Beauty Store Business

AUG 2017

Beauty Store Business provides solutions for better retailing! New products, industry news, savvy business moves and important trends affecting both brick-and-mortar and online retailers are included in each issue.

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Page 97 of 123

96 August 2017 | What is cash flow? It is simply the movement of liquid money in and out of your establishment. A P&L statement will show you how much money you made and all your expenses. A state- ment of cash flow, on the other hand, gives you an indication of what money you have at any given time. It captures real money that is moving to and from your bank account. Think of it like this. At the end of any given day, you may have a report that shows you had $5,000 in sales. Of that, assume that $1,000 was in cash, $3,500 was in credit cards, and the remaining $500 was made up of sales to friends and family who told you they'll pay you by the end of the week. Depending upon when your credit card processor settles the batch of your credit card sales, even though you may have had $5,000 in sales, you really only have $1,000 of cash in hand. The rest is waiting on the credit card processing and your cash- strapped family and friends to settle up with you. If on this same day, you had $8,000 in payments that went through your bank, you have a very negative cash flow for the day. Taking the attitude that it will all catch up one day and everything will be alright could be why you find yourself short at the beginning of the month. But don't fret; there are some steps you can take to improve your situation. Here are eight suggestions to more effectively manage your cash flow. Establish a Budget Some store managers become lackadai- sical as the years progress and forget about one of the most basic accounting functions—the budget. Perhaps they've been doing it long enough that they have a sixth sense about money moving in and out of the business. But this often masks the true situation, and they are typically the ones without money in the bank when they need it the most. Setting and sticking to a budget is the best way to manage your cash flow. By now you're probably able to forecast sales fairly closely for each month of the year. You also know what bills are going to be due soon. Preparing a monthly budget assures that you keep track of all the expenses you expect for the month, and that you have the funds to sufficiently cover those bills while leaving you with an excess of cash to start the next month. If you're already setting a budget each month, make sure you have a line item for contingencies—usually 10 per- cent of your monthly expense is enough to cover the unforeseen circumstances that can occur. For example, you may not have included in one month's budget that one of your cash registers would go down. Getting it repaired and replaced as quickly as possible is important and, unfortunately, expensive. A contingency budget allows you to incur that expense without too much hardship to the bottom line. And, if you don't use your contin- gency fund for the month, carry it over to the next, giving you more profits by the end of the year. Keep Tabs on Inventory As you probably know, about 80 percent of your sales come from 20 percent of the products sitting on your store shelves. But what if you could get 80 percent of your sales from 30 percent or more of your products? It is possible, if you're properly managing your inven- tory. Some stores leave products on the shelves too long, hoping that one day a customer might just need that item. If you haven't sold a single item from one particular product line in four months or the sales are paltry at best, get rid of it. The shelf real estate is too valuable to have poorly selling products taking up space. Replace those with something that will sell. Also, if you see that something is selling remarkably well—such as prod- ucts catering to multicultural clientele— by all means, research this category and stock more of those products. Avoid Receivables One area that can kill your cash flow management is accounts receivables. If you're currently allowing certain cus- tomers to pay when they can, ultimately you're hurting your ability to pay bills or even make payroll. Remember that cash flow relates to money you have in hand. If you make a sale, but allow the cus- tomer to pay later, you have essentially lost the products and don't have money to show for the loss of those products. This presents a negative cash flow. Having to follow up and track down these payments is also a costly endeavor. If you spend just one hour a month attempt- ing to collect past due payments, think how costly that is. What else could you have done in that hour to make the store more money? Most customers will understand if you tell them that you can no longer take IOUs. They realize you have a business to run with narrow profit margins. Some may balk at this new policy, but very likely, they have been the ones you have had to contact repeatedly to get paid. Reduce Costs Here's where you can really impact your cash flow. Look for ways to save the store money, no matter how small those savings are. Over time, they add up. One area that often gets overlooked is insurance. You've probably had the same agent and carrier for years. Shop around. Getting quotes from competing insur- ance agencies is free. If you can't find a lower cost for the same coverage, great! You have an awesome agent. But it you do find a lower price, give your current carrier a chance to re-evaluate what they charge you for insurance—espe- cially if you have only a few or even no claims. You may be surprised how much you can save. Similarly, negotiate lower credit card fees with your provider. You may assume that they're all the same—around three to five percent—but what other fees and minimum monthly charges are they sticking to you? Often you'll find other credit card processers are willing to give you an introductory rate just to get your business. After a year, look for the next company that will do the same thing. This can potentially save you thousands of dollars over 12 months. Also, work with your suppliers to ensure you are getting the best deals possible. You may find that some are willing to drop delivery or truck charges just to keep your business. Every business you work with from window cleaning to maintenance and from giant vendors to the smallest supplier want to keep your business. All you have to do is ask for discounts and reduced fees. Many are willing to do what they can to continue working with you. Maintain Cash Reserves Admittedly, this is harder to do than most of the items presented here. It's easy to say save money, but difficult to achieve. However, if you do implement "Setting and sticking to a budget is the best way to manage your cash flow." Micah Youello

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