June 22, 2021

TDmonthly Magazine

January 2011 | Vol. X - No. 1

Keep Cash Flowing Freely

Plan Ahead to Avoid Dangerous Blockage

By Claudia Newcorn
January 2011

Poorly managed cash flow and inventory can suck a store under, especially when business slumps.

Why Cash Is King

Cash flow - the amount of money going into and out of a business - can be calculated for any given period of time. Cash flow is normally calculated on both an annual and a monthly basis.

"Most failed businesses - up to 60 percent - say that all or most of their failure was due to cash flow problems," warns Rosemary Peavler, a financial consultant and business finance guide. "Nothing matters more than cash. Making a profit is nice; cash flow is necessary. Cash management is the key to business success."

Agrees Susan Ward, co-owner of Cypress Technologies and small business guide, "Cash flow is truly the lifeblood of any small business. When tight credit starts choking your cash flow, it's important that you act right away to remove the blockage and get your business' cash flow flowing again."

Bob Phibbs, author of "The Retail Doctor's Guide to Growing Your Business," points out that "it is important to understand cash flow in any business, but particularly toy businesses, because they often put on storewide sales (that) damage profitability. That often happens because they forget all their money is sitting on the sales floor."

Earl Morris, senior consultant at the Stanislaus County Alliance Small Business Development Center, advises that part of cash-flow management includes looking ahead and planning for changes. "Do you have a line of credit to operate month-to-month? If so, and (if) you use it, do you have sufficient business volume to repay draws on a monthly basis? Are major capital investments planned for and budgeted, or is the business in a position to take on loans for such and still be profitable?" Part of cash-flow management, he notes, is not simply reacting, but being proactive and managing revenue to help achieve long-term goals for the business.

Kurt Clark, director of the Stanislaus County Alliance Small Business Development Center, who works regularly with small- to medium-sized businesses, counsels companies to have a simple but effective record keeping and financial reporting system in place.
"[Toy businesses] often put on storewide sales, which damage profitability." — Bob Phibbs, the Retail Doctor
He also suggests, "Proper cash-flow management is the single most important business management consideration once a business is generating a sustainable revenue stream. Develop a proactive relationship with a CPA who can train the business owner on how to manage cash flow and make appropriate financial decisions in the business."

Preparing monthly cash budgets can help retailers keep track of their funds. Peavler advises that these should be done in advance to project cash needs. "The cash budget will capture the timing difference between the profit you see on the income statement and the cash that is actually coming into and flowing out of the firm." She notes that the purpose of such budgets is not to set targets for cash, but to anticipate needs. "If you prepare cash budgets six to 12 months in advance and your needs change, then change your cash budgets. Keep them up to date because the cost of running low on cash in a business is high." An accounting software program can help store owners track cash flow. Fred Rosenberg, owner of On The Park toy store in Kingwood, Texas, recommends Retail Pro as a point-of-sale system and QuickBooks 2010 for backroom activities. "Keep on top of cash flow daily. I plan out cash flow in four time periods: yearly, monthly, weekly and daily. I make adjustments to the plans by changing my cash requirements due to current sales and spending activities."

Smart Ways to Improve Cash Flow

There are a variety of ways retailers can improve cash-flow management. Ward suggests taking the following steps.

Peavler adds the following pointers:

Other contributors to this article may have included: Julie Adrian • Michaele Birney Arneson • Leigh Au • Christina Chan • Julia Ann Charpentier • Elizabeth Chretien • Virginia Davis • Laurel DiGangi • Zan Dubin Scott • Lisa Durante • Cicely Enright • Margaret H. Evans • Doug Fleener • Diane Franklin • Janie Franz • Dennis Foley • Dennis Furlan • Rosette Gonzalez • Elizabeth Greenspan • Mort Haaz • Sharri Hefner • Terri Hughes-Lazzell • Kyle Hall • Pennie Hoover • Sheri Jobe • Julie L. Jones • Candyce Kornblum • Christine Lebednik • Susan Ledford • Chris Lundy • Susan Maddela • Hans C. Masing • J.D. Meisner • Adeena Mignogna • Catherine Jo Morgan • Claudia Newcorn • Willow Polson • Marie Raven • Kara Revel • Andrew Robinton • Greg Rock • Brenda Ruggiero • Tamara Schuit • Brent Turner • Vanessa VanderZanden • Jodi M. Webb • Stacy Wiebe• Mark Zaslove • Alex Zelikovsky

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