A steady cash flow is extremely vital to keep a retail business running. In fact studies show that about 90% businesses fail due to poor cash flow. Not only does businesses have to struggle to purchase products that they want to sell if cash flow slows down, but if too much goods are sold on credit employees have to take the extra stress to sell more good and also spend time on recovering the debt.
Late Payers and Your Business
It is inevitable that in order to keep your business running and a steady flow of customers you will need to give out your products on credit. However, the amount outstanding from the customer would be the added stress to your business. You will face difficulty in not only recovering the credits, but will also need to make an added effort to sell more products to meet up with your cash demand.
The New Year is an ideal time for you to take a closer look at the financial status of your business. It’s a good time to determine the actual cash requirement of your store, i.e. how much you need to keep the store running, how much you need to purchase goods, pay your staffs etc. At the same time it is a good opportunity to log your customers’ credits. This will give you an insight on how much financial deficit your retail business is currently is. It will also enable you to develop a credit recovery policy bringing in the money that should have already been there.
In order to make your cash flow process effective you will require making a financial projection quarterly. The accurate estimate of your cash requirement will better prepare you for a financial disaster way in advance; and in many cases will help you avoid one.
Predicting Cash Flow
While preparing your cash flow projection you will need to consider every entity involved in your business. You will need to consider your revenue by sales, or cash in, as well as your expenses, or cash out. A positive difference between your cash in and cash out would indicate a profit. While a negative difference would surely indicate that you are headed to a financial disaster and need to act fast. Seasonal fluctuations in your sale need to be considered as well when you are making a financial projection.
Every business has a slow sale period, or times when the customer is more likely to pay in late. This is okay as long as you can ensure enough cash at hand during this period to pay for your business costs and wages.
Sensing your Pulse
You can never be too careful when it comes to cash flow. Constant monitoring of your financial situation, recovery of credit will help you keep away from any sort of financial downfall. Simply forecasting your cash flow will not be enough to make your business grow and sustain. You will require constantly monitoring, spending time recovering the credits that you gave out to your customers, and ensure that your business has a good and healthy cash flow to survive.
Please see Warning Signs For Retail Owners.
Confirm that your Customer Actually Pays
Recent data show that big businesses are the worst payers. So if you are selling your products to a business organization ensure that they pay back on time. Try to avoid reaching a situation where the credit is too high of anyone to face difficulty paying you back. If such is the situation most likely that they will never pay.
It is not only big businesses. Small creditors also may have a tendency of not paying the debt. Amounts below $500 and non bank credits have a considerable less chance of being paid back. Even if the amount owned by an individual is small, cumulatively the total amount that your retail business is likely to receive from these customers will be substantially high.
Although credit checking process has its benefit but it does not ensure that your customers will pay back. In order to confirm collection of debt you will require having a sound receivable process in place and that you constantly monitor the cash flow and financial projections.
What goes out must come in
Always remember that you not only make profit when you sell goods, you also get a return on your cost of business. Hence, you need to ensure that you actually receive the amount of money a person owns you when you sell a product. You should also think of holding on to paying your invoices until the last day. This will help you retain the cash in your business for a longer period of time.
See also Financing Needs.