As the festive season approaches, small business owners are being urged to plan their finances carefully to avoid running into trouble once the celebrations end.
Small and medium-sized enterprise (SME) services provider Lula is warning that many small firms face the risk of a January cash crunch if they fail to plan their liquidity ahead of time.
Lula chief risk officer Garth Rossiter said the smartest time to secure or expand working capital is when business is strong, not when money becomes tight in the new year.
For most small retailers, November and December bring a welcome boost in sales, often making up more than 20% of annual revenue. Black Friday and festive shopping have continued to grow each year, with 2024 seeing another sharp rise in consumer spending.
However, he said this short-term boom comes with its own challenges. Many small businesses must pay for extra stock, increased operating costs, supplier invoices, and staff bonuses upfront, all before the cash from December sales arrives in their accounts.
“The turnover is often excellent, but the lag between the increased spending on stock in October/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’,” said Rossiter.
Rossiter advises business owners to plan for the months ahead by forecasting both income and expenses through to February, making sure to account for every upcoming cost.
He points out three key areas that deserve special attention:
- Supplier payments: Stock bought on credit still needs to be paid for quickly.
- Staff bonuses and leave pay: Keeping staff motivated and committed is essential.
- January overheads: Rent, utilities, and other fixed costs don’t go away just because sales slowdown.
Rossiter further noted that access to finance remains a challenge for small businesses. Despite contributing about 40% of South Africa’s GDP, SMEs only receive around 11%–13% of total credit. He said lenders tend to favour larger companies, and financial stability is a crucial requirement.
“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.
“The best time to apply for a working capital increase, or to establish a cash flow facility, is when your trading is strong with a healthy cash movement, which is usually during the festive boom. 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”.
