Editor’s note: In light of the COVID-19 pandemic, we’ve updated this post to add helpful information to help you manage cash during a downturn. We hope you find the additional tips helpful. And if you need more info on how to navigate the current landscape, check out Vend’s COVID-19 Retailer Action Plan.
There’s a reason why cash is often labled “king”. It’s the very thing that keeps your company going. It keeps the lights on, enables you to pay your staff, and gives you the means to do great things for your customers. And for obvious reasons, you need to have enough cash flowing through your business in order to survive and thrive.
Unfortunately, a variety of factors (the economy, bad business decisions, global pandemics, etc.) have put many retailers in a cash crunch—a situation in which you don’t have enough funds to operate successfully or normally. If you find yourself in this spot, don’t fret. There are a lot of steps you can take to get out of the crunch and free up cash in your business.
What is cash flow?
Cash flow is the amount of money that’s going in and out of your business. The flow of cash is initiated by two things: Money coming in thanks to your customers making purchases and money going out through business expenses such as your inventory, staffing costs, operating bills, etc.
Healthy cash flow happens when you more money flowing in, while the opposite scenario — i.e., having higher expenses and not enough income — puts you in a cash crunch.
Cash management tips when weathering a downturn, recession, or lockdown (e.g., COVID-19)
Cash flow management becomes immensely more difficult when money isn’t flowing like it used to. This is often the case during an economic downturn or in situations when you’re forced to shut down your operations.
If your business is facing such challenges, here are some tips on how to weather the storm:
Dig into your numbers and make a plan
The first thing you should do is know where your business stands financially. Go through your financial statements, accounting dashboard, and retail reports and keep an eye on:
Cash – How much money do you have in bank and how long will your resources last? Knowing how much runway your business has will help you make decisions on what to do in the coming weeks and months.
Inventory – How much of your capital is tied up in your inventory? Are you sitting on a lot of perishable goods? Is there a possibility to liquidate some of your stock? If you’re still selling (say online or in other marketplaces), identify the products that would have the highest demand and find ways to put them in front of your customers.
Debt – Get a handle on how much you owe and when you need to make payments. If possible, call your creditors and ask them if they can hold off on collecting for a month or so, or if they’re willing to renegotiate on your payments. During a global crisis (such as the coronavirus pandemic), there is a good chance that they will be willing to work with you.
Cut non-essential spending
Identify your business needs vs wants, and cut back on the latter. Expenses like utilities, marketing, retail management software are examples of what would fall into the “needs” category. On the other hand, things like your Spotify subscription, travel costs, or luxury expenses would be considered “wants” and thus need to be minimized or eliminated, at least for the time being.
Go through your credit card statements or checking account and identify your expenses over the last few months, then use that to figure out which costs should be cut.
BUT don’t skimp on marketing
Unless you’re not doing business at all, we don’t recommend skimping on marketing expenses. If you’re still selling (perhaps you’re doing it online now), it’s more important than ever to get in front of your customers.
As long as you do it within reason, it’s perfectly acceptable — recommended, even — that you invest time and money in marketing. So, don’t cancel your email marketing software or pull out your Facebook advertising budget.
Instead, take some time to figure out what’s working and what isn’t. Which channels, campaigns, and efforts have delivered the most ROI? Double down on them.
It’s also a good idea to come up with more relevant marketing messages. What products do you sell that would help people navigate these times? With more consumers staying home, do you have items that can help your cusomters be more productive while working from home? Do you sell food or beverages that can support people’s health?
Go through your product catalog, identify the best products to sell, then market the heck out of them.
Tap into financial assistance and resources
If you need an influx of cash, there are a number of financial relief programs that can help. From small business grants and loans to deferred tax deadlines, bills, and suspension, players from both the public and private sectors are stepping up to the plate to offer assistance to merchants affected by the pandemic.
The government, as well as various independent brands, social media platforms, and large corporations, are rushing to create programs to help small businesses stay afloat financially during these turbulent times. Here’s a list of relief programs and initiatives that you can take advantage of to help your retail business weather the storm.
How to improve cash flow
Now that you have a basic understanding of cash flow, let’s discuss how can improve it. Below are some action steps for freeing up more cash in your retail business.
1. Implement smarter inventory practices
Many retailers have their cash tied up in inventory, which is why the #1 thing that you can do to improve cash flow is to ensure that you’re stocking the right products and selling them at a healthy profit. If you do end up with excess stock, take immediate steps to liquate.
Here are some tips for doing all the above.
Spread out your purchases
Meaghan Brophy, a Senior Retail Analyst at Fit Small Business advises retailers to spread out their purchases. “Most retailers purchase wholesale products at least six months ahead of when they will be sold in-store. Don’t forget to save some of your budget for last-minute trends and to restock unexpected best-sellers,” she says.
