6 Ways to improve cash flow in your fashion retail business

Posted 19 May 2022 in GUIDES by wholawholesale

The accounting side of your retail business may not be your favourite thing in the world, but it’s essential that you take the time to monitor and improve your cash flow. Why?

Without a reliable, positive cash flow, you won’t have the funds you need to keep your business thriving.

Achieving a positive cash flow may seem daunting. But all it takes is a few tricks to completely transform your cash flow management and start seeing results.

This guide will help you improve your cash flow in 6 simple steps. Let’s get right into it!

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WHAT IS CASH FLOW MANAGEMENT IN RETAIL?

Cash flow is essentially the money that’s coming in (income) and out (expenses) of your retail business.

Cash flow management is tracking and forecasting your cash flow so that you can make adjustments to maintain a positive cash flow.

This just means that you have more cash flowing into your business (retail sales) than money flowing out (bills, staffing, tax, rent, etc) so that overall, you have a positive balance.

WHY IS CASH FLOW MANAGEMENT IMPORTANT FOR RETAILERS?

Having a good, consistently positive cash flow is vital to keep your retail business alive. It helps you:

Maintain a positive cycle: Timing your incoming and outgoing payments can help to make sure you always have a positive balance so that you have more flexibility to invest in things that will bring in more money, such as purchasing new stock, running marketing campaigns, etc. This will achieve a cycle of positive cash flow.
Less stress: Having a well-managed cash flow helps you and your team feel less stressed. As long as your revenue exceeds your expenses, you don’t need to worry about running out of money and potentially going out of business.
Navigate through the pandemic: The economic downturn caused by the pandemic has put many retail businesses in a precarious situation, especially those with physical stores that had to close down. Managing your cash flow is a great way to navigate through such difficult times so that you remain successful in the long run.

6 WAYS TO IMPROVE YOUR FASHION BUSINESS’S CASH FLOW

1. PERFORM A CASH FLOW ANALYSIS

A cash flow analysis is a great way to know where your business currently stands. Dig up all of your previous cash flows statements and start building up a picture of how long your funds are lasting you. You want to have a clear idea of the following:

How much debt do you currently have?
How much cash is currently invested in your inventory?
How big are your margins?
Is the timing of payments causing a period of negative cash flow?

If you can identify and address any of these problems, you’ll have made huge strides towards creating a plan to improve your cash flow.

2. REVIEW YOUR GROSS PROFIT MARGINS

You will only have a healthy cash flow if the gross profit you make on each sale covers your business’s expenses.

If this isn’t the case, maybe you’re not charging enough for the items you’re selling. This is a common mistake that fashion retailers make, so you’re not alone!

To solve this issue, revisit your CUSTOMER AVATAR and make sure you’re charging the maximum amount they would be willing to pay for a clothing item.

3. FIND WAYS TO MOVE STOCK FASTER

If you’re having cash flow difficulties, it could be that you’re not selling your stock fast enough.

To solve this, you may need to rethink your buying strategy, a crucial element of your overall RETAIL STRATEGY.

Ask yourself:

Are you buying too much stock upfront?
Are you buying too many units of the same style?
Are you choosing low-selling items?

Being left with dead stock that you have to discount to shift will have a huge impact on your cash flow.

To avoid this issue, rethink the way you manage your inventory. The key factor? Only buy what you need when you need it.

Continue to repurchase the bestsellers that you know will sell out.
Don’t reorder items that haven’t sold out completely.
Test new styles first before bulk purchasing.

With Whola, you can transform the way you manage your inventory. Our B2B Wholesale online marketplace allows you to buy styles in small packs of 3-7 units with no minimum order value so that you can reduce your buying risk and effectively test new items for your customers.

What’s more, you never have to indent (i.e. bulk buy items 2-6 months in advance), so you can continue with a buy-once-you’re-out basis to avoid dead stock completely! GET STARTED WITH WHOLA NOW.

