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Controlling Cash Flow - The SHOPS Framework · The Resilient Retail Game Plan - retail insights, retail trends and best practices

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  Sales are coming in, but bills are going out faster.
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  If you've ever woken up at 3am and wondered how are you going to cover
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  the next bill or felt like you're constantly robbing Peter to pay Paul,
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  then this episode is for you.
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  Welcome to the Resilient retail game Plan. I'm Catherine Edley and in the
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  next few minutes you're about to get powerful real world retail strategies
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  from insights shared both from my guests and myself, backed up
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  by my 25 years in the retail industry. Keep listening to learn
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  how to grow a thriving, profitable product business. Let's
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  jump in with this latest episode.
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  One of the things I'm most passionate about is helping product
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  businesses improve their cash flow. And that is
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  because cash flow is make or break for
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  businesses. If you look at any statistics as to why businesses fail,
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  then you will see that the number one reason is always cash flow.
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  Because ultimately you get into a situation
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  where you just, if you can't pay your bills, you can't have a business. It's
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  as simple as that. And I do love the phrase turnover
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  is vanity, profit is sanity. But then there's a third element which is
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  cash is reality. So what we're going to be talking about
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  today is how to take back control of your
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  cash flow and also understand more about where your
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  money's going out and how to get more of it to stay into your account.
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  When I talk to people who are feeling stressed in their business, it's because
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  they've got a particular need, they've identified an issue and they're looking for a
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  solution. So whether I'm talking to them about my stock doctor service
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  or my retail by design one to one work, then
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  usually they've come to me because there's something going on in the business
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  what links them all together, whether or not they are actually
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  doing really, really well and super profitable and in
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  fast growth mode, or whether they've hit a plateau or, and everything
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  in between is they feel out of control and
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  they feel like they don't have visibility. One of the things that makes
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  cash flow so difficult for so many people is that it is really
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  multifaceted. There are sales coming in
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  and there may be sales coming in from four or five, six different sources.
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  There are bills going out and those bills cover everything
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  from bills you pay once a year to bills that you're paying
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  every month to bills that you're paying every week and also
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  then those kind of big outlays of cash. Especially if you're somebody who
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  manufactures. That's particularly difficult because Paying for a production
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  run up front is really, really tricky. And what happens is this.
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  All of this money effectively flying around is coming in, it's going out,
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  and it can feel just like a bit of a whirlwind,
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  even when it's doing well. Sometimes I see people who've got money in the
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  bank, but they're scared to spend it because they don't know if they can have
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  enough to cover everything else. And then there's people who are
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  at the bottom of their overdraft or juggling multiple loan
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  repayments. So there are a whole host of different
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  situations with cash flow. But in a way, regardless of whether your
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  cash flow is good or whether it's bad, not being able
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  to have it mapped out and really clear and in front of you is an
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  extremely stressful situation. I absolutely love nothing better
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  than helping people unpick what's going on with their cash flow and getting
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  it sorted out for them so they have a clear spreadsheet that
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  they have got it all mapped out and they can see it in front of
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  them. And what I wanted to do in today's episode is talk about
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  how you can improve your cash flow if it's something that
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  you're struggling with. And also the importance of having a plan,
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  effectively being able to see it. The other thing I would say as well
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  is that another reason I think this, people find this really difficult is
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  that cash flow and taxes and business
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  finances, the kind of things that your accountant might help you
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  with, they're often very different things. So what works
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  for you as a business owner and what works for your bank account and
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  what hmrc, the information HMRC want to see that different things.
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  And what we're talking about is really grounded in the reality of what it's
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  like day to day as a business owner, to go from
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  running your whole business on whether or not you think you can cover something based
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  on what's in your bank account, to actually feeling like you're in control and you
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  can see a year ahead of you what your bank balance is likely to
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  be on any given date.
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  So let's talk through the cash flow framework,
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  because I think the first step towards having a better cash flow
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  is understanding all of the different things that impact it and how they all
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  relate to one another. The acronym I like to use for this is
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  shops. Very appropriate for the retail industry.
