We know that one of the most serious issues retailers struggle with is cash flow. Why is cash flow so difficult? Because, everything affects it:
- Flat Sales
- Lower Margins
- Higher Expenses
- Slow Moving Inventory
- Productivity
Any imbalance in these areas will dramatically affect cash flow. The key to avoiding a cash flow problem is to correct the imbalances quickly and focus on best practices.
The Cash Generator
Inventory is your cash generator. The only problem is that it’s also 70% or more of your total assets. Too much inventory ties up your cash. Too little inventory affects sales. Inventory control will improve your cash flow, and we have a few areas you can focus on quickly to free up cash.
Inventory Metrics
Nimble retailers follow their inventory closely, so they can make quick decisions and capitalize on any swing in the market. Inventory metrics are tools that can follow quick changes in the market. Analyzing inventory reports gives you a clearer picture of what’s affecting the balance sheet.
One important ratio to watch is inventory turnover. This financial ratio gives a great picture of the products and categories that are hot—and the ones that are not. A high ratio is healthy, because your inventory is quickly turning over.
Cost per unit is also a great report to become more familiar with. It’s imperative to know the cost per unit for more competitive and profitable pricing. This may give you the edge you need over your competition.
Know Your Competition
Obsolescence and Dead Stock tie up more than warehouse space. They tie up sales and prevent new, more attractive, products to be sold. Some of the best reasons for dead stock can be found in what your competition is doing. If they are offering the same products at a cheaper price, you may need to adjust your pricing to capture sales. Or, the quality of your products could be inferior to your competitor.
Similar products don’t always mean similar quality. In today’s highly competitive market, if customers feel that your product is inferior, they will reject it, because they have so many other choices. With a quick check online, you can see how your products stack up against your competition. Over 90% of your customers are looking at online reviews and you should, too.
Tackle Problems by Segments
When it comes to tackling problems with cash flow, it’s best to separate inventory, suppliers, and customers into segments. Then it will be much more manageable and less time consuming.
For example, you can focus on your suppliers to learn about their incentives and rewards in place for volume purchases. Can you take advantage of them? If you can, it’s a fast way to trim expenses.
For your customers, it’s important for them to know the value of your products. One easy way to do this is by posting reviews, blogs, or articles on specific products. Another way to add value is through great customer service. An outstanding experience will bring them back to your store.
Going Beyond the Balance Sheet
Managing cash flow is complex, because every aspect of your business has a direct effect on it. You have to look at more than one category to get a global view of your business. Once you do, you can implement small changes that will limit cash flow problem over time.