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Small Biz Adviser: Financial statements
key to solving cash flow woes
Dear Small Biz Adviser
I have had a small retail business for two years in a small town.
This year it should be able to meet all its fixed costs and COGS
(cost of goods sold). I have been putting personal money into the
business, and that has to stop. There is no more!
How long does it take really for me to draw
income? Customers tell me my store is great, and I know my product
mix is good. I feel my problem is volume. I do mixed advertising.
I own the building, and sometimes I just want to sell it! Is there
a rule of thumb? Am I expecting too much too soon? Because the town
is small there is no one for me to discuss this with and/or get
any feedback, ideas etc., so any help would be appreciated.
Thanks for listening,
Phyllis
Dear Phyllis:
You have a cash flow problem. And that leads immediately to my first
question. Do you elaborate monthly financial statements? If not,
do you have someone develop them for you? If not, you need to begin
doing so. In this particular case I would want to begin be examining
your monthly cash flow statement.
There are parts of the country where retailers
encounter seasonal sales. For example, certain locales experience
a dramatic increase in business due to what is called a tourist
season. In the north those tourist locations are especially busy
during the summer months when people from the southern United States
try to escape the heat. In the winter southern destinations encounter
their tourists trying to avoid the bitter cold, ice and snow of
winter. In the area where I reside the winter tourists invade Southeast
Florida from late October to the following April.
Another seasonal period is the time slot from
Thanksgiving to New Year. And that hits just about every retailer.
Some experience as much as 60 percent to 70 percent of annual sales
in that time slot.
A third, more localized seasonal period is one
in which local annual events occur.
Typically, you want to expand on inventory just
before those seasonal sales arrive. Once they have ended you look
to sell off the slower moving merchandise with discounts and clearance
sales. You keep your best product at regular prices.
Likewise, you want to begin considering new
items for the upcoming season during the "down" times.
Another document I would want to look at is
your income statement. What expenses do you incur, and when do you
incur them? Are they necessary? For example, are you advertising
heavily when sales are relatively slow, or do you wait until the
best sales months arrive to spend money on advertising? I have a
rule of thumb. Don't spend money unless you can create sales to
pay for that expense, plus generate a profit.
You say your clients praise you for your product
lines, but you don't sell enough to reach the desired level of profit.
Then consider two options:
- Are your prices too low? If you are located
in a smaller community that would suggest you have less competition
than similar retailers in larger communities.
- Are there other product lines you can introduce
into the store? You may be encountering market saturation for
your existing products. You can only sell so much merchandise
to so many people.
Finally, you may live in a community far from
big cities. But it would be worthwhile to locate the nearest Small
Business Development Center, SCORE
chapter or Women's Business Center. I would take the time to
travel to one or another of these locations to get some help. There
aren't that many Women's Business Centers in the United States.
But you should not have difficulty finding an SBDC or SCORE office
somewhere nearby.
In conclusion, try going back into your financial
records to reconstruct monthly financial performance in cash flow
and income statements. If you don't know how to do this, contract
the services of a qualified bookkeeper or accountant. An alternative
would be to purchase one of several software applications on the
market and begin developing your own books. Examine the statements
for trends in sales, trends in sales by product lines and whether
or not expenses are resulting in sales to cover the expense and
give back some profit. And definitely travel to a business assistance
center.
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