invest in their website, social media, email marketing, signage, and flyers. , special events and other public relations efforts.
Additionally, with rising prices for just about every type of material and supply chain issues blocking the flow of inventory, savvy business owners should secure what they need and place orders well. before the holiday season. Hiring staff is more expensive than in the past, in part because competition to hire workers has driven up labor costs. Workers are looking for higher wages and to avoid running out of staff, business owners have no choice but to pay them.
The summer months can be a slow time for many types of businesses, who may not have the cash to take advantage of prepayment discounts and other special offers that can help reduce the cost of goods sold. As more consumers prefer to shop for gifts online, retailers must be prepared to purchase shipping and postage supplies to prepare for the expected influx of inventory sales.
So how can a small business with tight margins plan to pay its year-end business expenses?
There are a number of options.
Business credit cards. Plastic is fantastic, especially for cash-strapped small business owners who want to order inventory and supplies now and pay for them later. The key is to only buy what can be paid off quickly, as credit cards usually come with high interest rates. In the short term, using credit cards is a viable option IF you’re able to pay them off quickly – without incurring high finance charges that ultimately drive up the cost of end-of-life supplies. year. Also, if you pay late or completely miss a payment, it will negatively impact your credit scores.
Business line of credit. For businesses that already have a trade line of credit, using the line can help pay for large year-end inventory purchases quickly. Unlike a business loan, a line of credit serves as cash on hand when needed. In many ways, it resembles a business credit card. A line of credit can be a lifeline in an emergency or even a seasonal cash flow crunch. With a line of credit, a business owner borrows only what they need and only pays interest on the money borrowed. In most cases, the interest on a business line of credit is much lower than on a credit card.
Small business loans. Business owners who plan far enough in advance can apply for a small business loan that can help pay for vacation expenses. If you have a high credit score (700 or higher), you should be able to get a loan at a reasonable interest rate. Anyone considering this financing option should act now, as the Federal Reserve has been signaling for months that it plans to raise interest rates in an effort to contain inflation at its target rate of 2.5%. Many economists predict that the Fed will raise rates aggressively in the coming months.
The downside of applying for a small business loan is that a business owner might not be able to get the money as quickly as needed to pay for increased expenses at the end of the year. . Traditional bank loans and SBA loans can take weeks to process loan applications.
Online (non-bank) lenders. Non-bank lenders are usually able to make a quick decision and deposit the loan money into a checking account or business savings account in less than a day. These so-called “alternative lender” options include accounts receivable financing or invoice factoring. The way it works is that a business sells unpaid accounts receivable (invoices) to a third party who will then pay the business around 85-95% of the invoice value. The difference is called the “factoring fee”.
With rising costs, supply chain issues and other challenges, small business owners will be wise to plan ahead now and secure the capital they need for Q4 expenses now. rather than waiting until it’s too late.