If you have a retail store and its sales are booming, you must be proud of yourself. With increasing profits and customer satisfaction, you can finally see your business grow at a fast pace.
You can see that things are headed in the right direction, but it is too early to say that everything is “perfect”. Well, even if you see a bright light at the end of the tunnel, you can still be hit with minor setbacks in your business – everything ranging from operations, to finance and investing opportunities could be affected without you having a hint.
These activities are invisible pillars of your retail store, and they must be taken care of. Starting with operations and finance, a term called “Cash Flow” might interest you.
Now, cash flow defines the entire system of payments and credit in your store, and of course, it has a significant impact on your operations.
Consider this example – you have taken a loan and one of its instalments is due this month. But you had anticipated that some of your customers would pay their dues for wholesale phone cables, so it seemed easier to pay the instalment. Eventually, the payment from customers got delayed and you couldn’t pay the instalment on time. See, this is how cash flow works.
Maintaining cash flow ensures financial stability in your store so that you can take care of crucial activities like – making payrolls for employees on time, improving your creditworthiness, ability to stock bulk phone chargers etc.
What is Cash Flow
Two words are enough to describe cash flow – Revenues & expenses. But, the real definition of cash flow lies beyond them. It is more about maintaining a balance between these two activities in order to ensure smooth operations in your retail store.
Cash flow is the amount of cash that comes in and goes out of your business. You earn money from sales as revenues and spend money on expenses – like buying products, paying your staff, clearing debts, and so on.
You may also receive income from interest, investments, royalties, and licensing agreements and sell products on credit, expecting to actually receive the cash owed at a late date.
So, why is tracking your revenues and expenses so important? Let’s find out.
Cash Flow & Profit: What’s The Difference
It is easy to get confused with both terms but they are not at all related. Cash flow tracks your performance in terms of managing expenses and revenues. It is simply an inflow and outflow of money from your business.
Profit is the amount of money you are left with after paying all of your expenses. So, it can be said that when revenues exceed expenses, it’s a profit.
Profit = Revenues – Expenses
Why Is Cash Flow So Important
Apart from maintaining your sales account and keeping a check on expenses, you should also maintain your cash flow statement.
Cash flow reflects what is done right and what is going wrong with your store’s operations. When you know you are short of cash in the business, looking at your cash flow statement can reveal a lot about the problems and scope of profitability.
One of the most essential goals of financial reporting is to assess the quantities, timing, and uncertainty of cash flows, as well as where they come from and where they go. It is critical in determining your liquidity, flexibility, and overall financial performance.
Maintain Cash Flow Like A Pro With These 5 Tips
If you want to improve cash flow, think about implementing some of the following strategies –
Spread out your purchases
Fit Small Business Senior Retail Analyst Meaghan Brophy recommends that retailers stretch out their purchases.
“Most retailers buy wholesale products at least six months before they are sold in-store. Don’t forget to set aside some money for last-minute trends and surprise best-sellers,” she advises.
In simpler words, many retailers get products from wholesalers in advance for their stores. But sometimes, they buy in excess quantities thinking they would need it anyway. However, with new trends, customer preferences may shift.
You must keep some cash aside to buy products that customers may like in the near future. This will ensure that your customers’ demands are met and that the original inventory doesn’t pile up in your store.
Sell out excess inventory
Inventory piling at your store may end up costing you a fortune. It is because extra inventory takes up more space and requires more maintenance. If you have surplus products at your store, then disposing of them will give you more cash inflow.
- Bring slow-moving products from your stockroom, mark them down, and place them on the sales floor. Yes, this will reduce profits, but it will at least help you free up space (and cash).
- Combine them with other items – If your slow-moving products may compliment your other products, why not bundle them together? It can add value to the sale and help you get rid of excess inventory. For example – combine wholesale phone cables with wholesale batteries.
See if you can sell them as impulse purchases – this works best for small, useful items. If it makes sense for your store, try selling these items as impulse buys by displaying them on your counter or cash wrap, or by placing them in sale bins near the entrance or near the checkout area.
Keep an eye on sales and unpaid invoices
Uncollected debt is one of the most significant opportunities for freeing up time, money, and energy in your business.
If you have customers who pay in instalments, make sure you stay on top of their accounts. Keep shopper records up to date, watch out for outstanding invoices, and send reminders as needed.
Keep a track of your accounts receivable (payments due from customers) on a regular basis so you don’t have to monitor them again.
Reduce your operational costs and hours
Any fixed or variable expenditures in your store that are not contributing to actual cash sales and earnings should be reduced. This can be done by finding products of better value to sell, checking your competitors or just taking a break for the day.
Many retail stores hire employees to just sit and assist customers in buying. This is a waste of resources. Instead, you can hire them for marketing initiatives, outside sales chores, or cleaning and repair duties.
Define a specific time when your business has more customers and when it has the least – according to that, you can appoint your staff and reduce operational costs.
Maintain a cash reserve
Backup plans are always good – be it preparing for something important or maintaining your cash flow.
Jason Yau, VP of E-Commerce & General Manager at CanvasPeople has his
“It is much too usual for businesses to leave themselves with a monetary safety net that is extremely minimal or even nonexistent”.
Give yourself at least two months’ worth of costs to deal with in the case of a sluggish month or sudden financial stress. Having an emergency cash reserve gives you the backup that you need to maintain your store operations.
Bottom Line
Whether you are in a cash crunch or not, you should constantly be looking for methods to ensure smooth cash flow in your store. The tips above should have given you some ideas on where to go and how to get more income flowing through your business whether you’re selling wholesale phone cables, bulk confectionery or groceries. Getting rid of excess inventory frees up cash and extra space, and maintaining an emergency cash fund ensures you are not helpless when it comes to arranging cash for meeting some requirements.
