This was a tough winter for those of us in the specialty ski and outdoor business. The lack of snow and cold weather in December was hard. December is a critical month for most businesses. In the specialty ski and snowboard business it is essential. Lack of snow during the month equates to a drop in sales. No snow during the holiday break means a further drop in sales as well as a drop in participation. It is hard to make up those sales in the following months.

Another issue is that most retailers have is that they received all their winter merchandise by December and are committed to paying for it. You can’t send it back to your vendors; you have to deal with it.

One of the first ways to deal with this is to go over your cash flow management plan. If you planned out your year and have updated the expenses you will know how much money you are going to need to cover the expenses and inventory purchases.

Once that is done, it is time to start planning action steps. Immediately review expenses, labor costs, and merchandise purchases to find places where you can cut back or eliminate costs.

In the expenses department in might include revamping your advertising costs, addressing phone use, cutting unnecessary purchases or lowering utility use. Talk things over with your staff and see what ideas they may have to immediately reduce costs.

Labor expense is a typical place most businesses start cutting back. This might be appropriate if you are over staffed. However, it can produce the opposite of cutting costs. If your business depends on your sales people to take care of the customer and make sales then it can be important to keep those people. Particularly if you have a number of experienced and trained sales people. Ask them what opportunities they see that could help boost sales.

Adjust your staff scheduling during this time and have your best sales people working the busy times. Send some people home early on slow evenings especially those people who are not as strong in sales.

Something else to address is inventory purchases and accounts payable. Talking to credit managers and trying to get some extra time to pay for the products you already have can help manage cash flow over the short term. Look at your on orders and cut out any reorders, back orders or late deliveries then examine the next season’s orders and see what you might not need.

So, now you’ve trimmed expenses, what next?

The most obvious is increase sales. Many businesses will choose to run a sale or drop their retail price to entice customers to buy. This immediately reduces your margin on those products. Since the gross margin dollars are what we live on this type of action might increase sales but lower income. It could make the situation more difficult. However, it could also drive some sales so there is a balance there.

Perhaps there are some other ways you might increase sales without putting all your products on sale. This is the type of discussion to have with your sales staff. In one of our discussion the staff came up with giving the customer a pair of ski poles when they purchased a pair of skis and bindings. This was a low cost way of increasing the value of the purchase for the customer and resulted in closing a number of sales that might not have happened.

Selective markdowns are another way of dealing with low sales. Here are a few ideas to think about.  Markdown your ski jackets by a small percentage but not your hats or gloves. Do outfit prices like “buy this jacket and pant and get 25% off the hat and gloves”. “Purchase a new pair of ski boots and get a one free day demo of this year’s performance ski of your choice” is another way to drive some sales.

The biggest opportunity that you have is with the customers coming in your door. Try to find out what might entice them to purchase an additional item. I’m sure that you can find many ways to do that.

At the beginning of each year we create a new cash flow plan. It has our sales budgets for each month by the week along with all of our expenses plus our inventory purchases. This is our starting place. We now have a preliminary plan for sales, expenses and cash flow for the coming year.

Looking at our cash flow plan for last year it quickly became clear that our expense plan was very close to what we had planned for. There were a few bumps or unexpected expenses and some increases but for the most part the expenses were what we planned for.

Labor costs changed over the year as a number of our long term staff members found other jobs or moved. This created unexpected changes in our labor cost plan. The cash flow plan had to get adjusted to meet the changes.

But the thing that affects cash flow the most is sales. Meeting or surpassing the sales goals keeps the cash flowing through the business. But, a drop in sales will lessen the cash available to the business.

We experienced both surpassing the sales goals and a drop in sales. Having a cash flow plan enabled us to be projecting where our cash needs would be in the short term, like 10 days to the longer term like the next quarter. We knew when we had cash on hand what we needed and where to use the cash to diminish the know shortfalls.

The unexpected drop in sales presents a more difficult time. Because you don’t know on the front side whether this is a short term drop or a longer one the cash flow plan becomes even more valuable. We reviewed the plan more frequently to assess our needs and create actions to make the most of our opportunities. Knowing what we needed in cash allowed us to shift our attention to our sales to attempt to hit those cash goals.

