Small Business Accounting Tips to Keep Up with the Upcoming Holiday Season

For most businesses, the holiday season is the busiest time of the year. Sales soar and there’s constant consumer engagement in store as well as online. To stay ahead of the upcoming festive rush, businesses must plan.

While stocking inventory and planning the influx in demand should be your first step, keeping track of your accounting and finances should be a close second. Properly tracking and optimizing your accounts will ensure smooth operations. It can help you prevent cash flow problems, overspending, and tax headaches later on.

Here are some crucial small business finance and accounting tips that can help you stay on track during the upcoming holiday rush.

1. Create a Seasonal Budget

It’s critical to have a clear budget before the holidays arrive. Check the previous year’s demands or projected holiday sales to determine the amount of money you would have to spend on inventory, marketing, and seasonal staffing. This will help you set realistic expectations and avoid overspending.

2. Forecast

Nearly 44% of small and midsize businesses report that supply chain issues could impact their holiday sales. To avoid shortfall during peak demand, stringent planning is essential. Conduct a thorough analysis of past sales trends, current demand, and future needs to manage your inventory and supplies and stay prepared for the season.

3. Optimize Cash Flow

With increased sales during the holidays, it’s easy to lose sight of your cash flow. The inconsistent cash flow can spiral out of control and take a long time to achieve stability. To stay in control, monitor your cash inflows and outflows regularly. Keep a tight rein on customer payments, supplier invoices, and inventory costs to avoid liquidity issues.

Tip: Use cash flow management software or work with certified accountants to ensure you have enough capital to meet the sudden rise in demand.

4. Handle Inventory Wisely

During the holiday season, maintaining proper stock levels is extremely important. While over-ordering can lead to surplus stock and muted profits, under-ordering can result in missed sales opportunities. Strike the right balance by carefully analyzing customer demand and maintaining an optimal inventory level.

Tip: Consider using inventory tracking tools that integrate with your accounting software to manage appropriate stock levels and ensure they align with your sales forecasts.

5. Set Clear Payment Terms for Customers

Holiday sales might bring in higher revenue, but delayed payments can lead to cash flow bottlenecks. That’s why, it is important to establish – and communicate – clear payment terms with your customers. You can offer incentives to your customers for early/ timely payments or ask for upfront deposits for large orders. This will help ensure a constant cash flow.

Tip: To streamline this process, outsource finance and accounting services to professional service providers. They can help you maintain a healthy cash flow throughout the holiday season.

6. Regularly Reconcile Bank Accounts

With a higher volume of transactions, it becomes even more important to reconcile your bank accounts regularly. Do this on a weekly (or even daily) basis to ensure that all transactions are accounted for and there are no errors or discrepancies in your books.

Tip: Partner with a professional bookkeeping services provider to streamline your reconciliation process, minimize errors, and save time.

7. Stay on Top of Payroll

Payroll management may become more complicated during the holidays, especially if you are hiring seasonal workers or planning to extend the work hours of your existing employees. Ensure that payroll records are up to date, withholding taxes are calculated correctly, and payments are made on time to avoid tax complications and reduce IRS penalties.

Tip: Consider using a payroll service provider to ensure compliance with tax regulations and avoid late fees or penalties.

8. Take Advantage of Tax Deductions

The holiday season brings along several opportunities to maximize your tax deductions. To make the most of the opportunity, it is important to track all business expenses related to holiday promotions, travel, or entertainment, as they could be tax-deductible. Save all the receipts and relevant documentation to streamline the process during tax season.

Tip: Meet with your accountant to review year-end tax strategies and make sure you’re making the most of all eligible tax deductions.

9. Review Profit Margins Regularly         

Even though the holiday season may see a spike in sales, it’s important to ensure that you’re maintaining healthy profit margins. Keep track of your cost of goods sold (COGS) and operating expenses to ensure you’re not sacrificing profitability for volume.

Tip: Regularly review financial reports to track margins and identify areas where you can cut costs or improve efficiency.

10. Plan for Post-Holiday Returns

After the holidays, many businesses experience an uptick in returns, which can affect their financial planning. Take into account potential returns when forecasting revenue. It will prevent you from overstating your financial position and plan for any post-holiday adjustments required.

Tip: Set aside a portion of your holiday sales revenue to cover any refund-related expenses and mitigate the impact on your cash flow.

11. Start Year-End Financial Planning Early

With the end of the year fast approaching, the holiday season is an ideal time to start year-end financial planning. Review your financial statements, reconcile accounts, and ensure all transactions are properly recorded. This will make tax filing easier.

Tip: Schedule a meeting with your accountant to review year-end strategies, such as retirement contributions, deferring income, or accelerating expenses to reduce your taxable income.

Keep Up, Don’t Just Catch Up

The holiday season can be overwhelming, but with the right accounting strategies and some professional help, you can make the most of the festive rush while keeping your finances in check. So leverage the expertise of outsourced finance and accounting services providers to keep your finances in order – during the holiday season and beyond!