moneymatters
In Retail, Cash is King: Here’s How To Plan For Positive Cash Flow by Jennifer Abraham Rust, Creative Profit Planning
W
hile we all want to think that the most important part of our toy business is the products we sell, the fact is that having the best toys to offer is just the beginning. Regardless of the type of retail business that you are running, cash flow is a critically important aspect of business success. Without an understanding of how to make your business cash flow positive, the viability of your business is in jeopardy no matter how fabulous your products are. Although we don’t have a functioning crystal ball that can fully forecast cash flow (Magic 8 Balls don’t count!), by understanding
the variables involved, we certainly can forecast cash flow at least 3 months at a time. There are plenty of ways to take cash flow variables into account and properly prepare your business for fluctuations in your cash flow. By analyzing these variables, you can identify patterns and turn those patterns into a strategy to for keeping your business cash flow positive.
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Understanding the Variables
There are four primary variables that affect cash flow in a retail business. Let’s take a deeper dive into each. 1. Sales: For purposes of cash flow planning, sales would be the amount of actual sales dollars (net of any discounts) you expect to flow into your bank account in the month. And although the world may still feel uncertain, we can set sales goals based on prior years (same month) sales, and how sales have been trending in recent months (is business up or down?) 2. Expenses: Use your profit and loss statement or work with your accountant to determine what your forecasted monthly expenses are going to be. There are fixed monthly expenses that will be the same each month, for example, rent, certain utility payments, a manager’s salary, etc. In addition, you have some expenses that should vary greatly depending on expected sales volume, for example, credit card fees and selling payroll. Keep this in mind when forecasting monthly expenses. 3. Debt Payments: I find that this is something most miss when attempting to put together a cash flow forecast because principal debt payments never appear on your profit and loss statement. These payments would include the principal payments you make on any loans or lines of credit whether to an individual or a financial institution. In addition, be sure to include any principal payments you plan to make on old credit card debt. 4. Inventory Purchases: This is by far your single largest variable. Once you have forecasted your sales, use that flow to forecast your inventory purchases. (hint: expect your inventory to peak slightly ahead of your sales. For example, if December is expected to be your largest volume sales month, your inventory should peak in November before declining as sales rise.). This number should represent the payments you will make for inventory purchases to vendors in that month. Remember to include purchases made on credit cards as well. All four variables need to be forecasted and controlled in order to strategically manage your cash flow. To do that, you must keep your books and records up to date and meticulously accurate. Whether you use Quickbooks or some other bookkeeping software, current and proper tracking of sales, expenses, and invoice due dates are critically important when trying to properly forecast cash flow. This becomes even more important in the toy
July 2021 • astratoy.org
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