So the cash flow management tools gave us solid information on the current state of our cash availability and enabled us to meet difficult times with more information. This helped us in our planning and our actions to be focused on what we needed.

The tools aren’t going to tell you if your sales are going to drop suddenly but you will know where you stand in terms of cash flow and cash needs.

I hope you all have a wonderful and prosperous new year.
he thing about cash flow is that it is dynamic. It is the life blood of a retail business. Even using the best tools you can’t predict tomorrow. So as the year turns over and another starts it is nice to look back and see where cash flow management tools worked and where they can’t.

At the beginning of each year we create a new cash flow plan. It has our sales budgets for each month by the week along with all of our expenses plus our inventory purchases. This is our starting place. We now have a preliminary plan for sales, expenses and cash flow for the coming year.

Looking at our cash flow plan for last year it quickly became clear that our expense plan was very close to what we had planned for. There were a few bumps or unexpected expenses and some increases but for the most part the expenses were what we planned for.

Labor costs changed over the year as a number of our long term staff members found other jobs or moved. This created unexpected changes in our labor cost plan. The cash flow plan had to get adjusted to meet the changes.

But the thing that affects cash flow the most is sales. Meeting or surpassing the sales goals keeps the cash flowing through the business. But, a drop in sales will lessen the cash available to the business.

We experienced both surpassing the sales goals and a drop in sales. Having a cash flow plan enabled us to be projecting where our cash needs would be in the short term, like 10 days to the longer term like the next quarter. We knew when we had cash on hand what we needed and where to use the cash to diminish the know shortfalls.

The unexpected drop in sales presents a more difficult time. Because you don’t know on the front side whether this is a short term drop or a longer one the cash flow plan becomes even more valuable. We reviewed the plan more frequently to assess our needs and create actions to make the most of our opportunities. Knowing what we needed in cash allowed us to shift our attention to our sales to attempt to hit those cash goals.

So the cash flow management tools gave us solid information on the current state of our cash availability and enabled us to meet difficult times with more information. This helped us in our planning and our actions to be focused on what we needed.

The tools aren’t going to tell you if your sales are going to drop suddenly but you will know where you stand in terms of cash flow and cash needs.

I hope you all have a wonderful and prosperous new year.
The thing about cash flow is that it is dynamic. It is the life blood of a retail business. Even using the best tools you can’t predict tomorrow. So as the year turns over and another starts it is nice to look back and see where cash flow management tools worked and where they can’t.

At the beginning of each year we create a new cash flow plan. It has our sales budgets for each month by the week along with all of our expenses plus our inventory purchases. This is our starting place. We now have a preliminary plan for sales, expenses and cash flow for the coming year.

Looking at our cash flow plan for last year it quickly became clear that our expense plan was very close to what we had planned for. There were a few bumps or unexpected expenses and some increases but for the most part the expenses were what we planned for.

Labor costs changed over the year as a number of our long term staff members found other jobs or moved. This created unexpected changes in our labor cost plan. The cash flow plan had to get adjusted to meet the changes.

But the thing that affects cash flow the most is sales. Meeting or surpassing the sales goals keeps the cash flowing through the business. But, a drop in sales will lessen the cash available to the business.

We experienced both surpassing the sales goals and a drop in sales. Having a cash flow plan enabled us to be projecting where our cash needs would be in the short term, like 10 days to the longer term like the next quarter. We knew when we had cash on hand what we needed and where to use the cash to diminish the know shortfalls.

The unexpected drop in sales presents a more difficult time. Because you don’t know on the front side whether this is a short term drop or a longer one the cash flow plan becomes even more valuable. We reviewed the plan more frequently to assess our needs and create actions to make the most of our opportunities. Knowing what we needed in cash allowed us to shift our attention to our sales to attempt to hit those cash goals.

So the cash flow management tools gave us solid information on the current state of our cash availability and enabled us to meet difficult times with more information. This helped us in our planning and our actions to be focused on what we needed.

The tools aren’t going to tell you if your sales are going to drop suddenly but you will know where you stand in terms of cash flow and cash needs.

