The holiday season is right upon us. It’s the most profitable time of the year for many businesses. Amid the penny-pinch warnings, soaring inflation signs, and flashing news on how to trim spending on gifts, there are signs of retail sales picking up faster too. To reap the benefits further, retailers are working hard on ways to get the best of this holiday season. Undoubtedly, businesses experience a surge in revenue and sales. But this revenue comes with its own set of challenges like managing sales volume, updating inventory, tracking cash flow, and many other challenges that will require the attention of the business owners.
Businesses can overcome these challenges if they take the proper measures and implement accounting software before the festive season begins. Budgeting is one such measure that will help your business thrive during the festive season. A proper planning and measurement framework is the key to sustainability.
This article will simplify the different facets of budgeting and share the top 7 budgeting tips for businesses in the upcoming holiday season.
Why Do Businesses Fail During Shopping Season?
Many people believe that studying successful organizations is essential to having an established business. While this notion holds true, it is vital to consider and reflect on the failures.
Most businesses kickstart well but often experience a downfall during the holiday season. A multitude of conditions result in the failure of the business. The primary reasons for business failure are commonly due to lack of capital, mismanagement of budget and funds, ineffective marketing tactics, a systematic approach, and so forth.
To safeguard the business during the shopping season, it is necessary to understand what led to the failure and how obstacles can be managed or avoided for year-end success.
Financial Challenges Businesses Face During Festive Seasons
Running a business is a rollercoaster ride. There are numerous obstacles, especially the financial challenges businesses face during the festive season. Let's look over these challenges that can escalate quickly if not given the required attention. Do not fall for them.
Inconsistent Cash Flow
Without financial management, businesses will face the consequences during the festive season. The inconsistent cash flow can spiral out of control and take a long time to achieve stability. With cash on hand, you can pay your employees, bills, or suppliers and have a command of where the money goes.
Spending more money than incoming leaves the business with negative and inconsistent cash flow. You can work around it if it happens once or twice due to unavoidable circumstances. But if it happens consistently and affects the daily, monthly, and annual cash flow cycle, then it eventually leads to the business's failure.
To break the cycle of inconsistent cash flow, maintaining the financial records through financial planning software will keep you on the right balance.
Lack of Data for Forecasting
Business owners have to keep track of all the business processes happening on a day-to-day and hourly basis, starting with client interaction, marketing, bookkeeping, and other responsibilities that tag along during the festivities.
Not generating reports can lead to uninformed business decisions that can further lead to crises. Nearly 44% of small and midsize businesses indicate that supply chain issues could lower their holiday sales. This requires stringent planning of your inventory and supplies. A detailed analysis of your past sales, present demand, and future requirements will help you proactively plan your supply chain activities. There are different AI-based accounting tools available that can generate reports and provide you with actionable insights.
Mismanagement of Expenses
Some specific spending businesses make during the festive season are payments, payroll, loan installments, office amenities, marketing, advertising, rent/lease/mortgage, and inventory management. Companies struggle to have sufficient cash reserves for expenses after deducting the spending on the basics, which can further lead them into debt and loss during the holidays.
Non-Productive Employees
Hiring quality employees can play a significant role in depicting the success of your peak holiday season. Lack of productivity does lead to financial losses. Some businesses retain the same employees year after year, while some cannot. However, the workload will differ from year to year. Finding suitable candidates to match the workload becomes challenging.
The hiring process should begin before the holiday season. This enables training time and a smooth onboarding process. The common hurdle in hiring quality employees may arise when the business demands temporary employees. If the nature of your business is to operate during a specific period, applicants will have to be picked accordingly and briefed about the working hours.
Lack of Budgeting
Budgeting helps businesses determine if they have enough money to fund their operations and generate a steady income stream. It shows where businesses can cut down on expenses and save them as emergency funds.
Without budgeting, businesses accumulate debts, run the risk of overspending, and halt the growth of the business.
When businesses' finances are unclear, especially during the holiday season, they miss out on the opportunity to generate revenue and achieve their year-end financial goals.
Objectives of Budgeting for Retailers
Budgeting is a tedious and complicated process when done manually. Today, there are several tools that support the budgeting goals and objectives of any size of business. Often businesses suffer a loss due to shaky insights and poor decisions based on biased observations. Businesses need an accurate method to build a solid ROI to make budgeting and forecasting understandable. Budgeting stands as a guardian for all business processes. Here's where artificial intelligence (AI) comes into the picture.
Artificial intelligence (AI) is the fastest-growing asset among businesses. It helps unlock the potential of their data and bring their best foot forward in the industry. It helps personalize real-time marketing tactics, delivering outstanding ROI for businesses and paving the way for improved performance. Using AI-based budgeting and forecasting software, retailers can achieve their objectives of budgeting during the holiday season.
Real-time Analytics
Data analysis is the most integral factor that can affect overall business functionality. The amount of data companies have to navigate is overwhelming. Gathering and bifurcating could take days. But today, businesses require real-time results and strategic decisions.
