Cape Town - Each month has its own challenges for the entrepreneur, but the beginning of a new year always brings with it special and unique circumstances.
According to Christo Botes, a director at Business Partners,
the first two months of a new year are especially tough for small
businesses. “It may not always be possible to avoid the realities of a business
cycle, but it is possible to plan and manage the effects of this difficult
Botes highlights some of the key areas entrepreneurs need to
pay special attention to during the first two months of a new year.
“The bottom line for small businesses will not be as high as
a normal trading month due to fewer sales and transactions taking place.
can be attributed to low consumer spending, as the bulk of their disposable
income would have been spent on holiday, away from their normal shopping areas.
“Consumers also usually have to make large payments for
education in January, such as school and university fees, which would otherwise
have been spent on other discretionary items.”
Botes adds that small businesses’ bottom lines are also
significantly affected by other larger businesses closing their doors for the
“Many manufacturers, construction businesses and other service
providers only start operating again during the second week of January. This
means there is a two- or three-week period where these companies are not buying
raw materials or goods and services from small businesses.
“Stock levels at the warehouses of wholesalers and
manufacturers may also be low due to the three weeks of no manufacturing, which
could limit supplies to retailers. This will then have a domino effect on small
businesses sales as there isn’t stock to supply to the consumer.”
Botes says that during the month of February, small
businesses also need to consider upcoming tax deadlines.
“Many businesses have
February year ends for accounting purposes and hence need to make their second
company tax payment. Individuals, mainly business owners, are provisional
taxpayers in their individual capacity and therefore need to also pay their
second provisional tax payment by February 28.
"This can potentially
lead to cash flow pressure and implications for both the business and
individual, as the businesses profits are not always reflected in the cash flow
due to, for example, clients having not yet paid for the goods and services they
bought from the business.
He says that creditor expenses could be very high over December and
January, as businesses often purchase more stock than usual for the spending
spree of shoppers from mid-November to the end of December.
“In January or
February, these creditors move into the 30 or 60 days category and become due
“But while a business may reflect good sales over this
period, not all this revenue would have been banked and be available for
"Part of the banked money could have been spent on staff
bonuses and vacation costs, or there may be higher than normal debtors who are
unable to pay within the terms, especially in January, due to their cash flow
being under pressure also, which ultimately creates a ripple effect throughout
Botes says it is crucial for entrepreneurs to understand their business
cycle to avoid the pitfalls of these
“Entrepreneurs must plan their cash flow accordingly in
order to provide for lower sale figures, lower debtors payments, bonus
payments, lower stock levels at suppliers and provisional tax payment
“This can be done by saving capital in a call account in the
normal trading months of the business, normally about nine to 10 months of the
year, and making arrangements with your bank manager to have sufficient
facilities available to continue trading.”
He adds that the business realities entrepreneurs must face,
and probably the most important lesson in business, is that a business cycle
and cash flow do not run according to a straight line.
“There will always be
peaks and valleys within a year and over economic cycles. While entrepreneurs
cannot predict these ups and downs, they can prepare for most of the
possibilities to ensure they are covered for most scenarios they may face,” says Botes.
*Share your experience
of setting up your own business, or simply ask a question. Our
business panel can put you on the right path.