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7 Tips on Cash Flow Management

7 Tips on Cash Flow Management

If someone were to ask you how much money you expect to make in your pack-and-ship store this month, would you know? You might open your till and add up your cash and credit slips, but if you don’t take into account how much it costs to run your store each day and what your revenue is for each profit center, you’re only guessing. In the long run, you could end up short-changing yourself. 

We spoke to Brandon Gale, founder and president of Retail Shipping Associates (RSA), and he gave us four reasons why paying attention to cash flow management is critical to your business.

  • Income fluctuations. A good chunk of your pack-and-ship revenue is generated during a strong peak season and several small ones, which can throw your finances off balance. To help regulate the ebb and flow of your business — and your expected gross income — Gale has three recommendations.
    • Budget the surplus you earn over peak so it helps cover the deficit during down seasons.
    • Promote your peak business year-round.
    • Find opportunities to create your own peak seasons.
    We’ll cover the first point in this article. Watch for articles on the second and third points in future issues of FedEx ShipSource.
  • Work-life balance. Stable finances can allow for hiring a manager so you can live the entrepreneur life you want, with vacations and time with friends and family.
  • Retirement. If you dipped into your 401(k) and other retirement funds to get your store off the ground, or to get you through the ebbs, consider working with a financial advisor to devise a plan to build up your retirement savings again. For this, you’ll need to know your store’s cash flow.
  • Exit strategy. Having a target date and a strategy for when you want to sell your pack-and-ship store or retire should keep you focused on your day-to-day finances. “All the time and energy and resources you’re putting into your store is in part to create value for the day that you sell it,” Gale says. “So you’ve got to have an exit plan. You can always change the plan. You can move it up, you can move it back — but you’ve got to have a plan.”

What Is Cash Flow Management? 

“The process used to identify the ongoing costs of managing a business in order to determine if the amount of useable cash generated by sales will cover current obligations and produce either a surplus or shortage.”

— Brandon Gale
President, Retail Shipping Associates

Now you know why you need to manage your cash flow. But what about the how? Gale, who at one time owned 28 stores in the Dallas and Houston markets, shares his insights and experiences with these seven tips. 

Tip 1: Know your daily, weekly and monthly operating costs. How often has this happened to you? Business was up last month and you look forward to a large profit, but when it comes time to pay the bills, you’re short on cash. What went wrong?

Most small-business owners know what it takes to deliver great customer service, Gale says. But that alone doesn’t lead to success. Too often they fall short on analyzing their numbers and modifying their sales behavior accordingly to get revenue goals on track.

Unless you know how much it costs to run your business every day, setting a financial goal is ineffective. “The real grunt work is down in digging through the numbers and understanding those intimately,” Gale says.

Avoid flying blind each month by using these tips from Gale on how to calculate your operating costs.

  • Develop a business plan, and identify how much it costs to run your store on a month-by-month basis: rent, franchise and organization dues, utilities, payroll, service contracts, building maintenance, travel expenses, transportation costs, etc. Revisit your plan annually.
  • Divide your monthly costs into the number of business days in a month to calculate your daily cost of operation.

To generate a net gain, you need to make more than this amount over the course of the month. If you’re down one day, adjust your sales focus to concentrate on a more lucrative profit center.

Tip 2: Set up your POS system and adjust it regularly to reflect the true cost of each transaction. This is a critical step for making a profit — and it must be done not only at the start of your business but as long as you run your pack-and-ship store.

The majority of stores use a point of sale (POS) system. To make a profit, you need to know the wholesale cost for every item sold at the store and adjust the preset amount in your POS system to include your margin. That amount is what you’re charging your customer, and the difference is your profit.

As the owner of a pack-and-ship store, it’s your responsibility to adjust those rates based on the margin you’ve established for your market according to industry standards and best practices.

It could take 6–8 hours to initially set up your POS system, Gale says, but if you sidestep this critical task, you’ll be collecting only enough money from your sales to cover the basic cost of doing business. Likewise, it’s just as important to adjust the wholesale rates in your POS system on an ongoing basis when providers have price increases. 

Tip 3: Monitor your store’s productivity on a monthly, quarterly and yearly basis. Keeping an eye on your numbers is part of the fun (and responsibility) of owning a small business. Gale compares it to watching a sporting event. If you didn’t know the score of the game, you’d likely stop paying attention.

The reports generated by your POS system produce a wealth of information on how your business is doing. Every department you have and product and service you provide is included in the reports, so if your POS system is properly set up, you’ll get an exact vision of blended gross profit — the average of your low- and high-margin sales.

While you can check the reports at any time to see how your business is doing, Gale suggests fully analyzing them on a monthly, quarterly and annual basis. From there, you can recognize trends, identify profit centers that are bringing in revenue and those that are not, and make smart business decisions based on your analysis. Your goal should be to net a 50- to 60-percent gross profit.

What Is a Profit Margin?  

“The margin is a product of marking up the cost of an item or a service to create a retail price. The gross profit is the difference between what it costs you to create that sale and the sale price.”

— Brandon Gale
President, Retail Shipping Associates

Tip 4: Know which products and services contribute most to your bottom line, and focus on those sales. This tip builds on the previous three: Have a good working relationship with your POS system, analyze the sales data, adjust your sales focus accordingly to net a profit. 

This doesn’t mean you stop selling what your customers need; it just means you need to sell more of what brings in the most profit. Selling stamps, for instance, brings in less profit than what you can make packing a customer’s shipment. Since the cost of the packing materials is the only offset, what you charge for packing services has a greater margin than what you can get on the stamps. Combining the two profit centers but promoting your packing and shipping services will bring in a higher gross profit overall.

“Therein lies the magic,” Gale says. “If you know what profit centers are generating the most revenue and the most gross profit, those are the ones to concentrate on — those are the ones that grow your bottom line.” Once you identify these high-profit products and services, set up your store and train your staff to push those sales. 

Tip 5: Know your market, and provide the products and services your customers need. Take advantage of your location and community needs. Market to colleges, auction houses, senior living communities, camp grounds or vacation sites, for instance. Does your area have small businesses that need shipping services, mailbox rentals or printing solutions? Each of these is ripe for generating high profit margins.

Knowing your market also applies to what you can learn from your competition. They’re vying for the same audience you are, so you need to know what they’re doing. How’s their pricing? What sorts of products and services are they providing? What’s their customer service like? Study your competition, then do what they do — but better. 

Tip 6: Consult with a qualified CPA or accountant. Choose someone who has a good grasp of running a small business and who specializes in aggressive tax planning. You’ll want advice on how to take opportunities provided by the law to gain every tax advantage possible for your business. 

Tip 7: Find a financial advisor with expertise in small businesses and retirement planning. Don’t rely on your CPA or lawyer to guide you in your short- and long-term finances. A financial advisor can work with you to combine your personal and business strategies to help you reach your exit plan and retirement goals.

And a final note from Gale: “If you’ve done a great job as an owner-operator in your planning and your strategy and your pricing and your marketing, then you’re going to watch those numbers grow every single day.”