The Life of an Independent Retailer, the Stuff that Goes on Behind the Scenes.

As an independent retailer, there’s a lot that goes on behind the scenes that customers may not be aware of. Running a small business can be exciting and fulfilling, but it can also be challenging.

One of the biggest challenges is managing inventory. Unlike big-box stores, independent retailers don’t have the luxury of buying in bulk or partnering with manufacturers to get deep discounts. This means you have to use your resources carefully to curate their inventory to ensure they have a variety of products that will appeal to their target audience, without overstocking and tying up cash flow.

Managing cash flow is also a big concern for independent retailers. Unlike larger businesses, they may not have a steady stream of revenue coming in, so they have to be strategic about things like ordering inventory and paying bills. This can mean making tough decisions about which expenses to prioritize and when to reinvest profits back into the business.

Despite these challenges, independent retailers are often able to build strong relationships with their customers and the communities they serve. They may offer personalized services, unique products, or a more curated shopping experience than customers can find at larger stores.

All in all, running an independent retail business can be a rewarding but demanding experience. It takes a lot of hard work, creativity, passion, and perseverance to succeed in this competitive industry.

In this post, you’ll find the best financial tools and processes to help you measure and manage your improvement, progress, and growth.

Break-even Volume – How Do I Make Money in my Business?

Why do you, as an independent retailer need to know this, the break-even volume of your business? What is the importance of knowing this metric?

The break-even analysis is the process to get to the break-even volume. This tells when your business makes sense and when your business is making enough money to support itself.

The Small Business Administration definition:

“The break-even point is the point at which total cost and total revenue are equal, meaning there is no loss or gain for your small business. In other words, you’ve reached the level of production at which the costs of production equal the revenues for a product.”

This number changes as the business expands or contracts. It tells you the amount to need to sell to satisfy your current expense structure.

Knowing your break-even point can help you make informed decisions about pricing, expenses, and overall business strategy.

In this illustration, the break-even volume is $964,362 and the store will have generated this revenue by mid-September. So the revenue generated in October, November, and December.

Knowing Your Break-even Volume

During the pandemic, one of my pet supply/feed store clients shared that she was having difficulty keeping delivery drivers for the horse feed delivery business. During one of our meetings, she asked, “Audrey, if I have to shut down the delivery business, will I be able to keep the store open for the retail business?”

I took her breakeven spreadsheet and made two adjustments:

1. I reduced the revenue from the delivery business which was mid-six figures from the total revenue.
2. I reduced the horse feed purchases as she wouldn’t be buying inventory for this business.

The new Break-even Analysis showed us her retail business was profitable enough to support the current expense structure of the entire business. Having this information readily available empowered this indie retailer because it gave her options, and she could replace worry with certainty.

Cash Flow Analysis – Understanding the Ebb and Flow of the Business 

We take the 12-month projected revenue from the break-even analysis and lay it out over 12 months. This allows us to see the ebbs and flows of the business – the months when cash is plentiful and the lean months. The store will have reached the break-even volume revenue by mid-September.

One of the keys to retail success and your peace of mind is understanding the flow of the business and managing your cash wisely to accommodate the above-mentioned ebbs and flows.

In an independent retail business, one of the factors that affect cash flow is buying inventory. It’s critical for the store owner to have the right amount of inventory during peak selling times and not be overstocked during slow periods.

The Power Of Inventory

• • It’s the reason people come into your store
  • It’s the business’s largest asset
  • Knowing which parts of your offering are succeeding and knowing the places where you have slow-moving inventory that is tying up cash is critical to running a successful retail business.
  • Manicuring and fine-tuning your assortment is KEY.

Open To Buy – What is it and Why Should I Do It?

As an independent retailer, purchasing inventory will be your largest investment of cash. To put yourself in the best possible position to get the best ROI, return on investment is implementing Open To Buy Planning. 

OPEN TO BUY is a retailing concept and tool for retailers to invest their inventory dollars wisely, having the right amount of inventory during peak selling times and lower inventory levels during slow selling months. So they have more money in the bank instead of on the shelves. 

The process, when done well, allows a retailer to understand where their profitability, their cash on hand will be at the end of a month, a season, or a year.