I hope you all have a wonderful and prosperous new year.

Let’s say you have a number of buyers working for you. They each have one or more departments to buy for and may be buying products from the same vendor. Perhaps there are products that could go into several different departments and those are handled by different buyers. Maybe their departments border each other or are cross merchandised. How do you allow them the freedom to make their buys, merchandise the goods and do it in a manner that serves the business, respects each person and makes sense to the customer?

Maybe a top down sort of command structure would work. Not my style, but, if you have a clear delineation of expectations, results, and procedures then the buyers would know exactly where their responsibilities lie and how to do the job.

But, what of the flare and excitement, does top down management work? Will the spice and feel of a department be diminished if the buyer has to answer to management over each variation from the standard expectations?

In the small business there is not always room for each buyer to have complete control over their departments both in buying and in merchandising those departments in the store. How can you mix the needs of the business with the some freedom for the buyer to create the department in the manner that they think will sell the best?

Now the question is being formed more fully. It is important that the buyers for a small business respect what the business is about and what the business needs are. It is also important for the buyer to know what the customer expects from the business and what they want to find in your business.  And it is important that the buyer put together a department that works, products that make sense together, a story that is easy to tell to the rest of the staff and to the customer.

If your buyers are fairly good they will have pride about their department and will want some territorial control over that department. Sometimes you have someone who begins to build an empire out of their department. They may feel that they are entitled to more floor space, complete control over their floor space and merchandising and resist a review of how the department contributes in comparison to other departments. How can you keep a store wide perspective happening with this buyer and respect what they are bringing to the table?

I think these are some of the tough questions that a small business owner has to face. There are so many different hats for the small business owner or manager to where that it is important to delegate some of the work. It is important to develop a level of communication that can address issues as well as possibilities. You can not let your buyers play Risk with your business. The communication has to be clear. Not that there are any right answers, just clear communication.

Like those daily deal websites. They want to offer your products at a substantial discount to the customer, who buys the deal on the website. The website wants to split the proceeds equally but we have to pay for the transaction fees. Let’s say that the deal is the customer can buy $50 worth of merchandise from your store for $25.00. The website promotes the deal and gets ½ the proceeds, meaning that they would get $12.50 for every deal coupon that they sell and you get the same, except you pay all the credit card transaction fees. Those, of course, are running about 3.5 to 5%. How much of an increase do you have to have to cover the cost or break even with this promotion? Could you run a similar promotion and keep more of the money? Are you gaining any new customers from that promotion?  How many new customers will it take to make up for the cost?

So, if your average margin on merchandise is 50% then when the customer uses the deal coupon on a $50.00 item then they are getting it for cost. You make no money on the transaction. In fact, you only got $12.50 minus the transaction fee and that doesn’t cover the cost of the item. The coupon sale cost you $37.50 in lost margin dollars and part of the wholesale of the item. We have used a breakeven figure of $8.50 as a multiplier to figure what we had to sell to make up for stolen items or tools or some other cost that doesn’t add directly to sales. $37.50 times $8.50 is $318.75, that is the amount you would have to have in additional sales just too breakeven on the cost of the “deal” coupon.

Let’s say that the customer uses the coupon on a number items and the total is $200.00. Now you receive $150.00 and a $50.00 coupon as your income. At a 50% margin the cost of the items would be $100. In this transaction the coupon sale still cost you $37.50, the $25.00 the customer got and the $12.50 the website got, but you covered the cost of the items and made $12.50 in margin dollars. Multiplying 37.5 by 8.50 you still get $318.75, however, subtract the $12.5 from this and you get $306.25. You would need to sell another $306.25 to break even on the coupon.

Is there a good reason to consider such a deal? Would you get enough exposure to justify the cost? Maybe consider it an advertising cost?

I don’t know maybe there is some value there. I think you can create a “coupon” deal within your own organization that offers the customer a nice deal and keeps much more money in your pocket. Consider a “10% or 20% of your purchase” back that can be used towards another item. If you sold $100 worth of items and gave back $20 to be used against another item. If they then buy another $50 and used the coupon you would net $30 on the sale. If you multiply $20 by $8.5 you get $170. You still have to add sales to breakeven but it is much less and all the money comes to you, plus it encourages additional sales.