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  And what SHOPS covers is the different
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  elements that impact your cash flow. And we're going to talk through them. So
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  just top line, the SHOPS stands for S for Sales,
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  H for Having it all mapped out. O for overheads, P for profit and
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  S for stock. So all of the different elements that go into impacting
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  your cash flow and all of the different things that you need to look at
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  if you're finding cash flow really difficult.
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  So let's start with the S, the first S. Sales. Now
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  this is interesting because I can tell you that most people, if you
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  ask them what they need to grow their cash flow, they're going to tell you
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  that they need more sales. And I'm here to tell you
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  that more sales are great. That is very helpful for
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  people, especially when they're very first starting out and they are making very, very
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  few sales. But you can also have a business with lots of
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  sales and a really difficult cash flow. So don't fall into
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  the trap of thinking that all you need to do to resolve your cash flow
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  issues is have more sales. So they are important.
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  As I said, if you're only making one sale a week and you've got
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  overheads, then clearly the only way to improve your cash flow is going to be
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  to grow your sales. But there's also lots of people who scale and they hit
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  six figures and they get beyond six figures and they're just more stressed and the
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  business is more unmanageable because they don't have it all mapped out.
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  So the key thing here to say is that yes, sales are important.
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  They aren't the only thing. There's lots of other things that you can do to
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  help make your cash flow feel more manageable without only relying on
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  more sales. The other thing I want to just highlight as well
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  is that you need to make sure that they are profitable sales. I talk a
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  lot about pricing, I talk a lot about profitability. You may have heard
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  me say this before, but ultimately
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  it's not about the top line sales, it's about how much profit
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  they're bringing into you. Because another issue that I've seen with people with cash
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  flow, for example, is they're plowing a lot of money into advertising.
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  And if you're not careful and you're not keeping a really close eye on your
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  roas, your return on ad spend, then you can get yourself into a situation
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  where you've got sales coming in, but ultimately your cash flow is really difficult
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  because there just really isn't much profit or your pricing isn't set up
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  correctly and therefore you need to review
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  that and improve your profit margins to grow your
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  sales more profitably. If you want any more information about that, then episode 259
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  is all about profit margins. Episode 260 is all about
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  pricing. So you can go back and check those out if you want more detail
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  on that subject. But just to say that yes, sales are important for your cash
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  flow, but don't fall into the trap of thinking, oh,
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  once my sales improve, my cash flow will be sorted. That's not true.
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  And it can lead you to put off really delving into your cash flow
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  for quite some time because you think it doesn't apply to you yet. And then
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  before you know it, the numbers have got bigger, the stress has got bigger and
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  you find yourself in a tricky step situation.
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  So that's where H, the H for shops having it all mapped out
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  comes in. So having it all mapped out is
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  about being able to actually see what's going on with your
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  cash flow. So this is a cash flow forecast.
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  Now if you go To Resilient retail club.com
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  cashflow, you can download my form free Cash flow
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  forecast template which will help you with this enormously.
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  So if you have ever struggled to find cash flow
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  planner that works for you because it's not set up for product businesses, then
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  go check this one out. I've been so frustrated over the years
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  with trying to find a good tool to recommend to clients
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  to help them with their cash flow that I basically ended up
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  creating my own. The biggest issue I have is a lot of the software out
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  there. For example, for cash flow for small businesses businesses, it's really
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  set up for service businesses. So it talks a lot about things like
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  how many proposals do you have out right now, how many potential clients,
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  what's your potential future income? Whereas actually for product
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  businesses, that's completely irrelevant. You need to be able to capture
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  all of the different elements that you've got going on. What your sales forecast
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  is by channel. You need to be looking at things like your
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  bills, your stock purchasing, your salaries, so on and so
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  forth. So having it all mapped out is an absolute game
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  changer. And in my Retail by Design one to one program, I work
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  with a lot of people on this one to one. So I walk through it
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  together and I get them up and running and using it on a weekly basis.