WHY do stores do Open To Buy Planning? They do it because:

It is a CASH FLOW PLAN
It helps increase sales
It helps to reduce markdowns, and the need to put things on sale to get rid of them.
It helps to reduce inventory.
It helps keep the store fresh.

Most importantly, doing an open-to-buy plan answers the question – how much should I buy?

Open To Buy – What is it and Why Should I Do It? A Real Life Example

A few years ago,  the owner of a women’s boutique hired me to fix her problem. Once all of her sales, receiving, and inventory information was uploaded into our system and we began crunching her numbers, we discovered the business owner was not buying enough inventory to meet the customer demand.

During our first meeting, the business owner saw the impact of her current strategy; she wasn’t giving her business what it needed to thrive. She immediately started buying inventory using our open-to-buy plan recommendations; we like to call it “feeding the right classes”. Within the first few months, the business began posting double-digit increases over the same time the previous year.

Why should you do open-to-buy planning? To get an objective view and analysis of your inventory performance. In this case, having outside eyes with knowledge of the market, empowered the retailer to make decisions that have a huge positive impact.

Open-To-Buy – What Do I Need?

Merchandise categories are important for several reasons.

Firstly, they help retailers organize their inventory, their products in a logical and easy-to-navigate way. Using merchandise categories is where you begin to leverage the power of the inventory.

By grouping items into categories like clothing, electronics, home goods, etc., customers can quickly find what they’re looking for and browse related products they may be interested in purchasing.

Secondly, categories can help retailers analyze sales data and track inventory levels. By categorizing products, retailers can see which categories are selling well and which ones may need more attention or marketing efforts. This can help them make informed decisions about things like ordering inventory and planning promotions.

Overall, the benefits of using categories are essential for effective retail management and can help retailers improve their sales, customer experience, and overall business success.

Required Information

Once you have the structure of your merchandise categories, here is the fundamental information you will need to measure, so you, the retailer, can manage the effectiveness of your buying decisions.

Open-To-Buy – How it Works

This is a very rudimentary illustration of the open-to-buy process, but it illustrates the required discipline to be successful and invest your inventory dollars wisely.

OPEN TO BUY DEFINITION

FORECAST + INVENTORY PLAN = OPEN TO BUY

Planning your sales and your inventory levels is how you make money in retail. OPEN TO BUY is how you monitor it.

Forecasting sales is the first step in Cash Flow Planning. As an independent retailer, you need to get a plan for your sales that is achievable and viable for the business.

How much inventory do I need to achieve my sales goals? Since inventory is the thing you will invest the most resources in, it’s important to be discerning in the amounts you budget per category in the coming month(s).

The amount you need to invest for the coming month or season will be your open to buy for this time period.

The Resources You Need

You’re keeping an eye on the future success of your business when you:

Calculate the Break-even Volume the store needs to achieve to be solvent. Then take action to address any shortfall, for example, the sales volume needs to be increased, so work on your marketing program. Or, you discover your expenses are too high and you develop a plan to reduce them.

Develop a 12-month Cash Flow so you’re aware of the peaks and valleys in the available cash on hand, so you can navigate these times.

Gain an understanding of how each merchandise category contributes to the profitability of the store.

Create and follow a budget for merchandise purchases that is founded on facts, and invests inventory dollars into each category based on customer demand, or sales volume.

As you determine the investment for each category by month by month, you are creating certainty and clarity that as an independent retailer, you’re in the best possible position to be successful.

You’re keeping an eye on the future because through planning you are staking a claim as to WHAT your future will look like and HOW you will create it via the business’s largest asset, its inventory.

Open To Buy – Do I Need It? Free Inventory Evaluation

Whether your business has been open for one year or ten years, the savvy indie retailer is always looking for ways to improve, make progress, and grow their business. 

It does not matter where you are in your journey of entrepreneurship if all of this is new to you and you would like to have an objective Inventory Evaluation to:

• • Have outside eyes to see the potential in the business.
  • Determine if there are any obstacles to manifesting that potential, or any red flags that require immediate attention, or what additional resources may be needed to help the owner build the value they desire. 
  • Having outside eyes confirms the right steps are being taken.

Click here to schedule a strategy call with me. 

All the best,

Audrey