Just something to think about, those margin dollars are hard to get and it can be very easy to give them away.  How do deal with this?

These are just some of the questions that you can ask your self or your buyers when you are starting to layout a preseason plan.

Start with generating reports that tell you what you sold during the season. If you can add to that report what you received over the season and what you have left, you will have a good historical account of your merchandise items.

Of course, a sales plan or sales budget for the department will be a good start for creating an inventory plan. You can check out the Open-to-Buy posts to get a good idea on how to create the sales and inventory plan.

Going to a buying show, meeting with your reps, getting catalogs for the new season or checking websites will give you a lot of information on what is new and generating some buzz.

Taking a little time to review and think about your local economy and where it is going helps in the planning, too.

Now you have a lot of information to put your plan together.

From here it is getting into the real details of buying. Picking out the products, the colors, sizes, building the selection your customers are going to see next season. This is the hard work. What items are going to be the fast sellers? Where are you going to get the best margins? What price points are important to have? Do you have something for the beginner, intermediate and for the expert user? Can you reorder the best sellers or do you have to stock more to meet the sales?

What about the bottom line? Can you get the discount and terms that help your cash flow?  If not, can you reorder often enough to meet the demand?

It’s a challenge. How do you do it?

Trade shows can offer opportunities but they are costly and you are out of the store for the show.  So, it is important to examine what you plan on accomplishing at each of the trade shows and what the costs are going to be. Trade show costs can include: labor costs for attending staff and for covering the store, travel, meals, entrance fees, association fees, and sometimes entertainment costs. A show needs to produce something for the business to cover those costs. For some businesses it can be finding a new product to sell, others may use the show as a research tool to see where their industry is going and still others may use it as their primary buying show and get all the buying done.

Knowing what the trade show is focused on will help in deciding whether to attend or not. Early shows or showings that are in front of the main show season will often have early buy discounts or other incentives to place your orders early. Making some of your buys or even most of your buys at these shows can net some extra payment discounts or longer payment terms. Working with the vendors or manufacturers that you are currently doing business with at these shows can strengthen you purchases. You will already know how well that vendor is doing for you and any extra discount means more money in your pocket.

Going to the main shows or national shows is going to give you a good overall view of who is in your industry and what they are offering. This can really help with the big picture planning for your business. Time spent at these shows should also include time to check out any new products. Often at the national trade shows companies bring their primary officers, so you can meet the sales managers, credit managers, and others. This gives you an opportunity to strengthen your relationship and puts a face to the people you may speak with on the phone or by email.

If you have local sales reps that can bring their lines to your store, then you may want to have them do that and not see them at the trade show. You will have a less stressful time seeing the line at the store and it saves an hour or more that you can use at the trade show to hunt down those cool new products.

Sometimes there are trade shows at the end of the buying cycle. If your buying is nearly complete and you have seen all your major vendors, these shows may not be important. However, if you have purchased all the major items, the later shows can give you a chance to accessories those items and bring in things that complement them.

It may take going to the different shows to know how important they are to you. You may find that there are some that you will go to every year or every time they are offered and others that you may only go to every other year. Shows also change around, go to a new city, expand the categories of businesses showing, and sometimes they go away.  Over time you’ll find the shows that really work for you and they will become part of your business tool set.

Let me know how you work your shows.

So, what’s the difference between a good vendor relationship and a strategic alliance?

From the retailing perspective a good vendor relationship will encompass open communication between us and their customer service reps, credit managers, sales managers, sales reps and marketing departments. Generally the vendor will produce a product or a series of products that sell well, do what they are built to do, are built with quality and the vendor backs them up with a warranty.

A strategic alliance goes beyond those qualities. Often the vendors you want to build an alliance with will be ones that carry brand strength and awareness with the customers. Their products will often be market leaders, they will have built a strong niche or maybe are the standard bearers in their industry.  Having their products on your shelves adds credibility to your business. They may be able to drive business to you because of their market strength.

