Retail Cash Flow: 6 Ways to Manage a Small Store

Boy accountant throwing money in air

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Updated March 10, 2024

Retail cash flow (maintaining a sufficient amount of available cash) for small shops is one of the least sexy topics I'm asked about. Managing cash in a small business is also one of the most daunting tasks facing a retail shop owner. 

That's because cash demands, including payroll, accounts payable, and taxes, always crop up daily, weekly, and quarterly. Most small business owners don't create a budget to account for these predictable cash demands, let alone other demands like equipment upgrades, renovations, and unexpected costs. 

While the average small business owner will usually be strapped for cash at different points in their company's growth path, here are some strategies to help ease these situations.

Six ways to boost retail cash flow

Many small businesses and retail stores struggle to manage cash, even if they’re turning a profit. Adding at least a few of the following strategies to your arsenal can help free up cash so you can focus on growth rather than making ends meet. 

Here’s how to manage a small retail store with predictable, stable cash flow.

1. Align your salespeople's goals

This might seem more like a sales management tip than a cash flow one, but aligning the goals you set for your salespeople with your own will simplify your cash management issues. 

For example, don’t set your sales team up with simple sales goals—get more commissions with the more merchandise you sell—as this encourages them to sell more products like clearance and sale items at low prices with slim-to-none margins. 

Instead, consider creating a commission plan that pays off sales that deliver higher gross margins. It does require some extra bookkeeping, but it saves a lot of financial headaches and makes your salespeople partners successful.

2. Make customers pay on time

Ensuring that your customers are paying you promptly is at least as important as selling them the goods or services in the first place. 

That means at least half-down on a custom order or special project. In short, you have to control the payment schedule to your company so that you can honor your lenders.

3. Schedule and predict your cash flow demands

Budget your upcoming cash needs over the next few months. Is a big order to refill the shelves in June coming in? Did the clearance sale not deliver as you hoped? A program like Excel can work wonders for your cash flow and lower your stress level. 

Forecasting is useful not only for reorders, new merchandise, and steady costs such as payroll and utilities but also for determining the best time of year to make capital outlays. Tip: Ask your banker for help with this.

4. Allocate for big purchases

With your predictable demands on cash flow, finding the right time to make large capital expenditures like a new air conditioner or flooring can be tough. Allocating the money throughout the year allows you to save for these costs. 

Figure out the amount you need and build it into your budget and forecast. This process gives you an overview of your capital spending and can help you determine if you are spending appropriately for your business income. Nothing is worse than spending money and realizing you never had enough money to pay for it.

5. Look for government incentives 

Your local government might offer grants for new signage, landscaping, or modernizing your computers and POS. There is an amazing array of government-sponsored incentives that, if you install the right equipment or follow the right guidelines, can lower your capital expenditures, payroll costs, and, yes, even your taxes. 

These incentives are available on the local, state, and federal levels and can be straightforward ways to improve your retail cash flow and bottom line. 

Tip: Ask your local economic development agency for information.

6. Consider switching to percentage rent

With commercial real estate in a tailspin, it’s time to talk to your landlord about percentage rent instead of a fixed lease. Percentage rent is making a comeback.

Demystifying how to manage cash in a small retail shop

As a small retailer or service provider, the key to maximizing cash flow is understanding the basics of income and costs affecting your business. Pay attention, forecast, and allocate the necessary resources throughout the year, and your small business can be successful.

With more consistent, well-managed cash flow, you can finally stop “winging it” each quarter, eliminate unpleasant surprises, and focus on real, sustained growth. 

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