Santa Claus is coming to town. Retail businesses are in a hurry to prepare for this great shopping event. Usually, they spend a copious amount of money for Christmas to boost sales. That is the reason for many retailers to be fallen into a cash crunch – a situation where you do not have enough cash to operate efficiently. That being so, cash flow management is especially important during the holiday season. In today’s article, we will present with you the tricky tips to manage your cash for a profitable festive season.
What is the cash flow?
Cash flow is the amount of money coming in and out of your business in a month.
- Cash is going in when customers make purchases. If your clients don’t pay at the time of purchase, your cash flow will come from the collections of receivables.
- Cash is moving out of your business in the form of payment for various expenses, such as rental fees, utility bills, tax payments, loan payments, etc.
Why cash flow management is important
Cash flow is considered the lifeblood of any business. Retailers should focus on managing their cash flow since it:
- Ensure that you are making a profit – a top priority of any business.
- Don’t have to purchase products on credits.
- Never run out of cash in your brick-and-mortar stores.
- Become financially stable and develop sustainably.
Tips for cash flow management
Inventory can tie up your cash flow. Make sure that you keep track of unsold products and stock the right items.
According to the Retail Owner Institute, the annual additional cost of holding excess inventory is roughly 30%. Ergo, retailers should check the excess products regularly to put them on sale. Here is a tip: You can bundle a slow-moving product with another easy-to-sell item as a pair, such as a special tea retailer that combines out-dated tea accessories with the best-selling British tea.
Holding more inventory clearly appears as a negative amount in your cash flow statement. Not only do you have to spend on a high holding cost, but also your cash flow is tied up on the obsolete or near-expired items. According to Investopedia, the carrying cost of inventory generally runs between 20 to 30 percent of the total cost of inventory. If you stock more, cash on hand will be paid for both products and their extra carrying cost.
That being so, let’s check your warehouse on a daily basis to identify products that are close to expiry. Afterward, it highly recommends that you offer sales promotions on those items to swiftly sell out and free up your cash flow, such as buy one get one free, reward vouchers and coupons, etc.
On the other hand, you can apply demand forecasting which is a technique for an ideal order quantity. The method is based on historical sales data, such as sales on last year’s Christmas, to formulate an estimate of current customer demand.
For some businesses, it is unavoidable to sell on credits. However, store owners should collect receivables within the agreed terms, usually 30 days. Retailers should not take risk of extending credits to customers in case customers won’t pay.
Here are simple tips to follow up with your buyers since Christmas is the busiest time of the year:
- Email directly to your customers to remind them of the due date.
- Call for non-payers after sending invoices a week
- Require customers to pay a deposit on the due date, eg: 50% of their invoices as a minimum
Stay within your budget
Christmas is one of the biggest and most significant shopping events of the year. No doubt that retailers will take advantage of this holiday to attract customers and climb the sales ladder. However, you should not burn a hole in your pocket. Let’s draw a budget based on the expected revenue. There is a simple rule that you must earn more money than you spend. Let’s finalize by making a Christmas plan sticking to the budget
To maintain a healthy cash flow, you should identify “needs” and “wants” to balance your financial status.
If you go through your credit card statement, you might see a wide range of unnecessary expenses, such as a big Christmas tree, travel costs, fancy meals, Netflix subscription for the Christmas Chronicles 2, etc.
Let’s try to minimize and eliminate, at least in this time – a holiday season with other important things we must buy.
To wrap it up,
“Cash is king” is an age-old saying to express its importance to any business. If retailers do not keep the proper amount of cash on hand, they will run into major problems and even be forced to bankrupt. Once again, the best advice is that store owners should pay attention to cash flow management, especially on Christmas – when you go on a shopping binge.
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