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Cash Flow Challenges And How To Solve Them: Retailers

Estimated Read Time: 5 Minutes

JESSICA LAMBERT , 27 January, 2023

Retail is often a lot harder than it looks. Selling goods to the public can be a booming business one minute, then an absolute nightmare the next. The fluctuating market can mean that business owners have financial headaches at times when they least expect it, which is why preparation is certainly always key.

Having healthy cash flow is a fundamental component to any retail business that is hoping to thrive. But the process of selling goods for payment is more complex than it initially seems and there are various factors that can impact how well the retail operation goes.

In this blog post we will address the most common challenges that retailers face and provide practical, actionable tips that should help ease the issues you may be facing.

What are the challenges?

  • Not Forecasting Costs Efficiently  

Failing to have the right process when it comes to buying stock can easily result in having cash flow problems in the retail industry. If there is no predetermined buying budget in play, it could mean that retailers end up buying too much merchandise.

Merchandise handling is a lengthy process that varies depending on the type of product, the size of delivery and the location where the goods will be received. But the most important part of the process, like anything in retail, is the payment. Being prepared for merchandise

receipts well in advance can help ease cash flow problems.

  • Having A Healthy Inventory

You may find that you have to buy in bulk for an upcoming event or holiday season, which could mean that you are out of pocket until you have sold the merchandise.

It can be difficult maintaining the correct inventory for your retail business. Customers need to have their needs met, but having enough stock can come at a price. Purchasing stock in advance takes a huge chunk from any businesses cash flow and no retailer wants to be forced to slash their prices in an effort to shift the stock off the shelves when the time comes.

So, unless your store has cash reserves to help combat these busy periods as and when they arise, a cash flow problem could occur.

  •  Expenses Are Too High

It will not come as news to any retailer that expenses must be controlled if the company is to be both profitable and a success.

A lack of budget is one reason why many businesses find themselves in a financial rut. Many retailers don’t have a contingency fund in place which means they end up suffering badly with finances if something unexpected comes up.

  • Badly timed credit terms

You may be lucky enough to have credit terms that are completely in sync, meaning your credit terms set by your suppliers align perfectly with the credit terms you have set for your customers. But that is not the case for many business owners.

For example, you may find yourself in a situation where customers are given 30 days to make their payment to you, but your suppliers require their pay within a week. This is how cash flow problems start to arise.

What Are The Solutions?

  • Open-To-Buy Planning

One solution is to avoid buying all of your merchandise at once. It means you can avoid the big hit on your finances if you are prepared.

A retailer will eventually know their market, which means they can predict buyer behaviour and prepare for the inevitable. Take Christmas for instance – whilst usually it is easy to distinguish between the two types of shopper mentalities the rest of the year, things change when it comes to buying for loved ones during the holidays.

Understanding buyer psychology during the busy periods is one way to get ahead. If you can predict how much merchandise you need to stock during those all-important holidays, you can pace the purchases and therefore payments throughout the year.

Create an open-to-buy budget that takes into consideration the needs of customers over a 12 month period. Open-to-buy budgets help support retailers in managing and replenishing their stock to the optimum level throughout the year, which is especially important for retailers who deal with apparel as buying often begins 6 months ahead of the season.

Creating an annual budget will be the blueprint you need for your finances. Then every time a financial decision needs to be made, the annual budget plan can and should be consulted.

  • Consider Bulk Discounts

In a bid to avoid selling your stock at a markdown price, you could consider the possibility of offering discounts to those who buy your products in bulk.

You need to weigh up what works better for your business – having products on the shelves for longer than intended, meaning they eventually get sold at a lower price, or selling large quantities of stock for a discounted price, meaning you save space and can get going with the next batch of items.

  • Cut costs

The only way any retailer can make additional profit is by either increasing prices or cutting back on costs. If you plan on keeping your pricing the same, your business could generate more profit if you make a few tweaks where possible.

Cutting overhead costs is one place to start. Review how much you are spending on rent, insurance, utilities, repairs and so on, then see if you can make any changes. Or alternatively, you could use cash flow finance to fill the gaps if you are struggling and need to pay for an urgent repair.

Staffing levels can also easily fluctuate throughout the year without there being a negative impact on the business. Taking a look at staffing schedules and seeing where working hours can be reduced is a sure-fire way to trim costs and boost profit.

  • Put financial measures in place

If your credit terms are not in sync, the first thing any retailer should do is try to renegotiate terms, either with the customers or your suppliers. But this is not always an option, which means you need to have some measures in place to support your retail business financially.

Invoice Finance could be the answer you are looking for. It is where a financial institution lends a business a short term loan that is secured against the value of the invoices you have already issued.

  • Business Cash Advance

Even with the right planning and management, cash flow is always a challenge. If you want to reinvest in your business, refurbish or take on a new premises for example, you could consider partnering with an external finance provider.

If your retail business takes card payments and needs a cash flow boost then a Business Cash Advance (BCA) is the perfect solution. It works like a business loan but with flexible, instead of fixed, monthly repayments. You can borrow up to 125% of your monthly card takings, from £5,000 to £150,000+, and only pay back what you can afford.

If you would are experiencing cash flow challenges or want to realise your business growth plans, get in touch with our team of Funding Specialists today on 0207 839 9451 or email [email protected]





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