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  And I can't tell you the number of people who tell me I really hated
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  spreadsheets, but I love this one. And the reason that it's so
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  transformative is that it shows you the
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  timing of everything. It's a week by week spreadsheet that you update once a week
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  and it allows you the power to understand the how
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  much money you're going to have in your account at any one time
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  the power that that gives you. It means that if you have to make a
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  big purchase, you can see the timing of it. You could also
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  negotiate from a much stronger position with people that you maybe
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  owe money to. So, for example, let's say you've got an invoice that's outstanding.
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  Rather than thinking, oh my goodness, how am I going to do this? Potentially, you
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  could have a conversation with them which would say,
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  I've done my cash flow planner. If I could split this into two or three
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  installments, that would really help me. Is there any way that we could do this?
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  And of course, they may just say no, but it's a much stronger
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  position, a much more credible position to come from when you've got it all
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  mapped out and you can have those kind of conversations with people then instead
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  just feeling like you have to, maybe you can't
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  make the payment that they're expecting and that that creates all kinds of other
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  difficulties. It's also about it being really visible. And
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  I've worked with people where we've done this cash flow planner and it's been really
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  difficult to see. And I've worked with people where it's given
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  them a lot of confidence because they've been able to see
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  how much they've actually got. But even for the people where it was really tricky
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  and really difficult, it really highlighted where the issues were in their
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  business and it helped them map them out. So I'm excited to share it with
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  you. As I said, go to resilientretailclub.com cashflow and you will
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  be able to download your free planner with an explainer video.
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  This is a game changer if you can get it all mapped out. It's the
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  difference between feeling like you're doing okay and knowing that you've
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  got what you need. And I really highly
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  recommend it. It doesn't have to take forever to set up, but it can be
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  really, really powerful. And as I said, I actually don't
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  know how people make decisions in their business without being able to see the
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  cash flow. Because also once you've got it all set up, you are able
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  to really create something that if you
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  want to bring in a new person or you want to spend money on something,
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  you put that payment in the time at which it's going to come out
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  and then you are able to decide, is this something that I want to
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  do? So you can actually make those decisions before you do them in your business.
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  Okay, so now let's move on to the O the overhead.
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  So this is about understanding, understanding your regular fixed costs like your
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  rent, your staffing, your software.
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  And this is a really good exercise to just
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  double check. So if you are struggling with your cash flow, I would
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  say most of the time when people are struggling with their cash flow, it's usually
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  to do with the profitability or to do with the amount of stock that they're
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  buying. But sometimes it's because their overheads are really heavy, are really
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  onerous. But it's really good to know that and it's very good to double
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  check all of your overheads. And the key thing to remember about your
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  overheads is the amount of money that you have to generate through sales to
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  cover any expense in your business is quite considerably more than that expense.
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  So if you have something that costs you £100amonth, then the sales that
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  you have to generate, depending on your profit margins, is probably more like
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  £250. So anything that you can do in terms
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  of your overheads or your fixed costs and bringing those down will help
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  your cash flow enormously. So it's well worth doing a bit of
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  housekeeping to make sure you're keeping on top of that.
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  And then the P is for profit. And again, if you want
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  to know more about profit margins, then check out episode
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  259. Margin absolutely matters, and it's
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  where many businesses fall down. And ultimately, if you haven't
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  got good enough profit margins, what you'll see is that you really feel
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  like you're on a treadmill. So as you're generating sales, the money that's coming
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  in from those is coming in slower than the money is going out
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  to cover the cost of those goods or those supplies. So again,
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  if you feel like your cash flow is really tight, then checking
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  your profit margins is absolutely crucial because anything that you
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  can do on your profit margins will have a really big impact
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  on the overall profitability of the business. And one of the ways that
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  I really like to illustrate this is by doing a break even analysis.
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  If you've read my book Tame youe Tiger, which you can get from all good
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  bookshops, then you may be familiar with this exercise.
