In the words of Tom Petty, some days are diamonds/some days are rocks. It’s the same with the cash flow cycles of your business.
It’s easy to think your business is successful when you’re making lots of sales. But money coming in is only half the equation. Without having a handle on expenditures, you could have just as much, if not more, money going out —- and that certainly doesn’t equal a success.
According to a U.S. Bank report on small business management, 82% of business failures are the result of inability to understand and manage cash flow effectively.
It should be obvious, but keeping complete and accurate financial records for your business is an absolute requirement. Throw away that old #2 pencil. The easiest way to do this is through use of a proven small business accounting software program like QuickBooks®. Having accurate financial information allows you to have immediate access to income and expenses; determine if large expense items such as payroll are within reasonable ranges; know when accounts receivable are getting too old and tell which parts of the business are not profitable.
One of the best tools to modernize your record keeping is a Point of Sale (POS) System. The industry-leading Point of Sale Bundle from National Retail Solutions (nrsplus.com) comes with everything you need, from cash register and scanner hardware to state-of-the-art software, and unique integrations with Boss Revolution® and the BR Club™ store loyalty program.
A POS system such as POS+ records your sales with in-depth reports. POS+ even includes built-in and custom price books. Plus, when you need to pay taxes, you get an accurate summary of your profits and expenses.
The greatest benefit of a POS system is the ability to track inventory. With every item you sell, the inventory level is automatically adjusted. POS data can also give insights into what times of the month certain items are selling best, which specific items are making the most profit and which items are losing ground. According to a study by Intuit, a good POS system can lower expenses related to overstocked products, lost sales and inventory management by as much as 10% of gross annual sales.
Every business has a few “heady” items that can make up more than 70% of monthly expenses. For most retailers, this can include payroll, rent, inventory and insurance. Because a failure to properly manage any one of these non-negotiables can threaten the entire operation is essential each one is managed properly.
Once you have a detailed story of your business’s expenses, you’ll be much better equipped to plan for the ups and downs that are likely to arise in the future. Still, there’s no all-seeing eye in business. That’s why it’s advisable to keep 3-6 months worth of outgoings in the vault for a rainy day.
Another source of cash reserves is a business line of credit. Unlike traditional loans, a line of credit gives you more flexibility and can be used to fund hiring and purchasing or as a safety net when you face challenges like making payroll during a cash flow crisis. SCORE, the nation’s largest network of free, expert business mentors, advises applying while business is good, then borrow against it when you need the cash and pay it back when you don’t.
As you find that your business is doing well, and the scales are tipped in a positive direction, it’s always smart to invest part of those profits back into the business. You can set your business up for success by upgrading your computer systems and adding stronger security. You can also reinvest by educating yourself and your staff on the latest industry trends and marketing/sales strategies.
With a grasp of the ups and downs and ins and outs, you’ll be prepared for the long haul and can focus on growing your business.
