Managing finances is a fundamental element of running a successful business, but most retailers don’t focus enough of their attention on this area. Kevin Bannister FCCA from The Accurate Accountant offers some practical advice on how to avoid some of the most common mistakes retailers make when monitoring their financial health…
Kitchen, bathroom, and bedroom retailers face numerous financial challenges as they strive to grow their businesses. Over the next few months with kbbreview, I will take you through some of the key elements to financial success as a retailer.
I thought it would be best to start with some of the common mistakes retailers make with their finances and how they can negatively impact your bottom line and provide some advice on how to avoid them.
Let’s being with one of the most common financial mistakes made by retailers and it’s a very basic one – keeping accurate financial records. As a retailer, it is essential to maintain accurate records to ensure the long-term success of your business. Inaccurate financial records can lead to a number of issues that can negatively impact your business, such as missing opportunities for growth, legal penalties and even business failure.
Significant risks
One of the most significant risks is that you can’t obtain an accurate picture of your business’s financial health. Without accurate financial records, you cannot track your cash flow, expenses or your profits effectively. As a result, you may not be aware of how much money you have coming in and going out, which could lead to poor financial decisions.
As an example, you may overspend on inventory or hire more staff than you can afford, resulting in cash flow problems that can impact your ability to pay bills and suppliers on time. This can harm your relationships with suppliers and customers, leading to reputation damage and lost sales.
To avoid this, you must reconcile your bank and credit card statements regularly, track inventory accurately, and keep financial statements up to date.
Poor cash flow management is another common mistake that retailers often make and just as with poor record keeping, it can lead to missed opportunities for growth, late payment fees and even the collapse of the business.
As a retailer, it’s crucial to manage your cash flow effectively to ensure that you have enough money to pay bills and suppliers on time, purchase inventory, and invest in the growth of your business. Poor cash flow management can result in a lack of cash on hand, which can in turn lead to difficulties in meeting your financial obligations.
One of the most significant risks is that you may miss opportunities for growth. If you don’t have enough money to invest in new inventory or expand your business to new locations, you may miss opportunities to increase your revenue and profits, which can harm your long-term success.
Late payment fees
Another risk of poor cash flow management is that you may face late payment fees or even legal action from suppliers or creditors. Late payment fees can add up quickly and impact your bottom line, while legal action can harm your businesses reputation and lead to lost sales.
To avoid these issues, it’s essential to manage your cash flow effectively. You should track your cash flow regularly and develop a cash flow forecast to anticipate future cash needs.
Another common mistake is that some retailers simply don’t understand how much it costs to run a business. This mistake can lead to several issues that can adversely affect your business, such as financial losses and an inability to compete effectively.
As a retailer, it is crucial to understand the costs of doing business to ensure that you price your products and services accurately and competitively.
One of the most significant risks of not understanding the costs of doing business is that you may experience financial losses. As an example, if you don’t factor in all associated costs – such as the cost of goods sold, overhead costs, and labour costs – when pricing your products or services you run the risk of pricing errors that could lead to losses and make it difficult to maintain a profitable business.
To understand what it actually costs you to do business, you must keep track of all of your associated expenses, including the cost of goods sold, overhead costs, and labour costs. This comes back to accurate financial record keeping that we touched on earlier.
Another very common issue with retailers is a failure to track how well they’re doing. It is crucial to monitor key performance indicators (KPIs) to gain a clear understanding of your business’s financial health and performance. Failing to do so can result in missed opportunities for improvement and an inability to identify and address financial issues before they become major problems.
As an example, you may not notice a decline in profitability until it’s too late to take corrective action, such as reducing expenses or increasing sales.
You should identify the KPIs that are most the important to your business, such as revenue growth, profit margins and inventory turnover, and make sure that you track them accurately over time.