Proactive cashflow planning is key for SMEs to survive the January cash crunch

As small and medium enterprises (SMEs) gear up for the bustling festive trading period, a crucial piece of advice has emerged from the financial services provider Lula: proactive liquidity planning is essential for sustainable business operations.

With November and December typically accounting for over 20% of annual retail revenue, these months undoubtedly present substantial growth potential; however, they come with significant cash flow challenges that must be addressed in advance.

The festive season heralds a flurry of consumer transactions, as businesses prepare for increased demand.

Data from industry sources highlights a notable rise in spending during the annual Black Friday sales, which can result in a sharp uptick in sales volume for retailers. Yet, with this surge in transactions comes the burden of upfront operational costs—ranging from bulk inventory purchases to increased expenditure on staffing and supplier payments.

Garth Rossiter, Chief Risk Officer for Lula, articulates the precarious nature of this period for SMEs: “The turnover is often excellent, but the lag between the increased spending on stock in October and November, and final cash collection in January, coupled with end-of-year obligations like bonuses, creates a pronounced liquidity squeeze in the New Year. This is what we refer to as the 'January Cash Crunch.'”

To effectively navigate this cash crunch, businesses must engage in rigorous liquidity planning proactively, starting now while sales are strong. Accurate forecasts of December revenue alongside expenses and obligations into February are critical, underscoring the need for detailed financial planning during this vital period.

Key obligations requiring attention include:

• Supplier payments: Businesses should find ways to ensure timely payments for the increased stock purchased on credit terms.
• Staff bonuses and leave pay: Maintaining staff morale and retaining skilled labor requires honouring end-of-year commitments.
• January overheads: Businesses must cover fixed costs such as rent and utility bills during the post-holiday slowdown.

During high-revenue months, SMEs are encouraged to build financial reserves. By consciously ring-fencing excess cash or securing access to alternative funding now, businesses can establish a critical safety buffer for the leaner months that follow. “Rather than spending all of it immediately, this approach can provide a safeguard when unexpected issues arise,” Rossiter advises.

A pivotal strategy for these businesses is timing the application for external funding. Data indicates that access to finance continues to be a formidable challenge for South African SMEs, which collectively contribute around 40% of the GDP but find themselves approved for only about 11-13% of available credit. With traditional financial institutions maintaining a risk-averse stance, the likelihood of successful funding applications diminishes if businesses wait until their finances falter.

"If a business waits until they are struggling to meet their January obligations to apply for funding, the chance of a successful application decreases significantly," Rossiter explains. He urges SMEs to seize the opportunity to secure working capital increases or establish cash flow facilities during periods of strong trading and healthy cash movement.

“Don’t wait until the water runs low to dig the well,” Rossiter concludes, emphasising the importance of prudence and meticulous planning. “Small businesses are the engine of our economy, but without proactive cash management, success over the festive season may not translate into sustainable growth for 2026.”

BUSINESS REPORT