How to budget for your small business’s busy holiday season

October 20, 2023

When you run your own company, you can face a bump in expenses as the end of the year draws near. Plan ahead with these tips for cutting costs and building your reserves.

Many small business owners who see a welcome uptick in business as the holidays approach are surprised by another year-end phenomenon: dwindling cash reserves. Gifts to clients, holiday parties and employee bonuses can drain your savings, but those aren’t the only reasons small business owners may find themselves cash poor.

Retailers may find themselves advertising more, hosting holiday events and stocking up on inventory to be ready for the rush. For restaurant owners, an influx of holiday diners also means contending with high food costs. Shipping and transportation businesses may have to staff up to meet a seasonal surge in demand. Even professional services firms may need to hire additional staff to meet client requests with year-end deadlines.

If this is a familiar bind for your small business, a few holiday budgeting strategies may help you deal with higher costs. Here are some ideas on how to make sure your holidays are as profitable as you hope.

Boost your cash reserves

You’ll want to keep extra cash on hand so you can stock up on inventory and take advantage of special promotions and events. But also make sure your money is working for you. With a business savings account you can earn interest on your money — adding to your holiday kitty — and enjoy the flexibility to pay for unexpected holiday expenses by making quick transfers into your checking account.

If you have deep cash reserves, consider keeping about 50% in a short-term investment such as CDs or treasury bills to earn more interest, suggests attorney and small business advisor Andrew Sherman, author of Raising Capital and a partner in Brown Rudnick in Washington, D.C. “The ideal percentage varies by industry,” says Sherman. “If you’re in an industry where you invoice and have a 60-to-90-day cycle, you’ll want to keep more liquidity. If you’re a retailer or in a restaurant business, you can have a little less liquidity because you’re getting cash on a daily basis.”

Stay ready for the unexpected

Whether you’re a caterer experiencing a surge in holiday parties or an electronics store owner seeing an uptick in clients making last-minute computer purchases as a year-end tax-planning strategy, you may be faced with unexpected revenue-generating opportunities that require more cash than you have on hand. For that, consider opening a line of credit. Another option is a business credit card. Running your purchases through the card can help you improve cash flow and allow you to accumulate credit card points. Just make sure to keep your credit utilization on individual cards low so you don’t hurt your business credit score.

Find ways to stretch your savings

Even if you’ve boosted your cash reserves and established back-up credit, look for ways to make your savings go further:

•  Use credit card points. Many business owners like to thank clients, vendors and employees with gift cards around the holidays, but those costs can add up. If you’ve been using a business credit card for purchases all through the year, consider cashing in your rewards points for gift cards. That way you don’t have to use up your cash to buy them. Just be sure to plan for this early, so you can order them well before people start to depart for holiday vacations.

•  Trade services. Other small businesses that you work with may be facing the same holiday cash crunch that you are. Trading your services for theirs can be a way for both of you to keep spending down. For instance, if you’re an accountant who wants to hold a holiday party, offer to barter with clients who provide entertainment or catering services. If you think creatively, you’ll be surprised at how many opportunities there are to barter.

•  Team up. Many communities hold events around the holidays to encourage residents to shop in their local downtowns. Getting involved can help you piggyback on the event marketing, keeping your own holiday advertising spending in check. If your community doesn’t hold events like this, be the first to organize one. You can get to know other small business owners in your area, as well as pool your resources at a time when many consumers are ready to spend.

Ultimately, it takes money to make money. By looking for ways to stretch the cash you have available during the last few months of the year, you can maximize your revenue and profits and close the year with a bang.

Learn more about U.S. Bank business savings account and credit card options that can help you reach your goals.

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