Cash flow problems on the high street. Any insights appreciated.

[mala]

Hi there,
I opened a retail unit on the High Street 8 months ago now with very little money and very little business experience and am starting to run into some frustrating cashflow problems. My business partner and i started at markets and fairs selling our wares. We broke even barely for about 3 years before we bit the bullet and leased a retail unit. Our market experience gave us a great grounding and work ethic which is standing to us. Our problem at the moment is cashflow. We feel that we really do understand our market and that this year we can increase turnover by at least 40%. In our first 8 months of trading our turnover was on average €2300 weekly. After reviewing the figures we feel that we have learnt a lot and can increase turnover by up to 40% going forward by introducing the product lines that we now know our customers want and are still willing to pay a reasonable price for despite the recession. Our problem is cashflow. We have none. Going forward we would like to introduce new lines, avail of bulk discounts on profitable lines as they appear (one mans discount lines are another mans gold). Our thinking was that a bank overdraft would be the way to go as it would be cost effective in that we would not draw it down unless the need arose. We approached the bank for an overdraft of 10k but they flately refused. Luckily enough our suppliers are starting to offer us credit terms but it doesnt help much with introducing new lines. Id love if anyone could offer insights on any similar experience they have had and if anyone has an ideas on what the industry norm would be on general overdraft amounts for retail business.

 

[JoshB92]

Hi there,
I opened a retail unit on the High Street 8 months ago now with very little money and very little business experience and am starting to run into some frustrating cashflow problems. My business partner and i started at markets and fairs selling our wares. We broke even barely for about 3 years before we bit the bullet and leased a retail unit. Our market experience gave us a great grounding and work ethic which is standing to us. Our problem at the moment is cashflow. We feel that we really do understand our market and that this year we can increase turnover by at least 40%. In our first 8 months of trading our turnover was on average €2300 weekly. After reviewing the figures we feel that we have learnt a lot and can increase turnover by up to 40% going forward by introducing the product lines that we now know our customers want and are still willing to pay a reasonable price for despite the recession. Our problem is cashflow. We have none. Going forward we would like to introduce new lines, avail of bulk discounts on profitable lines as they appear (one mans discount lines are another mans gold). Our thinking was that a bank overdraft would be the way to go as it would be cost effective in that we would not draw it down unless the need arose. We approached the bank for an overdraft of 10k but they flately refused. Luckily enough our suppliers are starting to offer us credit terms but it doesnt help much with introducing new lines. Id love if anyone could offer insights on any similar experience they have had and if anyone has an ideas on what the industry norm would be on general overdraft amounts for retail business.

If it was me I would first look at making more profit on your existing turnover. Go through all your bank statements and look for any overheads or bills. Can you reduce any of these by changing suppliers or renegotiating? Moving forwards, cashflow management is the art of working out who needs paying now and who can wait a few days

Do you invoice any clients or customers for significant amounts? You could look at invoice factoring to bring cash in quicker. Also take advantage of any credit lines you can get from your suppliers.

 

[Talay]

So you averaged €2300 a week over 8 months. Is that now €3000 plus per week ?

Are there no profits ?

If not, then increasing turnover and creating the same profitability is pointless.

You need to review costs, leakages and withdrawals from your accounts. Do you understand your margins, fixed and variable costs ?

If you've nothing to show from sales of nigh on €80k, then the fundamentals are wrong somewhere and increasing sales won't fix that.

You're right that buying product lines you know the customer wants at lower costs will help but you need first to remove product lines the customer doesn't want, even through a sale to generate this much needed cash. Look at your inventory days and weed out the items that don't sell.

Going into debt, with the associated interest is not the first thing to do.

 

[Stuart Bailey]

the government has made available funds for small business such as yours which are administered by the banks. There are several different types which lend up to £50,000.

Speak to the economic development officer at your local authority, some have loans available.

Or speak to your local chamber of commerce.

Or go back to the banks and enquire about those loans, if they dont help speak to your MP.

 

[Talay]

the government has made available funds for small business such as yours which are administered by the banks. There are several different types which lend up to £50,000.

Speak to the economic development officer at your local authority, some have loans available.

Or speak to your local chamber of commerce.

Or go back to the banks and enquire about those loans, if they dont help speak to your MP.

All very good but the OP has apparently sold €80k at no profit. Extrapolating that out to €120k a year leaving the 40% increase at an extra €50k or so won't make the business profitable.

If the numbers don't work now, then even a reduced per unit inward cost through opportunistic purchases and semi bulk discounts offset by interest and capital payments due on borrowings will not push the business into profitability on the basis of the information to hand.

If the central issues can be addressed, after first being understood, then the government backed financing could assist. At the same time though, the business would turn cash positive potentially rendering additional borrowing unnecessary.

 

[Page]

Start getting all your suppliers to advance credit - if they are not doing so already which you imply

if you pay them bang on the nail at 28 days say - that is 4 weeks of turnover

4 * 2300 = 9.2K of credit

You asked for to high an overdraft from the bank - unless you really are making no money in which case you have another problem to solve

 

[mala]

Thanks for all the suggestions guys. When we opened we made some poor buying decisions which hurt our bottom line as this stock had to be sold via extreme discounting. Since just before Christmas we found our niche and our absoloute golden rule since then is that if its not making x2.6 it aint getting in the door of the shop. We had a great January without major discounting and we feel this will continue. The extra money we were looking for was to introduce further lines similar to the niche we found. In essence we are trying to replace all the stock in the shop with much more expensive stock. I am working on existing suppliers for credit but many of the new suppliers will be pro forma only.

 

[businessfunding]

As has been pointed out, you are at a dangerous phase to be borrowing money since you have very little proven ability to meet repayments.

Look at you resources and bleed them dry - including selling personal assets. From the position of broker I would say that if you do get to borrow money it will be at high rates which will take a big bite out of your margins.

It's reat that you have found your niche, but you really must have more success behind you before taking on more liabilities.

 

[mala]

As has been pointed out, you are at a dangerous phase to be borrowing money since you have very little proven ability to meet repayments.

Look at you resources and bleed them dry - including selling personal assets. From the position of broker I would say that if you do get to borrow money it will be at high rates which will take a big bite out of your margins.

It's reat that you have found your niche, but you really must have more success behind you before taking on more liabilities.

Thanks for your input, it does drive home my naiveity as reagrds retail profits. Im not going to be too hard on myself as regards that. I do beleive im doing well to be still solvent to a certain extent. Id be gratefull to hear yours or anyone elses opinion on retail markup. Our vat is 23% here so i strive to mark up at x2.6...damn hard it is to do it but should i ultimately be looking at lines with more margin?