The Financial Failures of the 2016 Festive Season

Bad Planning Brings a Killer New Year Hangover for Small Businesses

One in ten small businesses admit they have been caught off guard this Christmas, with 15% admitting that bad financial planning has put the vital fifth of their annual profit earned during the season at risk. Many are blaming Brexit for their uncertainty, with a concerned 25% even failing to employ their usual additional staff to cope with their busiest time.

LDF conducted a study of 500 small business owners that indicates the dangers of not being prepared for the season. They estimated a potential risk for the UK economy of over £342bn of seasonal income due to lack of festive foresight. With 19% of small businesses income being generated in the Christmas season, this has obvious impact on January and the year ahead.

Despite many savvy small businesses cashing in on the most lucrative time of year, nearly one in five admit they don’t forward plan for Christmas at all (18%). In fact, most business owners start working on the key sales period as late as September (15%), just two months away from Black Friday and the start of the Christmas period.

It’s been a strange year for the economy, and this is reflected in the results, with one in ten business owners admitting they have treated Christmas differently this year due to Brexit, even though the results of the referendum have yet to impact consumer confidence. As a result, one quarter (25%) made the decision to take on less staff, and one in ten has taken less funding than previous years (13%).

The research found that 15% of small business owners have actually experienced a negative impact on their business at Christmas time, causing a January “drought”, with one in five using their personal savings to get through the first month of the year (21%).

At the top of the list of costs is resource to get through the key season: high staffing costs (23%) with taking on more employees and Christmas temps, or giving more hours to current staff. Fun comes at a price too, with the Christmas party estimated to collectively cost UK businesses up to £1bn, a significant figure which may often be overlooked during the festivities.

Overestimating consumer and supplier demand and having too much stock also proves an issue for small businesses (23%) meaning they could “undersell” their product in January. And this January has added blues as one in ten small businesses cite the current economic uncertainty as their biggest concern going into 2017 along with the US presidential election’s effect on trade (10%).

For three quarters of small businesses (75%), however, the outcome is much more positive , as they cash in on the £12bn that the British Retail Consortium expects Christmas will contribute to the economy this year. For the 55% of small businesses that do it well and don’t have a January dry spell, over half use their festive profits to reinvest and grow their business (53%), and one in will use this to cover the looming January tax bill (15%). A generous one in ten small business owners (10%) use their Christmas profit for staff bonuses and just one in ten (12%) bank it as a personal profit.

Commenting on the research, managing director of LDF, Peter Alderson said:

“This is a critical time of year for small businesses, especially those who operate seasonally as this can make or break how they approach the New Year. Our research found that business owners are starting their Christmas preparation and planning far too late in the year, and actually with more insight and financial investment they could maximise the Christmas period a lot more than they realise.”