Managing Cash Flow And Beyond

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As part of the retailcloud sales team, at least 2-3 times a week I speak with a business owner who tells me that their biggest issue is staying on top of the cash flow; in fact a not to uncommon statement is that we just had a great month but I don’t know where the money went.

Managing your Cash Flow and effectively converting inventory into cash are the most important things that small business operators do. With that in mind I thought I would put together a very high level post on some basic practices on cash flow management. If you want some complexity we have other posts on managing  cash flow, GMROI and sales to stock and cash to sales ratios that can take you to the next level but this for the basics.

Let’s begin by taking that money and putting it into some piles

Paying Sales Tax – this is often overlooked, but start first by running your sales tax settlement reports and put that aside for the tax man – there is no getting around that. While you are doing that, make sure that the amount you are reserving is in line with what your sales are – often items are not properly set up in your system and you may have neglected to collect the correct taxes.

Paying your Employees – Look at your time clock reports and forecast what you need to pay your employees, remember to carefully set aside withholding amounts and any other employer contributions. These are monies that you don’t want flowing into your operating accounts.

Keep your doors Open – Know what your fixed costs are (Rent, Utilities, Business Operation Fees) and prorate them so you are setting aside enough to cover these fixed expenses. Having accurate projections will allow you to forecast what your minimum sales are on a daily basis to cover overhead.

Replacing your Inventory – Finally set aside enough to replace your inventory,  if you are buying on account you will need to pay your vendors and if you are paying on delivery you need to keep your items stocked at optimum levels. While doing this, consider what you stock on hand is and determine if you are better off investing in complementary products. Have a look at our posts on Increasing per Unit Sales.

See what’s left over – This is for you if there is not enough to go around, you only have a few choices

  • Run the Employee Productivity report and check your staffing levels; are you overstaffed for your sales (if so look at  5 Tips on Increasing Customer Visits on how to use associates to create brand building experiences)
  • Run the Attribute Analysis Report and see how your inventory is performing in terms of product mix and also consider Vendors – do you need to change your product or vendor mix
  • Review the Gross Margin numbers at a classification level – are you underpriced and your returns don’t support your prices or are you overpriced and your sales don’t support your stock levels
  • Look at expanding your reach, maybe deploy an online store (retailcloud essentials start at $15 a month and includes hosting) – read Beyond Bricks and Mortar on why an online store is key in growing your sales.

These are 4 simple checkpoints – having these good practices will help you build a strong and profitable business. The majority of business failures occur due to poor cash management.

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