Riding the Cash Flow Tides

More than ever before we see the drain on cash flow as the most significant on business owners. It is no doubt hard to stay positive and motivated when cash flow fluctuates. The dip in the economy that began two years ago has caused owners to reevaluate their business both for the long-term and the short-term with a more prudent eye.

Are you worried about being able to pay back your bank loan or paying your vendors in the agreed upon time? Or are you concerned about what your cash position will be this time next year?

We have found that poor cash flow impedes good decision making, especially when there is not a monthly financial plan in place. According to the SBA , "Research indicates that poor planning is responsible for most business failures." Owners are more likely to make decisions based on what they can afford today, rather than what is to the long-term benefit of the business. Even worse is creating commitments to spend dollars that you hope to have at a later date. Having a monthly cash flow plan that is regularly updated will provide the confidence to make astute financial decisions for the long-term health of the business.

A major component of the operation of a store is having a cash flow that truly flows. Look at the lines that travel into and out of that reservoir we call finances. If you were to consider your cash flow as a body of water that over time you would like to increase and see the level rise, then you must consider what is flowing in and out. With each ebb and flow there is a change in that water level. Expect high and low tides, but avoid an under tow whenever possible.

What causes the water (cash flow) level to rise? Positive inputs to your cash flow. Positive inputs can be accomplished through increasing sales, lowering overhead, excellent inventory management, reducing debt load, and effective advertising which creates increased sales.

Conversely, the water level drops when there is a pull on any of the following: Decreased sales, excessive overhead, merchandise buying without a detailed plan, slow turn rate, not fully recouping the replacement cost of merchandise, high interest rates on loans, and ineffective advertising.

Another consideration is who your customer is today. The mix of customers coming in the store and their education may be different from the customer you had several years ago. Although you want to stay true to yourself you must move along with your customer. As the customer demographic changes, so must your business. As the economy has shifted and Baby Boomers have pulled back on their spending on luxury goods as a response to their retirement savings depletion in the market. Customer groups you should be targeting to fill your customer lines with include the bridal customer, generation Y customer who communicates differently, gets their information differently, shops differently and receives advertising far differently than the Baby Boomers. You must adjust not only your merchandise mix but your advertising reach and methods as well, in order to o be successful in the years ahead.

Good cash flow is the key to keeping your head above water and filling the reservoir to a level you feel comfortable dipping into. Over the next several months we will dive into each of these, and address key areas you may want to examine more closely to begin pushing that cash flow upward to a higher level. Ultimately it's up to you whether you sink or swim.