There is a consensus amongst entrepreneurs that if you do want to make money its either you manufacture a product, provide a service or buy and sell goods. In all of these, the lifeblood to such business activities is the cash flow. A well-managed cash flow to a business will bring in the desired pro-growth results. In this article, therefore, I pay specific attention to retails businesses in trying to find various ways in which the respective owners can improve cash flow management efforts.
What Is Cash Flow Management
In simple terms, cash flow can be defined as the amount of money that comes in and out of any business. It should also be appreciated beforehand that, when customers come and make purchases, a lot would have transpired in the background where at most cash flows out as expenses. Cash flow management then concerns itself with attempts to strike a balance between cash inflow and cash outflow in a business. In this respect, a business will have a positive cash flow when it manages to generate more sales and keeps its expenditures on minimal or point zero.
Some might confuse cash flow and profitability hence it should be understood that profitability is more of a principle in business accounting. Profit, on the other hand, refers to what is left after all expenses have been cleared.
Why You Should Care
In research, it was revealed that more than 60% of businesses experience crippling challenges with their cash flow. These often find themselves in a situation where they can’t service their debts. In retail, it thus becomes important for you to understand the turnover rate of your stock and the subsequent profits made, basically on each sale. This is important in so far as it assists you in managing your inventory and helps you not to stock up products with low turnover rates. Stocking such products out rightly suggests poor stock management which could lead you into the precarious situation experienced by most retail businesses.
Therefore, cash flow management should be amongst your concerns in running your business as it will assist you in understanding the amount of profit made on every sale. This should also help you to determine if such profits are enough to cater to your business costs. Hence, what follows below are some tips on how you can improve your cash flow management practices.
1. Always Keep Financial Records Accurately and Completely
Keeping a record of how money is flowing in and out of your business is critical in understanding and efficiently managing your business cash flow. Financial records are an absolute requirement. Now, given the complexities involved in retail, some may choose to use various accounting applications such as QuickBooks, Xero and FreshBooks. Such software proves to be effective in accurately keeping track of your business finances thus providing reliable information. To a small business owner, having accurate financial information creates ample room to have immediate access to income and expenditure data which will be useful in making business decisions. The importance of keeping records should thus be underscored and prioritised in retail businesses as well as in other businesses.
2. Always Beware Of The Big Items Costs
Big items in business often come along with big costs which make up for about 75% of the respective monthly expenses. Depending on the structure and nature of your retail business, such big items might include your rent, inventory, payroll and in some cases insurance. Concerning the payroll, labour costs often account for the largest expenses in a small retail business. You need to keep a close look at these costs.
Rent also account for big expenses a business will have to incur in its operations. Such rent can come as the cost of maintaining the operating environment or paying your landlord where you are operating as a tenant in your business premise.
With regards to your inventory, large amounts of money may be spent purchasing slow-moving stock whereas if you pay attention to the type of stock purchased, it may well save you in avoiding such unnecessary expenses.
3. Cut Your Costs
As has been mentioned, cash flow management always attempts to create a balance between the cash flowing in and out of a business aiming at being profitable. Resultantly, to gain control of your business` cash flow, you should cut your costs. In the process of doing so, try to pay attention to recurring monthly, quarterly and/or annual expenses. From there, find out where most of your money is going and see if there is anything you can cut back on.
4. Drive Sales With Promotions Or Incentives
You should rest guaranteed that promotions are one of the sure ways for a business to boost sales in any given season. Now, as to what promotions you can introduce in your retail business, much depends on your location and creative capacity as well as available resources. However, some retail businesses can come up with customer loyalty promoting programs such as coupons or purchase tokens. Some even introduce contests shared and promoted on social media. The overall idea is to have your customers excited and wanting to make purchases of their preferred products from you. The result to you will be in the form of increased sales working much to clear your inventory.
5. Always Have An Emergency Cash Reserve
There are some flexibility and security that comes to your business the moment you start pooling emergency funds. Just as how a person should have his/her respective emergency fund the same applies to a business entity. Imagine how a business could survive this covid-19 era had it not pooled enough emergency fund if it did have such a fund in the first place. It is thus advised that a business should secure emergency funds which can cater for at most 6 months worth of business-related expenses.
From the above, you should gain some basic understanding of how to improve on the way you have been managing your cash flow.