Cash flow in your single-owner retail store is crucial to success. Large corporations open stores in a new territory knowing that they will have to operate at a loss for about five years. However, they have the resources to absorb that loss and bounce back to robust sales. The small businessperson – not so much. Chances are, you depend on profits from your store to pay your store’s bills as well as your own. Here are some basics about cash flow for the small to medium retail store.
Cash Flow Chart
Most business advisors recommend that you develop a cash flow chart or cash flow statement. This is best done before you ever start your business, but it is never too late to build your chart. This chart will track all of the money that flows out of your business, and flows back into it. For your cash flow chart, consider:
- Monthly fixed expenses (rent, bank notes, etc.)
- Monthly variable expenses (utilities, inventory, etc.)
- Sales projections
If you are starting a new business, your cash flow chart should also include:
- Startup costs
- One-time expenses
You can find many templates for cash flow charts on the internet. Some are free, some cost a little, but they can help you organize all of your information in one place so it is easier to manage and gives you a better overview.
Revenue Forecasting
Startups usually have problems with revenue forecasting. You have to be able to look at previous years’ sales to forecast this year’s sales.
You can, though, enlist the help of a business planner. Their services include:
- analyzing market trends
- predicting market movement
- gathering historical data in your specialty area
The US Small Business Administration (SBA) Small Business Development Centers are free resources that can help you with this.
Impulse Buying
Just as impulse buying in “real life” can break the bank – or load the credit card – so it can break your business. Buy only what is crucial for your store. If it will not increase your profits in real dollars, don’t buy it. For every purchase, consider the cost vs. benefit.
This goes hand-in-hand with developing a budget. Stick to your budget, and never forget the break-even point that is quickly approaching.
Break-Even Point
A small business break-even point is the point at which you are making enough money to pay your bills. There are charts available from the SBA that can help you determine your break-even point. It helps to keep track of your sales on a daily, weekly, and monthly basis. This enables you to realize your break-even point more accurately, turning your store into a money-making venture.
Collection Problems
Many small retail stores have problems collecting from customers. Having a good POS (Point of Sale) system in the store can make a big difference. Additionally, set firm policies on whether or not you allow customers to take an item home for approval. While this has been a common practice in the past, the shop owner has little recourse when the customer fails to pay.
To get customers to pay more promptly, you can offer a small discount, such as 2 percent if paid within 10 days. If you ship orders to customers, make sure the customer has already paid beforehand. This way, they will not receive the item unless they have paid for it.
It is also important to let customers know that you realize when they have not paid. Send invoices and late-payment notices promptly. If you don’t, the customer will move you to the bottom of the “pay now” list, and you’ll have an even harder time getting your money.
Broaden your payment options. If you don’t take PayPal or credit cards, sign up for them. Get a Square so that you can take credit card payments with your mobile device. One retailer, while at the grocery store, chanced to meet a customer who was delinquent with a payment. The customer said, “Oh, I’m so sorry, all I have is my charge card!” to which the retailer whipped out his Square and happily provided the customer the convenience of paying onsite.
Markups
The amount of markup you place on your products is up to you. You need to study the market in your area to see what it will bear. Make sure that your markup covers your overhead costs, and include the cost of your own time, as well.
Some store owners believe that if they receive a discount from the supplier, they should pass that discount on to their consumers. Keep in mind that your vendor is rewarding YOU. It is a “thank you” to your business. You can pass that discount on to customers, if you want, but you are not obligated to, and you don’t want to lower the perceived value of your product. You are probably better off keeping the discount yourself. Develop your own reward system for loyal customers, rather than passing on your savings to all purchasers.
Secure a Line of Credit
Most individually-owned businesses survive by getting a line of credit. This is a type of loan that allows you to borrow what you need, up to the limit, and pay it back, and then borrow it again when you need it. This will help you during seasonal surges, when you need to bulk up your inventory, but need to pay your vendors before the sales season hits.
Cash Reserves
In business, as in life, you should have enough cash in reserve to keep you going for three to six months. Every business has a slow season, and you will need this security blanket to get you through the slow times. Make it a priority to replenish this cushion as soon as business picks up again.