You don’t need lots of these alliances because you are going to make them important to you and you to them by purchasing more product from them, advertising them more and giving them more space in the store. So it’s only going to be one or two or three vendors like that. Not to say that you are not going to treat your other vendors well, it’s just that adding your strength to the strength of your strategic ally creates a good synergy.

By concentrating your buying with your strategic alliance vendors you can often get better margins, purchasing discounts, advertising help and often more attention from their sales representatives. With stronger margins, each sale from these vendors nets you more money. Sales reps will be more willing to train your staff on their products.

Picking a vendor to become a strategic ally is fairly straight forward. Look around your industry and look for all the leaders.  Not just the biggest guys but look for the niche leaders, the ones with a particular voice or a stand, the cutting edge or upcoming companies. Then you’re going to want to try selling the products. You might find out that your customer doesn’t go for the product even if it’s a market leader. Your primary alliance this year may change in a couple of years and it may take a couple of years before a vendor turns into strategic alliance. Sometimes though you can get a vendor that remains part of your business for many years, they can be the company that returns more money for your business then for theirs. Once you have a company like that they deserve your best attention because they become your profit center.

Let me know how you do it.

The Open to Buy is a primary inventory control tool. You can use it to plan your sales budgets and inventory needs for all of your merchandise departments.  By importing sales data into a spreadsheet OTB from your POS software you can get a complete picture of how your department is doing. Included in ours are current sales figures at retail and cost, on hand inventory quantities at retail and cost dollars and units, sales budgets, turn over, gross margin dollars, gross margin percentage, inventory received and calculations for Open to Buy amounts and GMROI. It is packed with information.

Updating the Open to Buy consists of reviewing the formulas, cleaning up any bad data and setting the new budgets. Getting ready for a new fiscal year is a good time to do this. To spruce up our OTB, I asked the buyers what other information would be useful to add. One year we added on order amounts to the form. Other times it was changing formulas to get average amounts for different calculations. You know, make the tool work for you and get the information that helps you do your job better.

The same goes for the Cash Flow Management Program. This tools focus is on the movement of cash through the business. You can use this weekly to see your cash position and forecast your cash needs. Because cash movement is so dynamic update the information regularly to stay current. Does your cash flow tool give you what you need to make the decisions you have to make? If not, what needs to be changed or added to give you that information?

Make the tools that you need or get them if you don’t want to take the time to make them. Then review and update them to reflect the changes in how you do your work. Having the tool that is right for the job makes a big difference. Being able to react quickly to changing business conditions is major in today’s business climate.

Cash flow management while always important became critical in past five years of economic downturns and chaos. Managing where your cash is going right now and what your cash position will be in 30, 60 or 90 days keeps you in control of your cash flow.  More control on your cash flow will allow you to take advantage of payment discounts, special buys and you will know if you have a cash short fall coming.

Setting up a Cash Flow Management budget is relatively straight forward. You will need to have several other budgets and goals done prior to making the cash flow budget.

The first one is your sales or income goals. Do this for the entire year with a monthly breakdown. This should take into account what your monthly variations are as opposed to just an equal split across the year.

The next budget is your expense budget. In order to really work the cash flow budget you will need to know all your expenses for each month and when during the month you pay them.

Finally, if you are purchasing products, you will need to know what your accounts payable is for each month or have a historical view of them.

Most of this information can be found in your accounting software or reports, like your balance sheet or income statement.

The difference with a Cash Flow Management budget or plan is that you are laying out precisely when your money in coming in and when you are paying your expenses. In a cash flow plan you are planning for the movement of money on a weekly basis. You plan for things when you are paying for them. This is different from most accounting software where you accrue expenses.

Now you can build your cash flow plan. If you are using a spreadsheet program create a page with about 7 columns. One for the row headings, one for each week of the month and a total column, then label the columns. Here is an example from The Cash Flow Management Program.

For the row heading make a section on the top for all your income, include loans here. In the next sections list all your expenses. You may want to break these out. In the example you will see that labor expenses are broken out. This allows you to see what those costs are in one area. Next in the example are fixed expenses, followed by variable expenses and finally accounts payable.