Improve the value of your inventory
Baron Christopher Hanson, lead consultant and owner of RedBaron Consulting, says that retailers can look into boosting the value of their stock. He goes on to mention one of their clients that executed this well.
“One art gallery client we had long ago was selling $900 to $1200 locally made trinket artwork. Our recommendation was to start selling $10,000 and $16,000 and $24,000 pieces of art, which is no easy task. One year later, sales and profits had tripled, and a $330,000 piece of artwork was loaned to the gallery for a one month exhibit, bringing hundreds of high value art buyer through the door. A few of the $2000 to $3500 pieces of artwork are still for sale, yet 80% of the inventory value averaged $11,000 or more.”
Liquidate excess inventory
Put them on sale – Jennifer Martin of Zest Business Consulting says, “Excess inventory is the number one place where retailers lose steam (and money). Take time to see what you have in stock and start pulling it out of hiding.”
The most straightforward route to moving excess merchandise is to put them on sale. Bring out the slow-moving items from your stock room, mark them down, and put them on the sales floor. Yes, doing so will minimize profits, but it will at least help you free up space (and cash).
Bundle them with other products – If your slow-moving merchandise can complement your other products, why not bundle them together? It can add value to the sale and help you unload excess inventory.
See if you can sell them as impulse purchases – This tactic works best for small, handy items. If it makes sense for your store, try to sell these items as impulse buys by displaying them on your counter or cash wrap or by putting them in sale bins either at the entrance or near the checkout area.
Sell them to liquidation companies – There are plenty of liquidation companies that would be willing to take your surplus inventory off your hands. Again, you’ll likely end up with less profits, but you’ll at least get cash quickly and open up space in the stock room.
Additionally, selling to liquidation companies allows you to be more private about your need to move merchandise. Huge markdowns and sales can send the wrong message to customers (especially if you’re a high-end merchant trying to preserve a certain image or brand), so going this route could help you sell surplus inventory behind the scenes.
Sell them on online marketplaces – Another option is to sell your merchandise on online marketplaces such as Amazon or eBay. This takes a bit more work than dealing with a liquidation company because it’ll involve creating listings, uploading images, and shipping products, but you could potentially keep more profits doing so.
Offer them as free gifts – Instead of trying to make money directly from your excess merchandise, see if you can use them to generate sales for fresher items instead. You can, for example, give them away when a customer meets a certain purchase threshold (i.e. “Spend $50 and get a free gift!”).
2. Review your insurance policies
Martin recommends that business owners review their insurance policies every six to twelve months.
“Insurance of all kinds changes every year. Spend the time to review your coverage and get competitor estimates at least every 6 months to a year. Make sure you talk to a broker who represents many different providers (rather than one, like State Farm) this way you can find out what company would be best to offer you different policies you purchase.”
And it doesn’t hurt to get insurance companies (including your existing provider) to fight for your business. If you find a lower quote elsewhere, for example, then talk to your current insurance company to see if they’re willing to match it. If they are, then you’ll be able to lower your costs without having to go through the trouble of actually switching providers.
3. Stay on top of on-account sales and unpaid invoices
“Uncollected debt is one of the biggest opportunities in freeing up time, money, and energy in your business,” says Martin.
Not collecting what’s due can keep much needed (and well-deserved) cash tied up, so if you have customers paying in installments, see to it that you’re on top of their accounts. Keep shopper records up to date, monitor outstanding invoices and send in reminders when necessary.
“Cash flow requires constant monitoring and management of your accounts receivable,” writes Gary Stockton, Sr. Integrated Marketing Manager for Experian’s Business Information Services.
As owner, you should get, at a minimum, weekly aging reports for all accounts receivable. Sort your receivables into various categories according to length of delinquency and an objective estimate of likely collection. This allows you and your people to devote their time most effectively – spending $500 in employee time to chase $100 in receivables doesn’t make much sense.
Managing on account sales becomes immensely easier if you integrate your POS system with your accounting software. Consider Sydney Electric Bikes, which uses the two programs to stay on top of outstanding accounts.
Whenever a customer pays in installments, they use Vend to generate an invoice, then send it over to Xero which creates an account. Jake Southall, owner of Sydney Electric Bikes, says that the data syncs between the two systems, making it easy for them to manage and reconcile each account.
Another option is to use “buy now pay later” solutions like Afterpay. These platforms enable your customers to take home their purchases immediately while paying for it installments. The good news is you, the retailer, are paid upfront. The customers are essentially paying Afterpay for their items.
4. Lower your merchant card services fees
In addition to reviewing your insurance policy, you may also want to take a second look at your merchant card service fees, adds Martin.
“If you take credit cards in your business you are paying for the privilege. The question is how much? Get estimates for coverage at least once a year to make sure you aren’t paying more than you need to, not only in interest rates but in fees. A 1% difference can be the money that you might have to take a vacation.”
