Cash flow. It’s the lifeblood of every business, and for home furnishing retailers, it’s no different. In a competitive industry where consumer demands are becoming increasingly hard to satisfy, cash flow management for retailers can be a struggle. To put it in perspective: 23% of small businesses in the US report a lack of cash flow as their main challenge. Factors contributing to a lack of cash flow can vary, from slow-moving inventory to rising interest rates and supplier costs. Some of these factors may be out of your control, but there are still ways to improve and increase cash flow with the following tips and guidance.
Important components of cash flow management
Monitoring cash flow
Accounting software, manual ledgers, or an expert advisor can all help you regularly track your cash inflows and outflows. Using this information, you can create cash flow statements that provide a clear and accurate picture of your retail furniture business’s financial health. For optimal organization, categorize cash flow statements over specific periods, such as monthly, quarterly, and annually. In terms of your method, retail accounting software can make the process more efficient for you. Lightspeed Accounting, for instance, helps you save time and reduce errors so your books are always accurate and up-to-date.
Studying cash flow patterns
It’s not enough to just track cash flow over current periods. Analyzing historical cash flow data can help you identify trends and patterns, allowing you to plan for the future. For instance, seasonal variations may lead to higher sales at certain times of the year, while other months may have lower sales and higher expenses. These insights can help you forecast future cash flows for your home furnishing store, allowing you to anticipate periods of surplus or shortfall. Inventory management becomes more streamlined when you factor in historical cash flow patterns.
Why is cash flow management important?
Time and time again, cash flow remains the leading reason businesses fail. Businesses globally experience cash flow problems, according to recent QuickBooks research. Just under a third said they couldn’t pay themselves, vendors, or lenders, because of poor cash flow. This is especially true in the home furnishing industry, where inventory management can be challenging because of the high cost and large product size. You may need significant upfront investment, and may face delayed customer payments due to higher price points. Demand can also be unpredictable depending on seasonality, like peak moving periods, while rental and operational costs remain high.
Five ways cash flow can help home furnishing retailers
Here’s how well-managed cash flow can help your furniture retail business overcome those problems.
1. Protect against sales shortfalls
Retail cash management is a particularly challenging responsibility. It costs a lot to source retail inventory, pay good staff, and keep operations running in brick-and-mortar and online stores, especially when it comes to home furnishing, where the items are large and expensive.
Just think of a large furniture retailer planning its inventory for the summer season during the winter months. Anticipating warm weather, the retailer stocks up on outdoor furniture—patio sets, garden accessories, etc. If the region experiences an unseasonably cool and rainy spring, consumer demand for these items may vary.
If the retailer doesn’t have a solid cash flow projection, an unexpected event could cause it to go out of business.
2. Reduce owner and staff stress
Not knowing if you can pay yourself, your staff, or your suppliers is an awful situation for any business owner. Getting a handle on your current and projected cash flow—so you know who can be paid and when—can help keep everyone’s stress levels in check.
3. Know where and when to grow
Without a solid grasp on cash flow, it’s impossible for a business to understand how and when it can grow. Growth for growth’s sake is often touted as a pure positive by media headlines. But it’s important to look at it with a clear head.
Growing a home furnishing business can involve a host of expenses related to inventory, distribution, product development, and marketing. Knowing exactly what cash you have on hand can help you make wise decisions about growing—and shrinking—your business as needed.
4. Improve supplier relationships
Maintaining a positive cash flow ensures that suppliers are paid on time. That can result in better terms, discounts, and priority service. Strong supplier relationships can also provide leverage during negotiations for improved prices or extended payment terms.
Plus, being able to pay suppliers before due dates can positively impact your relationships and even lead to better deals.
5. Open the door for investment opportunities
Well-managed cash flow provides you with the flexibility to take advantage of investment opportunities as they arise. This could include buying inventory at a discount, purchasing new technology, or expanding into new markets, all of which can drive growth and profitability.
You can also invest in improved customer service and better inventory tracking. That way, customer satisfaction will increase, and you’ll ensure that popular products are always in stock to keep them coming back.
Ultimately, you can make better decisions for your business to boost sales.
How to forecast and manage cash flow
The benefits are clear. Now, let’s delve a little deeper into cash flow management. Let’s start with the cash flow statement.
According to Investopedia, a cash flow statement is a financial statement that lists all the cash inflows and outflows in a business. Along with the income statement and balance sheet, it’s considered one of the three main financial statements for any business.
How to create a cash flow statement
So, how do you go about creating one? Firstly, don’t worry about starting from scratch. There are plenty of free templates online, like this cash flow statement template from QuickBooks, which includes helpful notes on adding your data. Working with your template, here’s what you’ll need to do.
1. Forecast expenses
Collect every single business expense you have records of, such as:
- Payment processing fees
- Merchant account fees
- Postage and delivery fees
- Telephone and internet
- Insurance premiums
- Website development
- Legal and accounting
- Salaries
2. Forecast revenue
And also collect every piece of data you have on your retail business’s revenue, such as:
- Cash sales
- Payments from customer credit accounts
- Loans or other finance
- Any interest income
- Any tax refunds
3. Input your data
Once you’ve gathered all this data, put it into your cash flow template. Your cash flow statement should include sections for the following:
- Your beginning cash on hand
- Individual and total cash payments
- Individual and total cash receipts
- Your operating expenses
- Other expense payments
- Your total cash payments
- Your net cash change
- And your cash position
If you’re unsure where to place what, get support from a bookkeeper or accountant.
