Cash flow is the lifeblood of indie stores and any other retail business. Understanding it is vital for business progress and sustainability. The right cash flow analysis is critical for every business owner – but it can also be one of your biggest challenges. In this blog post, you will learn what a cash flow analysis in indie retail looks like and share tips for managing your cash flow.

What is Cash Flow Analysis?

Cash flow is the amount of cash a business brings in or spends over a set period. Cash flow differs from profit because it involves the funds flowing in and out of your business. In contrast, profit is the money left over after deducting expenses and savings from total revenue. 

There are several areas of cash flow to analyze when performing a cash flow analysis. Operating, investing, and financing activities contribute to cash flow and must be considered in a comprehensive analysis. Proper cash flow analysis provides a good measure of your business’s financial health and the integrity of your leadership.

It’s important to accurately assess both your current cash flow and what you’ll have in the projected future. 

• Cash Flow Forecast: This lets you know what to expect regarding cash flow for the coming months, quarter, or year. You can make these predictions based on recent sales trends, pre-orders, and knowing your upcoming expenses. 
• Operating Cash Flow: This shows you a snapshot of how much money flows into and out of your business daily. It can also cover the available capital you have to pay expenses, invest in inventory, and pay your employees.

The Cash Flow Forecast illustration shows a positive Monthly Cash Flow for 9 of 12 months of the year.

By accumulating the monthly cash, month after month, the business accumulates enough cash to cover the months when the cash flow is negative.

In the Operational Cash Flow, we illustrate how money flows into and out of your business daily, the green section of the Operating Cash Flow shows that available cash goes negative several days during the month until it yields a positive cash flow at the end of the month. This is especially important for businesses that still need to meet their break-even point. 

CASH FLOW PROJECTION: Assuming the sales and inventory purchase goals are met, the client would have a net profit of 4,867. This suggests the business would have a positive cash flow at the end of the month. However, the OPERATIONAL CASH FLOW shows you the cash flow goes negative several times a month. The business must have a way to manage the dips in cash flow that occur on a day-to-day basis.

Knowing the store’s Breakeven Volume and adhering to a well-planned budget allow you to build up the cash reserves of the business. Getting the cash on hand to a point where it can withstand the ebb and flow of the cash flow is a significant accomplishment for the store owner.

The Importance of Regular Reviews and Updates

In the fast-paced retail world, reviewing your cash flow analysis is crucial. Consistent check-ins serve as an anchor protecting you from financial storms as you and your business progress. Updating your cash flow analysis can provide an early warning sign of potential issues, allowing you to adjust when needed. Your goal is to reach or surpass your breakeven volume, so that you never fall behind, allowing you to pull ahead continuously. Having clarity around where you stand, ensures that you feel equipped to manage whatever comes your way. 

See Trends More Quickly 

As you review your reports and analyses, positive and negative trends become apparent, allowing you to adjust your course swiftly. This vigilance ensures that sudden shifts in customer behavior, market changes, or unexpected expenses don’t catch you off guard. Having this added sense of security can help you relax into your role as a business leader and bolster your confidence in the direction your company is headed. 

Make Decisions Faster

Keeping a close watch on your cash flow fosters informed decision-making. There’s no need to guess in the dark about whether you can draw money to reinvest in your company or whether you should purchase more inventory. Being able to measure where you stand and where you’re going is the first step toward getting where you need to be. 

Move Forward With Confidence

Knowing your cash flow status gives you confidence when deciding whether to exercise caution in spending or seize an opportunity for expansion. You’re a small business owner. Whether it’s indie retail stores or a local chain, your ability to adapt is essential for success. Regularly analyzing your cash flow empowers you with the foresight and flexibility you need to navigate the changing currents of the industry. Having that dedicated connection with the pulse of your company helps you know when to seize the moment and when to sit back and wait until the time is right. 

Internal Uses of Cash Flow Analysis

Cash flow is a vital tool for decision-makers in retail management and ownership. Understanding internal cash flow will help you make better choices with confidence.  By examining the ups and downs of finances, you’ll perfectly understand how money moves through your business and what you can afford to spend. This analysis enables you to optimize your inventory management with more accurate restocking demands, thereby avoiding situations where you accumulate much or too little stock. 

Excessive surplus or inadequate supply can harm profitability – that’s why internal cash flow analysis helps with investment decisions. Whether you need to expand to new stores or embrace online trends, understanding how money moves through your business helps you allocate resources without second-guessing yourself.