Try to negotiate with credit card processors. If you process a lot of card transactions, for instance, see if you can use that to get better rates. If that doesn’t work, try to shop around for processors that can offer more favorable terms.
Another pro tip? Stay away from payment processors that use tiered pricing.
“Payment processors that use a tiered pricing model are notorious for their lack of transparency and misleading marketing tactics. Tiered pricing makes it easy for the provider to overcharge merchants for credit card processing,” says Danny Choi of Payment Depot.
Choi recommends opting for merchant services that use interchange-plus, blended pricing, or a membership model.
“When it comes to payment processing, interchange-plus pricing and memberships give merchants more transparency with their costs. They get to see how much is sent to the card issuer and how much is going to the processor. Certain providers that offer blended pricing can also be favorable for retailers that have lower ticket prices and not a lot of credit card volume,” he adds.
“The bottom line? Know your number when it comes to payment processing and initiate conversations with different providers so you can make an informed decision.”
For additional tips on choosing a merchant provider, check out this infographic on Mobile Payments Insider.
5. Cut back on costs and operating hours
“Any fixed or variable expenses that are not contributing to actual cash sales and profits should be eliminated with vigor,” says Hanson. “We typically do an analysis of when retailers are the slowest, and then recommend closing the shop during that time to either handle other business, chase higher value inventory to sell, shop the competition, or simply rest.”
He continues, “Paying support staff to sit there and watch people pass by your front doors is our biggest no-no. Either lineup side work, marketing projects, outside sales tasks, or cleaning and repair duties for staffers to complete –– or send them home.”
“Being open somewhat by appointment or during very specific times is a wonderful streamlining process to figure out and implement, pending the type of retail business you are in currently.”
6. Perform a CAM (Common Area Maintenance) audit
CAM fees—which cover landlord-incurred operating expenses such as exterior cleaning, parking lot maintenance, etc.—are determined by the property owner and are charged (typically) at a cost per square foot basis.
In the old days, retail tenants simply had to trust that their landlord has the good faith and competence to generate accurate calculations of fees. But as more businesses become strapped for cash, an increasing number of merchants are deciding to audit and reconcile CAM charges.
“Existing tenants appear to be embracing CAM compliance audits to ensure that they are not being improperly charged and that they are being billed in accordance with their own, often heavily negotiated, leases,” Ed Harris, vice president with Commercial Tenants Services Inc., told National Real Estate Investor.
If your lease agreement gives you the right to perform CAM audits, then consider doing them. Enlist the help of a third party to conduct an analysis of your landlord’s books and make sure that the CAM fees charged to you are correct.
Admittedly, CAM audits can be time-consuming and tedious, but if you do find errors and overcharges, you could potentially recover significant amounts and eliminate future charges. For example, an overcharge of $1.00 per square foot on an 800-square foot store could result in an additional $9,600 per year.
7. Have a cash reserve
Always have a backup plan cash crunch situations.
“It is much too common for businesses to leave themselves a cash safety net that is very small or even nonexistent,” says Jason Yau, VP of E-Commerce & General Manager at CanvasPeople.
“A good rule of thumb is to leave yourself at least 2 months’ worth of expenses to work with, in the event of a slow month or a sudden financial burden. Without this cash reserve, these things could spell disaster for your business.”
Serial entrepreneur Ryan Vet echoes this, and says that in his businesses, he makes it a point to put money away regularly.
“For us, we include saving money every single month for a rainy day. Just like you would personally, saving money in a business is critical. This has allowed us to navigate slower months, replace equipment, upgrade to new equipment, and even help to fund a second location.”
If you enjoyed this post, be sure to check out Vend’s guide to increasing sales. This handy resource offers 10 proven tactics for boosting retail sales and improving your bottom line.
Specifically, you will:
- Discover how to turn savvy shoppers into loyal customers
- Learn how to add real and perceived value to each sale
- Discover the most effective ways to set yourself apart from your competitors
Cash crunch or not, you should always be on the lookout for ways to free up funds in your business. Hopefully, the pointers above gave a few ideas on where to look and how to get more cash flowing through your company.
How are you freeing up cash flow in your business? Let us know in the comments!
Update: Further reading
As Duncan pointed out in the comments, retailers can also improve cash flow by selling more. And here at Vend, nothing makes us happier than seeing retailers improve their sales, which is why we’ve published a number of articles on the topic. If you’re interested in learning more about selling more, we invite you to check out some of our previous articles at the bottom of this post.
About Francesca Nicasio
Francesca Nicasio is Vend's Retail Expert and Content Strategist. She writes about trends, tips, and other cool things that enable retailers to increase sales, serve customers better, and be more awesome overall. She's also the author of Retail Survival of the Fittest, a free eBook to help retailers future-proof their stores. Connect with her on LinkedIn, Twitter, or Google+.