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The Ultimate Guide to Cash Flow Management for Small Retail Businesses in 2022

Good cash flow management for small Australian businesses in the retail sector is key to surviving and thriving in the constantly changing world of retail. Along with giving small business owners peace of mind, steady cash flow gives owners the confidence to focus on allocating resources to the most important parts of their business.

Fortunately, managing cash flow is not as overwhelming as it looks. Our advisors at Leading Edge Retail have put together this guide to help retailers run their businesses more effectively and become cash flow smart.

What is cash flow?

Cash flow, in simple terms, is the amount of money that goes in and out of your business. There are days when the business is cash flow positive, where the amount of money earned is more than what has been spent. The opposite is negative cash flow, or cash flow crunch, when business expenses exceed earnings and can lead to more serious business issues.

Why is managing cash flow important?

According to a recent study from Xero, 9 out of 10 small businesses globally experience negative cash flow at least once a year. However, in Australia, small businesses, on average, go through a cash flow crunch 4.2 months out of every year.

Though not always bad, a consistent negative cash flow every month is a sign of bigger problems and can eventually lead to business closure. In addition, when there isn’t enough cash on hand, there is an increased chance of missed debt repayments, unpaid wages and leases, depleted personal savings and stress.

What causes negative cash flow?

Keeping track of business cash flow is essential to avoid problems in day-to-day operations. But to do this, you need to understand the causes of a cash flow crunch.

Late payments from customers

The most common cause of a small retail business’s negative cash flow is delayed customer payments. When payments aren’t made on time, the business is forced to dip into cash reserves to pay for expenses. Luckily, for retailers, this isn’t usually an issue. Several payment options are available to customers, allowing them to pay in instalments while retailers still get paid in full and on time.

Incorrect pricing

Getting the pricing wrong significantly impacts a business’s profit margins. When deciding on product prices, a seasoned retailer will look at the product cost and add other expenses such as wages, merchant rates, rent, marketing fees, warehousing, shipping, power, packaging and more. You should also consider the possibility of dead stock, which means eventually having to sell the product at a much lower price.

Unplanned and increasing costs

The last two years haven’t been easy for retailers. Many are still recovering costs from damages caused by fires and floods, pandemics and supply chain disruption. Then, there’s inflation. Consumers worldwide feel the effect of rising prices on their wallets. From gas, petrol, rent and freight to everyday food, increasing expenses affect cash flow.

Growth and expansion

Remember when we mentioned earlier that not all negative cash flow is bad? Investing in business growth means higher expenses but may also provide higher future returns. For example, moving a retail store to an area with increased foot traffic may mean paying more rent but getting more sales which more than offsets the initial cost.

Tips for managing cash flow

Cash flow management is about tracking the money that comes in and out of business and meticulously planning and timing earnings and expenses. Below are our top three tips for retailers:

1. Review your expenses

Merchant rates, freight costs and insurance fees pile up monthly, so it’s good practice to review these expenses regularly. Calling all existing service providers to ask for discounts or shopping around for better rates can save a significant sum in the long term.

Leading Edge Retail offers exclusive Member benefits under the Elle Member Advantage club to save our members the hassle and time spent calling different suppliers. In addition, members access competitive discounts and cashback for popular small business services.

Members can save on EFTPOS rates with Commonwealth Bank, merchant rates on AfterPay, Zip, Latitude Pay and Humm 90, shipping fees with Your Freight Agent, insurance cover with nib, BUPA, and BizCover and more.

Members can reduce expenses up to $3,000 annually, enjoying family discounts on food, groceries, clothing, and gadgets.

2. Negotiate with suppliers

As a retailer, one of the biggest expenses is stock and maintaining a good relationship with suppliers is key to your business’ success. When a good rapport is built, you get access to new ranges and better prices and can negotiate for better credit terms, helping with cash flow.

Small retail businesses don’t always have access to the same benefits as big retailers. However, being part of a buying group and professional retail association which leverages the power of a collective of small retailers can give your business the edge.

At Leading Edge Retail, our Category Specialist Members have access to a range of global and local suppliers and distribution partners with competitive rates and payment terms that help them compete.

Leading Edge Retail also provides a central credit facility that consolidates suppliers’ invoices every month, which saves time and buys Members up to 60 days to pay. Members with large invoices also have the option to break them down into more manageable instalments with eXtend, powered by Procurement.

3. Don’t ignore your lease

With the recent pandemic and rent increases going up significantly, it’s important to know your lease and negotiate tenant-friendly lease terms.

Experts advise starting lease negotiations 18 to 24 months before a lease expires or the option to renew is up. This allows time to assess the market, see what’s available, learn what others are paying and, more importantly, will enable you to negotiate good terms with the landlord.

To help Members, we have partnered with LPC, the experts in helping small to medium retailers achieve tenant-friendly leasing arrangements that support their businesses and reduce occupancy costs. They can help with lease renewal negotiations, new premises searches and more.

Tools for managing cash flow

When it comes to managing cash flow, there are many paid software and free tools depending on budget and needs. Quickbooks, for example, is not only accounting software. It also has a cash flow functionality that helps track your cash position.

However, a simple spreadsheet can also work just as effectively. At Leading Edge Retail, we’ve developed a forecasting template made for retailers. It’s a tried and tested tool used by small retailers and has helped them keep on top of their cash flow.

Final thoughts & takeaway

Negative cash flow is one of the most common challenges for small businesses. Understanding what causes a cash flow crunch and identifying areas where significant changes can be made to your budget can spell the difference between surviving and thriving.


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