Retail cash flow (maintaining a sufficient amount of available cash) for small shops is one of the least sexy topics I'm asked about. How to manage cash in a small business is also one of the most daunting tasks facing a retail shop owner.
That's because there are always cash demands that crop up on a daily, weekly, and quarterly basis including payroll, accounts payable and taxes. 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 the growth path of their company, here are some strategies that can 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 actually 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 on 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 that you set for your salespeople with your own cash flow goals 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 that have slim-to-none margins.
Instead, consider creating a commission plan that pays off of 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 in being successful.
2. Make customers pay on time
Ensuring that your customers are paying you in a timely manner is at least as important as selling them the goods or service 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 own lenders.
3. Schedule and predict your cash flow demands
Budget your upcoming cash needs over the course of the next few months. Big order to refill the shelves in June coming in? Clearance sale didn't 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 and 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 on 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 the amount you will 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 worse than spending it and then realizing you never had enough money to pay for it.
5. Look for government incentives
Your local government might have grants for new signage, landscaping, or modernization of your computers and POS. In fact, there are an amazing array of government-sponsored incentives that, if you install the right equipment or follow the right guidelines, can lower everything from your capital expenditures, your payroll costs, and yes, even your taxes.
These incentives are available on the local and state level as well as from the federal government and can be a remarkably easy way to improve your retail cash flow as well as your bottom line.
Tip: Ask your local economic development agency for information.
Demystifying how to manage cash in a small retail shop
As a small retailer or service provider, the key to maximizing cash flow is to understand the basics of income and costs that affect 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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