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Christmas is a key time in the calendar for many UK businesses. Indeed, some firms – e.g. online shops – make 40% or more of their total revenue for the year at Christmas. For startups, the festive season can be a matter of survival. With the business perhaps still yet to make a profit, Christmas could be the “make or break” moment.
How can startups prepare their inventory, cashflow and financials for the colder months? How can investors ensure that founders are aware of the risks and opportunities? Below, we offer some reflections based on our experience running our exclusive angel investor network here at Bure Valley Group.
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Preparing for consumer psychology
Consumers tend to behave in the run-up to Christmas. People are typically willing to spend more money and take more risks with their purchases (e.g. adventurous/experimental gifts for distant relatives or “Secret Santa” in the workplace).
The rise of impulse buying at this time is not limited to the highstreet. It also occurs online. Consumers gain a sense of empowerment and achievement by finding an “amazing deal”. This can heighten the pressure for startups and other firms to compete on price, especially since competition increases with more holiday marketing.
Another factor to consider is consumers’ heightened sense of price sensitivity during Christmas. They tend to plan earlier, looking for deals ahead of time. Emotional motivations change as buyers think more about their gift recipients’ wishes. To ensure gifts are meaningful, consumers may spend longer deliberating over a purchase and seek more recommendations.
Preparing the startup marketing
In light of the above, startups may need to adjust their marketing strategies. The festive season can be the perfect opportunity to build and strengthen emotional bonds with customers. Just think of John Lewis’s success with their annual Christmas adverts! People may connect more with stories rather than traditional marketing messaging.
The emotional aspect of Christmas makes personalisation even more important to startup marketing. Consumers are likely to expect more tailored offers and experiences based on their unique interests, values and preferences. As such, startups should prioritise the building and maintenance of consumer data, leveraging it to create customised campaigns.
Preparing for cashflow
Both cash inflows and outflows may dramatically change in the months before (and immediately after) Christmas. Startups must carefully prepare their teams, inventory and financing to account for potential fluctuations in revenue and expenses.
To improve cash inflows, a startup might offer “early bird discounts” to stabilise revenues over a longer timeframe – e.g. offering time-limited discounts or promotions. If the startup is a SaaS subscription service, for instance, then it might use the Christmas season as an opportunity to run a reduced offer for their up-front annual plan.
Another idea is to implement shorter payment terms, allowing invoices to be processed more easily so cashflows are sped up. A third option is to introduce a gift card scheme. This has the combined benefit of upfront cash to the firm without requiring immediate inventory fulfilment.
To control cash outflows, the startup could negotiate payment terms with suppliers. For instance, extending payment terms could delay some cash outflows until after the holiday season. Another option is to reduce non-essential spending, which is not critical during peak season. Finally, if extra equipment is needed to meet consumer demand, a startup could preserve cash by renting instead of buying.
Additional financing may be required if temporary cash shortfalls are a risk. For example, establishing a line of credit can be a helpful fallback option. Short-term seasonal loans could help bridge cashflow gaps. A third idea is to use invoice financing, allowing a startup to access funds tied up in unpaid invoices sooner.
Preparing for the hangover
Post-holiday cashflow can be a challenging time for many businesses. It may be wise to prepare for a slow January when sales may drop. Planning ahead of time for slower cash inflows could reduce financial pressure later.
If your startup is likely to have leftover inventory in the new year, prepare to run clearance sales to convert stock back into cash. Review any accounts receivable to ensure outstanding payments are collected as soon as possible.
Supply chain disruptions are a possibility both before and after Christmas. Have alternatives ready if one supplier experiences delays, allowing your startup to switch quickly and seamlessly. Shipping delays can also occur as pressure mounts on delivery services.
Order times may need to be updated quickly, requiring a robust communication strategy to update consumers on their orders. Cashflow management tools can provide real-time insights into these sorts of issues, allowing teams to identify and action problems rapidly.
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