how SMEs can avoid the jaws effect in January

Summary
The start of the year is difficult for small and medium-sized businesses due to rising costs and falling revenues, caused by the financial squeeze effect, which can be mitigated through advance planning and effective cash flow management.

The period from December to March is historically the most difficult for Brazilian small and medium-sized businesses. The combination of an increase in seasonal expenses – such as the 13th salary, holidays, workloads and stock build-up – with the natural drop in consumption at the start of the year forms the so-called scissors effect: when costs increase at the same time as income decreases.

Surveys by Sebrae and the CNC indicate that 41% of SMEs enter the first quarter with negative cash flow and that 7 out of 10 companies do not have sufficient reserves to cover three months of fixed costs. Added to this scenario are the typical tax concentration at the beginning of the year – such as DAS, IRPJ, IPTU, IPVA, Simples Nacional and federal collections – and annual contractual readjustments, putting even more pressure on the budget.

For Patrícia Bastazini, specialist in accounting management and founder of Bastazini Contabilidade, this vulnerability is not a surprise: “Every year we see companies repeating the same movement. They arrive in December without a structured financial projection and notice the accumulation of obligations in January. This is a cycle that could be avoided with basic cash flow planning and tax anticipation.

She says the biggest misconception is that December marks the end of the financial year. In practice, Patrícia explains, the month corresponds to the start of the following year.

“December is not a closure, it is a diagnosis. It is this month that businesspeople must understand cost elasticity, measure their liquidity, adjust their expenses and forecast the tax impacts for the first four months of the year. Anyone who waits until January is already late.”

Serasa Experian studies show that corporate debt renegotiation requests increase between 20% and 28% in the first quarter. For Patrícia, part of these renegotiations is happening due to the lack of a detailed financial calendar:

“When the company does not plan scenarios, it loses its negotiating power. Financial planning provides predictability, reduces the risk of default and increases the room for maneuver for strategic decisions.”

Bastazini recommends that, also in December, companies review their contribution margin, recalculate the break-even point, define payment priorities and project taxes for the first four months of the year.

“The financial turnaround of a company happens before the calendar changes,” explains Patrícia. “Those who arrive in January prepare, grow. Those who arrive improvising, spend the year trying to get their money back.”