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  Or if you're in the resilient retail club, we also have a course that goes
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  through this. But the break even analysis is about saying this is what your
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  average sales are, these are what your overheads are, and this is what
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  your profit margin is, your out margin. And what's really amazing
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  about this exercise is when you do it like this. You can see
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  that a few percentage points shift in your out margin can make
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  the difference between a business that's profitable month on month and a business
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  that is running at a loss. So your profit margin is
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  absolutely crucial. And I would say again, if you're somebody who's struggling
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  with cash flow, feel like you're never getting on top of things, then
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  going back and checking your profit margins is a really great place to start.
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  The final S for stock. Stock is
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  what I would say is the silent killer of your cash flow.
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  And it's a really difficult thing for a lot of people to get a
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  handle on because this is something
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  that an accountant, for example, would see that your stock is an
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  asset. So it's entirely possible for you to be showing as having
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  a profit in your product business and have absolutely no money
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  in your bank. And for me, cash flow and stock
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  really go hand in hand. The more stock that you have,
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  then the more likely you are to be struggling with your cash flow.
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  Because cash really should flow. It should go out
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  with you spending money to buy your stock, and then it should come into
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  you quickly from selling that stock. And the longer it
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  stays out of your bank account in your stock, the
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  less you actually get a flow of cash, the more that it slows
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  to a trickle. So if you are feeling stuck with
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  your cash flow, if you're feeling like you really
• 15:49
  should have more money in your bank than you actually do,
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  then getting a handle on your stock is an absolutely critical
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  part of that. I would say after low profitability, stock is
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  one of the major culprits when it comes to people's cash flow. And they're just
• 16:04
  basically spending too much money on their stock, which means that
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  they don't have enough money in the business to do everything else that they need
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  to do. You want to make sure that you are
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  not stockpiling. In other words, your stock number is going up and
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  up and up. You want to be making sure that you're keeping a really good
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  handle on that. And if you look back through the catalog of the
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  podcast, I've got lots of episodes all about stock management. And
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  again, my book Tame youe Tiger has a lot of information, information about stock.
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  And if you know that stock is a problem in your business and you just
• 16:36
  don't have the time to fix it, go check out our Done for you stock
• 16:40
  management service Stock Doctor, which you can find at
• 16:42
  resilientretailclub.com stockdoctor where we will put
• 16:46
  a trained professional into your business who will help you manage your stock.
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  We've seen some incredible impact from this service. For
• 16:53
  example, we've seen on average over six months
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  customers seeing a 10% growth in sales on 10% less
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  stock, which is adding a real chunk to their cash
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  flow to their bottom line and really helping this whole cash flow conundrum
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  feel much better. So stock is like trapped
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  cash. If your business is feeling stuck, if it's feeling like there isn't enough
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  cash flowing through it, then your stock could well be a
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  culprit.
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  So there you have it. Shops, sales, having it all mapped out, overheads,
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  profit and stock. And if you want to have it all mapped out, head over
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  to resilientretailclub.com cashflow and get your hands on
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  our free cash flow planner with an explainer video.
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  So what's next? Well, I would say if you just want a quick
• 17:44
  2 minutes on how to improve your cash flow, start with a margin check,
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  pick your five best sellers and calculate your in margin again.
• 17:52
  If you want to know more, go listen to episode 259 where we talk
• 17:56
  more depth about margins and how to calculate them and then take
• 17:59
  a look at your stock levels. How much stock are you sitting on? If you
• 18:03
  look at your average weekly sales over the last 12 weeks, how many
• 18:06
  weeks worth of stock do you have in your business as well worth
• 18:10
  calculating and it can be quite eye opening. So use this shop's
• 18:14
  framework to do a mini self audit and as I said, head over to
• 18:17
  resilientretailclub.com/cashflow to get yourself a free cash
• 18:20
  flow planner. So shops helps us focus what actually moves the needle in
• 18:24
  your business and make sure that you grab your free
• 18:28
  template. And why not head over to Instagram as well. Say hi at Resilient Retail
• 18:31
  Club. Let me know what you thought about today's episode and ask me any questions
• 18:35
  you've got about your cash flow. See you next week.