I recently did 5 days of finance on my Instagram feed, covering what I believe to be very important topics when it comes to the finances of your independent retail business. I generally work through a lot of these with my consulting clients as each retail business is different and sometimes in the busy life of a store owner, we can get distracted from the things that make a big difference to our business.
When preparing your budgets for the year ahead or for your upcoming month/quarter, make sure you have divided your quarterly or any irregular costs into a monthly amount that you need to save. It could be something irregular but constant such as your shopping bags or your gift cards. Worrying about a rent check that’s due at the end of March, only when you are in March, is likely going to cause you and your cash flow some stress.
It is almost impossible to look at your finances from anything less than a 3 month period at any time because as we know, retail sales are unpredictable. Try to get ahead of the game, plan out your numbers and save for the following month not just the current.
Are you bringing your sales forward?
When cash flow hits hard times as a retailer, it can be tempting to put special offers on your best-selling products as you know it is the most likely to bring in sales quickly. However this is a short term gain against a longer-term loss. If those products are your best sellers, they would have sold anyway at full price, just perhaps not as quickly. Ultimately it is unlikely the customer will buy the product again the following month at the full price so your future sales are therefore affected from this short term gain.
Rather than go for the quick win on your reliable products, look closer at your inventory and bundle up products that move slower, incentivizing customers to buy something they might otherwise not. You always have to look ahead with your finance. It might seem easy to fix today’s problem but the problem could get bigger down the line with that kind of solution making. It isn’t easy to solve cashflow issues, but the last option should be to discount your essential products.
Do you know your inventory value?
It is likely to be your biggest business asset. The value of it fluctuates daily but are you measuring the value of your inventory correctly?
Your inventory has a big influence on your cash flow in retail yet many small retailers aren’t spending enough time looking at the true value of theirs. Hands up! I was totally guilty of this. I have been there and I know it isn’t easy.
However, your inventory value can help you make key financial decisions such as how much budget you need to spend that month on new stock. If you have an inventory software it should tell you the total value at any given time however you have to make sure you are inputting the right information in order for that figure to be near correct. Also most inventory software won’t give you historical data on this so check your inventory value from both cost price and retail price on a monthly basis at least, document it and track it against sales.
When it comes to pricing your products, every retailer has a different situation. Some have fixed prices to follow from brand manufacturers or suppliers, some are in such a competitive space that they have to purely benchmark with competitors and others have the freedom to price as they wish and follow a formula of their own.
If you had the freedom to price your inventory as you really needed to, what costs would you include? Your shipping for example? The taxes you paid to land the products in your hands? The running costs of your business even?
Looking closely at your profit margins is vital in retail as there are many hidden costs. Make sure you are putting the right calculation into your pricing structure so your reporting is correct. Cash flow issues can happen to independent retailers who are making great sales purely from innocent mistakes with their pricing formulas.
Do you know your average sales value?
It is usually referred to as your ATV – your average transaction value. i.e the average amount your customer spends when purchasing in your store, and it is a really important figure to be calculating.
I remember being really shocked how low mine was the first time I properly calculated it. I mean how could my average be so low when I had so many high value items in the store?! Turns out I also had too many low value pick up items in store and not enough items in the middle price range.
With figures like these, the reality can be a lot different from what you ‘think’ it is and if you take the time to calculate it, you can make some very important changes to your store.
For example, as in my case, I needed to find more ‘medium’ price products to offer that would fill the gap and drive up my sales even without more customers. You can also incentivize your sales team in a different way than just increasing the monthly sales target, by challenging them to increase each sale by a nominal amount.
Track your ATV on a monthly basis and use the information to help you make decisions.