External Uses of Cash Flow Analysis

In retail, cash flow analysis goes beyond internal operations and can also guide external stakeholders. Lenders, investors, and partners rely on this metric to assess a retailer’s health and business progress. When dealing with lenders, a positive cash flow outlook indicates your capability to meet obligations, strengthening credibility for loan approvals. Investors perceive a positive cash flow as evidence of strong management and sustainable growth positively influencing funding decisions.

Partnerships and collaborations thrive when supported by cash flow analysis. Retailers armed with insights can negotiate favorable terms and demonstrate their dependability as business allies. In retail, where collaboration is crucial, utilizing cash flow analysis for external purposes establishes trust, attracts support, and positions your business for greater success.

What to Do If Your Cash Flow Analysis Isn’t Positive

With a challenging financial forecast for your store, it’s time to take strategic action. Start by evaluating your cost structure and finding where to reduce expenses without impacting operations.  Ask Yourself:

Is the expense(s) reducing your cash flow an unexpected one-time expense such as in July the store’s air condition unit stopped working and the cost is $5,000 to replace? Or a reoccurring expense, for example, the store’s lease is up and in the new lease the rent increases 15% starting in 2 months?

Temporarily postpone non-essential spending to conserve resources and navigate through the difficulties is one approach to navigate the cash crunch.

Consider negotiating terms with your suppliers to alleviate some financial pressure. Explore options like extending payment terms or securing discounts that provide short-term relief. Welcoming creative approaches to inventory management can also help ease the strain. Other ideas include introducing limited-time promotions or loyalty programs. Explore multiple sales channels to stimulate cash flow. When necessary, exploring short-term financing options can also offer some breathing room during this phase.

What to Do if Your Cash Flow Analysis is Positive

When your cash flow analysis predicts a positive result, it’s crucial to seize the moment. Start by considering investments. Expanding your product range, enhancing the appearance of your store, or launching marketing campaigns can fuel growth. When you have a positive cash flow, it’s a great time to focus on reducing debt and investing for the future. You can do this by allocating funds to pay off loans or credit lines, which eases burdens and frees up resources for future endeavors. Establishing an emergency fund to safeguard against challenges and ensure long-term sustainability is also wise.

A positive cash flow analysis is a great time to leverage your cash flow and explore collaborations and partnerships. This can amplify brand exposure, diversify your offerings, and attract a more extensive customer base. It is also an optimal time to enhance customer service and foster loyalty. You can also allocate funds for employee training and invest in your retirement savings.

Cash Flow Management Tips

The first and most important tip for managing cash flow is constant monitoring. Knowing how much money is flowing in and out of your store on a daily basis will empower you to take action to further maximize your cash flow with these simple tips:

• Adjust inventory as needed.
• Lease equipment instead of purchasing equipment.
• Borrow money before you are in a bind.
• Reevaluate business operations.
• If your business relies on invoicing, send invoices immediately.

Mastering cash flow is vital for creating a successful financial plan for your retail business. Cash flow extends beyond income statements, balance sheets, and payroll. Analyzing cash flow properly offers a powerful perspective, allowing you to see and manage the ebb and flow of cash in your business. 

Additionally, proper cash flow management can strengthen your reputation, building integrity through financial accountability. Poor cash flow management can negatively impact your business operations and sustainability. 

So, how do you master cash flow management? Various components affect your cash flow analysis and management, including inflows, outflows, timing, and accuracy. 

Other significant aspects of mastering cash flow analysis include:

• Gathering accurate data.
• Creating a cash flow statement.
• Performing regular reviews and identifying patterns such as seasonal trends and peak sales periods.

Conclusion

Whether you’re new to the retail industry or a seasoned professional, the financial landscape can be challenging. That’s why another practical approach to cash flow analysis involves seeking professional advice from a dedicated, trusted advisor. Finding the right leadership strategist to help you navigate and understand cash flow and financial planning can significantly impact your business. I have that experience through my 14 years in the business.  

My goal is to help you weather a financial storm or optimize opportunities during times of positive cash flow to help your business emerge stronger after working together. My experience as a retail strategy consultant and mentor gives me a unique perspective on retail business and cash flow strategies in today’s ever-changing, competitive market. You need the clarity to be financially savvy and the right mindset to yield results. 

Get a 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 doesn’t 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, 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.

I am currently offering a complimentary inventory evaluation.  Click here to schedule to schedule a strategy call with me. There is no obligation to buy; only a chance to improve your business success so there is nothing to lose and everything to gain.

Thank you,

To your Improvement, Progress, and Growth!

Audrey