Black Friday, Christmas and Boxing Day bring some of the busiest trading periods of the year for Australian retailers, ecommerce businesses and other stock-based businesses.
But before the shopping frenzy starts, there’s another kind of spending happening behind the scenes. Stock needs to be ordered, suppliers need to be paid, freight and warehousing costs can increase and extra staff or marketing may be needed to prepare for the rush.
The challenge? Much of that money can leave your business well before the additional sales revenue starts coming in.
If your existing cash flow isn’t enough to comfortably cover the extra stock you need, business finance may help bridge the gap. But before applying, it’s worth understanding what you actually need to fund, what lenders may look at and what happens if the sales rush doesn’t quite go to plan.
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A busy sales period sounds like good news for cash flow. But for stock-based businesses, the timing of money coming in and going out doesn’t always line up.
You may need to place larger orders with suppliers weeks or even months before Black Friday or the Christmas rush begins. Depending on your arrangements, deposits or full payment may be required before the stock has even reached your warehouse or shelves. At the same time, the usual costs of running the business don’t stop. Wages, rent, utilities, freight, marketing, insurance and other operating expenses still need to be covered while more of your available cash is tied up in inventory. That means a business can be expecting a strong end to the year and still find itself under cash flow pressure beforehand.
The important thing is recognising that more sales can require more working capital before they generate more cash.
Before deciding you need additional finance, understand the gap you’re trying to fill. Start with the additional stock you expect to purchase. Then look beyond the supplier invoice. Are there freight costs? Storage? Additional casual staff? Increased marketing spend? Packaging or fulfilment costs?
Timing matters too. Consider when suppliers need to be paid, how long the stock takes to arrive, when you expect it to sell and how quickly those sales turn back into available cash. Looking at the entire cycle can give you a clearer idea of how much additional working capital the business may need and, importantly, how long you may need it for. It can also help prevent the opposite problem: borrowing for more stock than the business realistically needs and heading into the new year with cash tied up in inventory that hasn’t sold.
You might be confident that Black Friday will be bigger than last year or that a strong Christmas trading period is ahead. A lender still needs to assess the business behind that forecast.
Exactly what is required will depend on the lender and type of finance, but an application may involve looking at your trading history, recent financial performance, cash flow, existing debts and facilities, the amount being requested and what the money will be used for. This is why it helps to have more than “we expect Christmas to be busy” behind the application.
Being able to explain why additional funding is needed, how the amount has been calculated and how the business expects to manage the finance once the stock starts selling can help provide a clearer picture of the request. Of course, preparing a strong application doesn’t guarantee approval. Lending criteria vary, and every application is assessed on its own circumstances.
When stock needs to be ordered, the last thing you want is to discover that the information needed for a finance application isn’t ready. Depending on the lender and finance product, you may need to provide financial statements, tax returns, bank statements or other information about the business and its existing commitments. Having current information can make it easier to understand the position before approaching lenders and identify questions that may come up during the application process.
It’s also worth getting clear on your existing lending. What facilities do you already have? What repayments are coming out of the business? How much capacity does the business realistically have for additional commitments? Getting those numbers together isn’t only about satisfying a lender. It can help you decide whether additional borrowing makes sense for the business in the first place.
Not every funding requirement calls for the same finance solution. A business looking for additional working capital to cover a temporary increase in stock may have different needs from one borrowing for equipment, a vehicle or another long-term investment. Depending on the circumstances, businesses may explore options such as a business loan, line of credit, invoice finance or other forms of working capital finance. Each can operate differently when it comes to access to funds, repayments, fees, interest and lending requirements.
What matters is how the finance fits with the reason you’re borrowing. If the funding is being used to purchase seasonal stock, think about how long that money is likely to remain tied up. When will the stock arrive? or When will most of it sell? When does the business expect to have the cash available to meet repayments?
The question isn’t simply “How much can we borrow?”
It’s “What funding structure makes sense for what we’re trying to achieve?”
Forecasts are useful, but peak-season sales don’t always behave exactly as expected. You might order additional inventory expecting a huge Black Friday weekend, only for demand to come in below forecast. One product line might fly off the shelves while another sits in the warehouse. You might need to discount stock more heavily than planned during Boxing Day or post-Christmas sales.
If borrowed funds were used to purchase that inventory, the finance commitment doesn’t disappear because the stock took longer to sell. It’s worth considering different scenarios before committing to additional funding. What happens if sales are slower? Could the business continue meeting its usual operating costs and finance repayments? How long could you comfortably hold unsold inventory?
The idea isn’t to plan for everything to go wrong. It’s to make sure the funding decision doesn’t only work if everything goes perfectly.
The Christmas rush might finish but the financial impact of it doesn’t necessarily disappear on Boxing Day. January and the months that follow can bring their own cash flow considerations. Normal operating expenses continue, finance repayments may be due and there may still be seasonal stock sitting in the business. That’s why funding additional inventory should sit within your broader peak-season finance and cash flow planning, rather than being treated as an isolated purchase.
Black Friday, Christmas and Boxing Day can create significant opportunities for stock-based businesses. But making the most of increased demand often means spending money before customers start spending theirs. If you’re considering finance to help fund additional inventory, start by understanding the working capital gap rather than simply deciding how much stock you want to buy. Look at when the money will leave the business, when you realistically expect it to return, what information you may need for a finance application and what the position could look like if sales don’t happen exactly as forecast.
The goal isn’t simply to get finance approved before the shopping frenzy starts. It’s to consider funding that makes sense for your business before, during and after peak season.
If you’re preparing for a busy holiday trading period and your existing cash flow may not comfortably cover the additional stock you need, Carbon Finance & Lending can help you explore your options.
Our finance brokers can take the time to understand your business, funding requirements and circumstances before exploring potential finance options across our panel of lenders.
Whether you’re looking to fund a larger stock order, need additional working capital or simply want to understand what funding options may be available before peak season, starting the conversation earlier can give you more time to understand your options and prepare.
Talk to Carbon Finance & Lending about getting your business funding ready for the holiday stock rush.
The information in this article is general in nature and does not take into account your individual objectives, financial situation or needs. Lending criteria, terms, fees and eligibility vary between lenders and finance products. Consider whether a finance product is appropriate for your circumstances before proceeding.
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