Incorporating AI in budgeting will provide data in a simplified manner as and when required. This becomes especially useful during the holiday season to peek into real-time analytics and make informed decisions to stay ahead of the competition.
Business Automation
With the festive season underway, employees work in full swing to manage customers. However, businesses must consider how many employees spend time on repetitive tasks or manually enter information. It is imperative to know how much time employees waste on actions they do not know about.
Integrating automated tools in the budgeting process will delegate repetitive tasks to the machine, saving time and money. The employees can then focus better on other tasks without wasting time on tiresome tasks.
Past Performance
Businesses should avoid making the mistakes they made last year during the holiday season. Understanding which marketing tactics performed well in last year's budget is critical in creating the budget for the year-end season.
AI can offer the forecasting and insights to apply the best practices and avoid repeating mistakes. It can also track the current financial scenarios in the market and present ideas that assist in achieving the goals and objectives of the business.
Cutting Costs
AI can help your company make and save money while cutting unnecessary costs. Merging AI into budgeting will simplify complex budgeting tasks.
Incorporating AI-based financial planning software avoids breakdowns and failures, especially during the festive season when there's a high rush of customers. This works best for companies in different time zones worldwide.
Maximizing the ROI
AI presents accurate data and insights, customer behavior, patterns, and other aspects that can guide businesses in budget planning. The insights will present accurate data and boost confidence in the decision-making process.
A surplus benefit of AI is that it enables businesses to take a step further and observe hypothetical scenarios. AI incorporation comes with multiple tools and budgeting software, where it's possible to adjust the variables and derive comparable outcomes from predicting future performance.
Types of Budgeting Commonly Followed
A budget is a driving force for the business that tackles decisions like cutting down on unwanted expenses, increasing staff, or purchasing new equipment. Budgeting for business assists you in understanding how much money you have, how much you have to spend, and what type of cash flow you require. If the business has insufficient funds, proper budgeting can guide you in the right direction and prioritize the spending. Although there is no one-size-fits-all budgeting method, a few accounting experts have come up with different budgeting types that businesses commonly follow. Here are the methods;
The Incremental Budgeting Method
The incremental budgeting method involves small changes from the actual or budgeted results for the upcoming period. It's an ideal budgeting technique where minor changes are required according to the business or the environment. As the incremental budgeting method is easy and understandable, it's best for businesses that are short on time but need quick and reasonable results.
The Zero-Based Budgeting Method
The zero-based budgeting method is quite the opposite of the incremental budgeting method. It calculates every account detail for each month and presents a valid justification for every account. This type of budgeting is a brilliant choice in a financial crisis for the business's survival.
There are fixed short- to medium-term fixed costs, while many are arbitrary. Assessing these costs can have a particular impact on the organization's success. In simple terms, zero-based budgeting sheds light on what's essential and what can be discarded.
Activity-Based Budgeting
Another standard budgeting method is activity-based budgeting. This particular method is associated with manufacturing processes. However, today many businesses are utilizing the activity-based budgeting method.
With activity-based budgeting, businesses examine the organization's main activities and identify the drivers of their revenues and costs. This helps assess the price and profitability of different products or activities. Hence, it is popular among not-for-profit and NDIS service providers.
Negotiated Budgeting
Negotiated budgeting is a blend of both top-down and bottom-up budgeting methods. In this budgeting process, the preparation is not on a single level but rather a shared responsibility distributed between the managers and the employees.
The increased involvement of lower-level managers in the budgeting process helps set realistic goals. Employees demonstrate a personal interest as they feel acknowledged for their contribution to the business.
Participative Budgeting
The participative budgeting method begins from the bottom up to recommend targets to the executives. In this type of budgeting, the managers have more accountability for the budget in their areas. Thus, more commitment is associated with achieving the common financial goals of the business.
There are no right or wrong budgeting methods. The best method is the one that works for the business with the utmost effort. Your organization's culture will determine whether to use these budgeting methods together or separately.
Top 7 Budgeting Tips For Your Upcoming EOY Holiday Season
The most awaited season of the year is right around the corner. It's a profitable phase for the businesses yet a challenging time to maintain inventories and track budgets. Holiday retail sales in the United States are likely to reach 942.6 billion U.S. dollars. To stay ahead of the curve during the festive season, it's essential to map out goals. This eventually assists in planning your budget, finding new ways to engage with customers, and growing your business. Our top 7 budgeting tips require your attention for the upcoming holiday season.
#1 Understand Your Budgeting Goal
Every business has its own set of financial goals that it wishes to accomplish during the holiday season. Before you take the plunge into the holiday season, understand your realistic and achievable budgeting goal.
Decide long-term and short-term goals you wish to achieve. After settling for the goals, set spending aside for all the expected costs and compare them under different scenarios to achieve profit.
The critical point is that most businesses will only make short-term profits. Therefore, determining the break-even point is necessary after paying off all the initial investments or extra purchases.
