Planning For Cash Flow – Points To Consider

Money comes in and money goes out in businesses. It’s a fairly simple equation, yet the complexity of managing retail or wholesale cash flows simply is not so easy. There is a lot to consider. To help kick start your cash flow analysis, make sure you are covering the below details.

1. Monthly fixed expenses. Yep, that’s right – fixed expenses (sorry, you just can’t avoid this in retail). You can count on these every month. Rent, phone, utilities, insurance, payroll, office supplies and much more are likely to make up these expenses. Track these expenses and plan accordingly so that you aren’t caught short of your payments.

2. Sales per month. In order to pay your bills, you need to be making sales. Track these by day, week and month. What comes in (point 2) and what goes out (point 1) each month give you your starting monthly number for the following month.

3. Negative numbers. It happens, unfortunately. If you spend more than you make, you are in the hole. If you can start your business with a savings for months like this, you can (hopefully) stay afloat without having to borrow money or sink into a deeper hole. The reality is, many new wholesale and retail businesses have a few bad months, so planning for this in advance is advised. A six months savings based on your fixed income is ideal. One year is even better.

4. Inventory buys. You can’t make sales without buying adequate product. Control your buys by using an open to buy system with a controlled amount of dollars allocated based on needs, months and current inventory. Avoid the temptation to over buy!

5. Be responsible with due dates and credit. This means never pay a bill late! And always do credit checks when planning for someone to pay you… you don’t want to eat their mistakes in poor cash flow planning.

The ultimate goal is to keep your in flow better than your out flow. Managing this is a job – and even if you love what you sell and hate doing the math to stay on top of it, you have to. Or hire someone else to do it. 😉 At the end of the day, this is what will keep your business alive.

Need more cash flow tips? Let us know for a future blog! Post your comments below!