4. OPTIMISE THE TIMING OF YOUR PAYMENTS

As we’ve mentioned before, one way to transform your cash flow is to get the timing of your incoming and outgoing payments right.

That’s why Whola now offers the option to Buy Now Pay Later – so that you can order new styles and delay the payment by 30 days!

With the Buy Now Pay Later feature, you can:

Maximise your upsell opportunity in-store.
Grow your average order.
Grow your overall turnover.
Become cash flow positive!

The best part is that the Buy Now Pay Later process is completely automatic – simply order your items, and the payment will automatically leave your account after 30 days. This not only saves you the time and effort of managing your payments, but it also means that you can spend more time focussing on other important aspects of your retail business.

5. AUDIT YOUR EXPENSES AND CUT WHAT YOU CAN

Another way to help improve your retail business cash flow management is by focussing on the outgoing payments rather than the incoming ones. What’s the best way to do that? Carry out an audit of all of your expenses.

Go through your current expenses and find any opportunities where you could be saving money. It could be that you can cut something out completely, or perhaps find better deals for things elsewhere. Here are just some of the expenses to find cheaper alternatives for your fashion store:

Rent: can you move to a smaller space/cheaper location?
Shipping: is it time to switch providers or broker a new deal with your existing one?
Insurance: have you found the most affordable insurance provider that ticks all of the boxes?
Ecommerce payment gateways: can you switch to a more cost-effective solution?

If you’re an ONLINE BUSINESS, reducing your costs may be more difficult. Since you don’t have a storefront to act as a permanent marketing asset and attract customers from the street (like OFFLINE FASHION STORES do), your main expense will be online marketing. And, you need to keep your marketing campaigns going for as long as possible, otherwise, your sales will tank.

But don’t worry. Our MARKETING COURSE has lots of tips on how to build a successful online marketing strategy – even if you’re a complete beginner – and boost your sales so you can maintain a positive cash flow.

6. BUILD UP A CASH RESERVE

Cash reserves are a failsafe way to keep your retail business afloat during hard times.

During periods such as the holiday season when profits are higher, you can store your earnings in a rainy day fund to keep your store ticking over when times get tough.

In fact, cash reserves have been a huge help for many offline retail businesses who have had to shut down their stores over the pandemic. Check out this article on HOW TO PREPARE YOUR FASHION BUSINESS FOR THE HOLIDAYS to maximise your profits this Christmas and start your cash reserve.

CONCLUSION: IMPROVING YOUR FASHION BUSINESS CASH FLOW MANAGEMENT

The cash flow of your retail business is a sure sign of how your fashion boutique will perform over the upcoming years. Luckily, you can transform your business’s cash flow with 6 simple steps:

Perform a cash flow analysis.
Review your gross profit margins.
Find ways to shift stock faster and manage your inventory better.
Optimise the timing of your payments with Whola’s new Buy Now Pay Later scheme.
Audit expenses and cut out payments.
Build up a cash reserve.

FREQUENTLY ASKED QUESTIONS ABOUT CASH FLOW MANAGEMENT IN RETAIL

HOW DO YOU MANAGE CASH FLOW IN RETAIL?

The best way to manage your cash flow for your retail business is by constantly keeping track of your cash flow statements over time. Once you have a clear idea of the areas in your business that you can improve, you can make the necessary adjustments in order to maximise your overall cash flow.

WHAT IS A CASH FLOW STATEMENT?

To put it simply, a cash flow statement is a document that offers a comprehensive breakdown of all your incoming payments (income) and outgoing payments (expenses) in one place. It shows the movement of money into and out of your retail business. The balance at the end will determine whether you have a positive or negative cash flow.

WHAT ARE SOME OF THE MOST COMMON CASH FLOW CHALLENGES FOR RETAILERS?

Here are some of the most common challenges for retailers when it comes to having a consistent, positive cash flow:

Not charging enough (small profit margins).
Struggling to shift inventory.
Optimising the timing of your payments.
Paying too much in expenses.
Not having a cash reserve.