Cash flow, or lack thereof, can be a major problem for any type of business. In a retail business, it can hinder the stocking of shelves, hiring additional staff, and you, the owner, taking home your own paycheck. Understanding potential common causes of cash flow issues may help prevent the problem, although sometimes it may just be out of your control. Let’s take a look at some of those reasons.
Understanding Your Expenses
Chances are you are doing a good job of keeping your books. Knowing your regular monthly expenses, such as rent, utilities, payroll, general restocking allotment, etc. is key to managing those expenses. But, you should also expect the unexpected such as equipment repair, store supplies, and possible additional payroll.
Planning ahead by maintaining an emergency fund for when such needs arise is an excellent way to prevent a cash flow problem. If and when used, remember you will need to restock that emergency fund as soon as possible for future needs.
Keeping an Eye on Accounts Receivable
In this day and age, it may be considered old-fashion to carry credit for your customers. While it is a nice gesture, the abundance of cards and other forms of credit available to individuals and businesses should prevent the need for a small business to do that. But, if you do offer credit and have slow-paying customers it will most certainly affect your cash flow.
Be sure to have a signed agreement with allotment for a late fee in place, encouraging customers to pay on time. And, make sure those customers understand the consequences of their tardiness, such as a hold on future orders, or no further allowance for credit in the future. You do not want their cash flow problems to become yours, as well.
Irregular Sales Causing a Lack of Stability
When in business you come to expect seasonal highs and lows. You can plan ahead for those and allocate accordingly. But, sometimes sales may drop off for other reasons, an unstable economy, for example, affects almost every type of business. If that happens, you may need to taper back with inventory, supplies, and staffing until things improve in order to keep your cash flow stable.
Carrying Too Much Inventory
This happens to many retailers. You want to make sure you have enough inventory on hand, especially when you have a store dealing with products that come in a variety of sizing and/or a variety of colors, or patterns. Maintaining a large inventory is not only costly to purchase but also costly to store either within a shop while taking up valuable space or in a storage facility.
It is easy to do, but don’t overbuy. Investing in too much inventory, especially of one particular type of item, hinders expansion. It ties up funds and limits variety.
Understand the Full Cost
Many stores purchase their inventory and have a basic principle of pricing, such as doubling the cost. While it is a simple way to figure pricing, does it actually cover expenses and give you a good profit margin? You have to be competitive, but you are not in business to be spinning your wheels. You want to, and should, be making your profit to keep not only an adequate cash flow but a good one.
When your business is in the black, it is a good time to set aside that emergency fund and a cushion for those times you will be in the red, which happens to everyone at some point. For more tips, and consulting to help prevent cash flow issues, contact GA Wright.
Each of GA Wright’s associates has years in the retail business world. We are experts in improving cash flow problems and helping businesses through the tough times. Members of our team are strategically located around the US and we are happy to travel to you anywhere in Northern America and often abroad, as well.
If it is time to consider closing your retail doors whether due to retirement, or simply time to move on, we can help with that, too. Fill out the GA Wright information form and let one of our team contact you to help with any retail business matters you may be experiencing. We’ll respond quickly to help address your needs.