Applying a tactical cash management plan is a sure way to strengthen your retail business. Managing cash flow isn’t just about covering operating costs; it’s also about being able to make the investments you need to compete and grow.
These five best practices for cash flow management can help you build the right accounting habits to let your business see maximum growth.
Forward-Thinking
Taking time to prepare for consumer demands that you can predict will pay off big-time. Plan ahead for your big orders, seasonal shifts, and clearance sales. Establish a sales target for every large order you place—how much of it needs to sell in the first 30 days to be considered a keeper? When possible, don’t intake seasonal merchandise too early—you don’t want your money sitting in a box for six months before you see a return.
Earmark Early
Forecasting will not only help with monthly and quarterly budgeting for steady costs, but it will also help you figure out the best time of year to make any significant capital investments. Do you think you’ll need to make an equipment upgrade or other large purchase in the next year? In the next three years? Five years? Build it into your plan now. It’s easy to get buried in the day-to-day flux of dollars and cents and lose sight of the long-term goals. Allocating large predicted costs as soon as you can anticipate them forces you to keep a bird’s-eye view of your business’ financial path.
Build a Cash-Flow Budget
The classic monthly cash flow budget covers six parameters, and it’s the proven method to get a good handle on your cash situation. Let’s face it, it’s hard to win an argument with a spreadsheet. The essential metrics to track are:
- Total sales
- Total expenses
- Cash surplus/deficit (total sales minus total expenses)
- Opening cash balance (at the beginning of the month)
- Closing cash balance (opening cash balance plus cash surplus/deficit)
- Minimum cash target (for emergencies—approximately three to six months’ expenses)
You can find many cash flow forecast templates for free online. Build it into your regular bookkeeping process and you’ll prevent yourself from making a detrimental oversight.
Devise a Contingency Plan
Failure to manage cash flow is one of the top reasons small businesses fail. Many highly profitable businesses end up in bankruptcy because they grew so quickly that their cash flow couldn’t keep up with the costs. You can avoid the most common budgeting pitfalls by learning some accounting basics and putting effort into analyzing all your key performance indicators regularly, but you can’t plan for every possible cash crisis. If your business were to experience an unexpected capital shortage, how would you handle it? Create a response plan for your business. Do you have an emergency fund? If not, do you qualify for other business financing options? (Hint: You probably do.) Take time to set yourself up with as many safety nets as possible.
Available Public Local, State or Federal Resources
Ask your local economic development agency about available incentives. These might be available on the local, state or federal level, and they can offer a beneficial cushion for your bottom line. Your local government might be able to provide grants for equipment modernization, new signage, landscaping or other upgrades. You might also be able to lower taxes and other operating costs by agreeing to follow certain guidelines or install certain approved equipment.