After these sections you will want to have some totals of the expenses and another total to subtract the expenses from the income. This will give you your cash position for the end of each week for that month and for the entire month.

If you set up a page for each month of the year and get specific with your income goals and planned expenses you will have a very good idea of what your cash position at any given time over the year. Update these with the actual amounts and you will be on top of the cash movement in your business.

In The Cash Flow Management Program I have pages for each month set up with a final page for the entire year. This is a great planning tool and allows you to do many “what if” scenarios for your business. Check it out on the page “The Cash Flow Management Program.

Gross margin can be talked about as a percentage and as dollars. It is the gross margin dollars that we live on. Without gross margin dollars our business would not survive. So, obviously, gross margin is very important to a small business.

In a sense, gross margin dollars are easy to understand. It is the amount of money we keep in any sales transaction. So we pay $50 for an item, sell it for $90 and keep $40. Simple.

Making your buy is the starting place for creating a good gross margin. In the buying process, getting the best selling items, the best price, freight discounts, and payment discounts will lower price you pay and that especially important if there is a competitive price cap on the items.

Pricing the items is the next part of getting a good gross margin. You have to know what the item can actually sell for in your market place. Getting the highest price you can while remaining competitive is important. Pricing at the manufacturer’s suggested retail is a great place to start and may be critical to remaining a dealer. In today’s world the internet increases who you are in price competition with, so be aware.

With the price set you now know what the best possible gross margin amount is going to be. It is now up to you to sell the items at that price to keep the gross margin dollars up. The challenges to keep your margin are varied and require a keen eye to control. Theft reduces your margin by depriving you of the margin dollars you would have made as well as having to cover the cost of the item lost. Freight increases affect margin dollars by increasing the cost to get the product to you. Receiving mistakes, shop damage, overbuying are other issues that can affect your margin dollars. Of course, if you bought the wrong stuff and have to mark it down to sell it – then there goes the gross margin. Gross margin only becomes real when you have sold the items.

We have gone quite a ways in this discussion. Let’s look at a couple of definitions before we continue. You can talk about margin or about markup; both describe the amount of money that you make from the sale. Markup is often used to think about your pricing and gross margin is used to think about your gross profit dollars.

Calculate your gross margin percentage by dividing the cost of the item by the retail price multiplied by 100. Our example above of $90 retail has a gross margin percentage of 44%. $40 / $90 = .44 x 100 = 44%

Now, you’ve done all you can to get your pricing up and reducing the cost so that you have the best possible gross margin percent on the items. You now know what you will make on the sale when you sell the items at full price. This is where turn-over comes into play. Gross margin times Turn-over will give you a GMIT number. GMIT is Gross Margin percentage times Inventory Turn-over. If your turn-over is 3 times a year and your gross margin percentage is 50% then your GMIT is 150. You can use this to see the effect of turn-over on gross margin percent and use that to plan your inventory levels and pricing. Check out the OTB example here. You can see the GMIT row and how it changes.

You can play with the numbers to see what happens when your turn-over changes.

Turn-over 3.5 times. 3.5 x 50% = 175

Turn-over 4 times. 4 x 50% = 200

Here are some changes with gross margin

Gross Margin 55%. 3 x 55% = 165

Gross Margin 60%. 3 x 60% = 180

You can see that small changes in turn-over result in a larger GMIT than changes in gross margin. Increase your turn-over rate and keep the same gross margin will result in an increase in your gross margin dollars and you will be using less money on inventory because you are keeping less inventory in stock.

The OTB book can help you plan out your inventory needs according to your planned sales. Lay out your monthly sales then decide on your turn-over goal and you will have a start on how much inventory you will need to meet your sales and turn-over. For example, if you want 3 turns a year that means that you need to have 4 months worth of inventory on hand at the end of any given month. 12 / 3 = 4. Simply add up the sales goals for each of the next four months and you have the amount of inventory needed.  Now all you have to do is to sell that amount of merchandise each month, do your reorders to keep your stock level up and you have it.

Of course, reality will butt in and you will have to change plans to meet what’s real. That’s where the real challenge is.

Let me know how you do it.