Retail Businesses Need a Proactive Action Plan

retail cash flowI heard a joke the other day, it goes like this: Do you know how to make a small fortune in the retail business? Start with a large one! I know, it’s a real knee-slapper, right? The only problem with this joke is that if it wasn’t so shockingly true in all too many cases, it just might be funny.

How many retailers do you know where this scenario applies? Perhaps you are even one of them. If so, ask yourself the following questions:

  • How did you get into this position?
  • Why are you content staying in the situation?
  • What steps might you be able to take to change your situation?

I know of retailers that are in this difficult state and aren’t even aware of it.  They have become so comfortable with their complacency that they don’t even realize that there is a more prosperous way to live. How do you know true success if you have never experienced it, especially if you spend the majority of your day to day life dealing with negatives?

Reactive versus Proactive

I recently came across a situation where a retailer had gotten into a negative cash position. The majority of his time and energy was spent appeasing, coaxing, threatening, pleading, and negotiating with vendors to take token payments on past due invoices.  His hope was that his vendors might grant mercy in the form of some nominal credit extension that would allow him to land at least some new merchandise, the lifeblood of all retailers. It is clearly a short term “solution” to a long term problem.

To be fair, I am not suggesting for a moment that there aren’t times for most retailers where cash flow is stronger than other times.  Cash flow is a routine business concern.  In the previous situation, any available cash reserves had been drained through a combination of poor merchandising decisions and even worse financial control. Generated cash paid maxed-out credit cards, and the line of credit that the bank wanted to reduce was being hindered by a costly store build-out, an unrealistic lease, and shrinking margins due to aggressive promoting.  Declining sales, due to lack of fresh product, led to delayed deliveries caused by slow payments to vendors.  The result, was an inventory that was out of balance.  The sales decrease forced the operating expense percentages to rise by default.  Without intervention of some sort, this downward spiral will most likely continue until everything crashes.

The questions become: Who needs the stress?  Is the business really worth all of this? You need someone to talk to, but whom?  Look around at the possibilities. The vendors want you to pay what you already owe so they can ship you more, so they’re out.  Your accountant is constantly reminding you of your dire position, but doesn’t have the answers you need to solve the problem. Your spouse is weary of hearing about the store’s problems and just wants you to do something, anything. You can’t go to the employees with this, so you keep the happy face on trying to stay positive.  Hey what about the banker?  Forget it! He’ll talk to you about money when you don’t need it.  And you certainly can’t approach him with the current financials, because he might get freaked out and call your loan if you don’t produce more collateral, which you obviously don’t have. You’re putting in too many hours, not sleeping well, and becoming short with your friends and relatives.

There are solutions available.

One of the many benefits of belonging to an industry association, franchise, or buying group, is that they have places to refer you should you find yourself dealing with “issues” from time to time.  When seeking out a business consultant, mentor, or industry expert do your homework.  You will be spending some money to get the help you need so make sure you are getting a qualified person to help.  Look for an advisor who has industry experience, thoroughly understands your situation and can provide you with a concrete action plan that is realistic to you. Don’t be afraid to ask for references and follow through on contacting them.

Do you know how to make a large fortune in the retail business? …Start with a small one and don’t be afraid to reach out for a second opinion if you think things could be better.  There just might be a brighter future than you think.


Ritchie Sayner is VP of Business Development at RMSA Retail Solutions. Follow him on Facebook at https://www.facebook.com/RitchieSayner  or email at rsayner@rmsa.com

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