Another critical goal of budgeting is tracking the progress and making adjustments accordingly. With a budget, you can know whether the income covers all the expenses or the business falls into debt. Financial management tools will assist you in making real-time decisions for your business and set you in the right direction.
#2 Plan Your Marketing & Events
Planning up for the holiday season calls for an immense amount of marketing opportunities. While some tactics might be rewarding, others may not serve the same purpose or be worth the expense. Thus, it becomes essential to consider the ROI for new and existing promotional activities. Paid marketing could be a great choice for the festive seasons.
Businesses can use the pre-season months smartly to plan holiday sales campaigns. Below are some areas to invest in before the hubbub of the holiday season begins.
- Website Updates
- Email Marketing
- Public Relations
- Social Media
- Digital Signage
- Ads and Promotions
A notable point to consider is that these marketing campaigns will differ from one business to another. Therefore, it's crucial to consider all the angles before spending money on them and aim to minimize waste.
Whether for an employee dinner, a customer open house, or hosting special events to support small businesses, Budgeting is the key to sustaining throughout the season. Bifurcate the costs for the venue, catering, decorations, invitations, and campaign. Find multiple resources that will allow you to narrow down the costs and calculate ROI.
The earlier the planning and budgeting for the event, the better. It saves you from securing vendors and event venues at a considerable cost before the season begins or paying the high-end cost for late reservations/orders.
#3 Revisit Your Budget
Your budget will never be static or consistent. It will evolve with the current market situation and demands. Businesses will need to adjust according to the industry's growth and profitability pattern.
During the holiday season, adjusting to the cyclical nature of the business can be difficult. The budget might change due to fluctuating costs. Business owners must remain mindful and stay on top of their budget per the requirements.
Regular revisiting before the seasonal holidays will give you an updated picture of your business finances. It also assists in making financial decisions, as businesses know what they can afford to invest. Additionally, consider revisiting past budgeting and market trends, which will aid you in preparing yourself for the upcoming times.
#4 Invest in the Latest Technologies
In a recently conducted survey, nearly 61% of businesses indicated that they have invested in the latest digital tools and technologies. The joy of watching a long queue of customers at your storefront is indescribable. The additional customers and sales may call for different systems and equipment. For a brick-and-mortar store, it could be a different point-of-sale system or display.
Those running online businesses might require the right web design, the right features of ecommerce software, integration with other tools, and a perfect system for packing and dispatching the orders. It's pivotal to reconsider and upgrade the system to meet the demands.
Alongside equipment and systems, have you been planning to put off a new and refreshing look for your office or store? Then, the holiday season might be the perfect time to leave a long-lasting impression on customers. Small investments like paint, upholstery, shelves, or adding adorable displays can attract customers, eventually leading to more sales. Taking out a chunk of the finances for the essentials and following a DIY path can save money.
#5 Use Billing & Invoicing Software
Businesses have to be particularly aware of their tracking during the holiday season. Many times, small businesses need more clarity in invoices. With the implementation of billing and invoicing software in the business, you get a complete analysis of where the business stands regarding financial stability and expenses. The software also curates easy-to-read reports and explains finances in simpler terms regarding the business.
#6 Stock up Inventory
For any business, inventory planning is a prerequisite for success during festive times. The last thing you would want to do is run out of inventory with two weeks left for the season. But simultaneously, you do not want unsold products hanging on the shelves in January. It certainly affects the revenue. Hence stocking and adequately planning the inventory will save you from all the hassle.
Tap into the sales number from the previous year. Would you order more or less? Are you planning to offer new products? Consider the cost of additional advertising efforts and marketing for promotion.
#7 Track Your Finances
When running a business, myriad things require your attention. In between, it is obvious to neglect tracking finances. Creating a balance sheet is the first step to managing your finances. It shows the company's assets, liabilities, and inventory.
Before rolling out the budgeting process for the upcoming holidays, check whether the business carries more loan or credit card debt. If it surpasses in comparison to the assets, then it's a red flag. Either way, the forthcoming festive should reduce/clear the debt or boost the profit.
Being financially organized during the chaos of the festive season is tricky. Here's where the accounting software comes in handy. With such software, you can plan the finances, account receivables and payables, available cash, and many more functions that make financial planning easy to understand and be sure of numbers.
Wrapping it Up
Nearly 82% of businesses fail due to poor cash flow management. A lack of budgeting could lead to this crisis. Crunching numbers might seem like a daunting task. Thanks to the evolution of technology, we live in simpler times when businesses can create budgets through software and different tools and even gauge financial situations during the festive season.
Planning for the upcoming season will help you stay ahead of the competition. It’s all about sticking to your plan, utilizing software to track revenue, and getting your products or services out to the purchasing world for a phenomenal year-end.
Are you looking for tools to make budgeting easy for your business? Review this list of the best accounting software to select the platform compatible with your business needs.