How to improve cash flow with seven strategies
Now that you know how to record your home furnishing business’s cash flow, let’s look at some steps you can take to increase your cash flow—and, with it, your control and confidence in your business’s cash position.
1. Carefully manage your stock
Clever inventory management is a key part of cash flow management.
The simplest way to approach this would be to ensure that you sell only products that people want to buy (tip: use your point of sale system’s sales reports to pinpoint products with high turnover).
But that’s enough. There may be people demanding that your store stock a certain home furnishing product. That’s good, but there needs to be enough people regularly and predictably buying particular products.
This is why home furnishing retailers and finance teams need to be careful about what and how much they stock. Otherwise, your business will be left with excess stock that can only shift with extreme discounting.
The right retail inventory management software can help you tremendously. Lightspeed Inventory Management allows you to connect with suppliers directly, avoid out-of-stocks, speed up ordering, and track inventory across all your channels from one screen.
Lightspeed retailer LUC Design—a go-to source for interesting, iconic, and well-designed homewares, furniture, and more—is an expert in inventory management. “It’s been invaluable to keep track of inventory, customers, and reporting with Lightspeed,” company founder Lucy Given says. “Having up-to-date stock levels has made stocktake much easier than before. It’s also helped our end-of-month reconciliations and made it so much easier working with my accountant.”
Knowing exactly what’s working for your business in terms of product performance, sales, and stock counts can transform your cash flow.
2. Cut some fixed and variable expenses
Rent, phone, internet, and salaries are some fixed expenses across the financial year. In home furnishing retail, you’ll have plenty of variable expenses, such as shipping fees, materials, and stock purchases. To look at reining in these expenses, ask yourself:
- Are you getting the best possible deal as a commercial tenant?
- Can you cut fixed telecommunications costs by switching providers?
- Is the business staffed at the right level? How can you optimize staffing based on peak sales periods?
3. Review insurance policies
You need insurance, but that doesn’t mean you must stay with the same company. Make it a habit to check your premium against your insurer’s competitors at least once a year. You just might find a better deal for the same level of coverage elsewhere. Small costs like this can add up without you realizing it, so try to stay on top of them.
4. Be proactive about payments
Ultimately, it’s all about getting paid. CPA consultancy Sobel & Co pointed to the following example in a recent whitepaper about cash flow management for retailers:
“Georgia Solotoff, owner of PIP Printing in Livingston, bills her customers twice monthly. In addition to attaching the invoice to the finished product upon delivery, she sent a copy of the invoice two weeks later. This not only has accelerated collections, but it keeps the company name in front of customers with more frequency.”
Part of this is offering multiple payment options (such as credit cards, electronic payments, buy-now-pay-later) to make it easier for customers to pay quickly.
5. Watch payment processing fees
Your customers’ payment preferences are constantly evolving, especially when making larger purchases. It’s in your best interest to help them make the easiest possible payment—whether by credit card, debit card, bank transfer, or cash. Yet, payment options like credit cards come with processing fees that can reduce your sales revenue. Some fees can range from 1% to 4%. If you see a potential savings, drill down on these fees and consider switching payment processing providers. Further, consider whether your checkout process is streamlined regarding payment processing. Reducing friction both online and in-store can improve the customer experience, helping to increase sales and reduce cart abandonment rates.
6. Audit common area maintenance (CAM) fees
If you’re a brick-and-mortar retailer, you’re likely paying a common area maintenance (CAM) fee to maintain the common areas where you lease your commercial space. That can include things like the lighting, landscaping, driveways, janitorial services, exterior window cleaning, and other management fees. You must know what you’re paying for in CAM fees, as this will need to be included in your operating expenses. A CAM audit can help identify any excess fees, based on an analysis of your commercial lease and invoices. These fees can then be challenged and, in some cases, returned.
7. Keep cash reserves
A cash reserve is money your business has set aside for emergencies or unexpected costs. Think of it as your rainy-day fund. Having a cash reserve can prevent your business from relying on credit cards to buy inventory or seeking finance to increase cash flow.
Cash flow management: the takeaways
So, what does all of this mean for you as a furniture retailer? In short, getting on top of your cash flow position can be life-changing for you and your business. Committing to improving your cash flow management can help home furnishing businesses survive and thrive. Financial stability and reliability could improve your reputation among customers, suppliers, and investors. A business that manages its cash flow effectively is seen as more trustworthy and capable, potentially leading to opportunities and partnerships that allow you to grow.
Editor’s note: Nothing in this blog post should be construed as advice of any kind. Any legal, financial, or tax-related content is provided for informational purposes only and is not a substitute for obtaining advice from a qualified legal or accounting professional. Where available, we’ve included primary sources. While we work hard to publish accurate content, we cannot be held responsible for any actions or omissions based on that content. Lightspeed does not undertake to complete further verifications or keep this blog post updated over time.
