This year, we have seen a number of iconic designer labels go into liquidation.
What this proves is that the number of years you are in business or the talent of the designers does not automatically mean that your business will be a successful one.
What it also means is that business owners need to understand their cash flow.
That’s because without cash in the bank, even the most successful business will fail.
Without cash you can’t pay your team, your suppliers, your rent or yourself.
So how do you make sure you have good cash flow in your business? Well, you can start with the following ten actions:
Have strong terms of trade with your customers
When it comes to retail the terms are usually fairly simple. Customer buys your products either in-store or online, customer pays for product immediately, cash goes into bank account. Simple. When it comes to wholesale, the game changes completely. That’s why it’s important to have clear terms of trade around when you are going to be paid for your product.
Invoice quickly
This might seem like a strange one. Of course you’d invoice quickly, right? The problem though is you can become so busy making sure your orders are fulfilled that the invoice isn’t sent out until a few weeks later. As part of your terms of trade, make sure you are able to invoice as soon as possible (even when the order is received) and then make sure you do it.
Create systems
This might seem like a strange part of the cash cycle. But with good systems there is consistency around how long it takes for orders to completed so you can plan how long orders will take to be fulfilled and when you will be paid so you can manage any shortfall in your cash flow.
Create efficiencies so sales are fulfilled faster
When you create your systems, you can recognise any steps where you can become more efficient. This should mean shorter production times which means orders are fulfilled quicker and cash hits your bank account faster.
Have and use cash flow budgets so you can plan for problems or low sales periods
It is so important to know how much it costs you to keep your doors open each month and what sales figure you need to make in order to not only meet your costs but to make a profit. It is also important to be aware of any holes that may arise either from seasonality or gaps between orders being fulfilled and you receiving payment.
Use good debtor collection systems
Sending an invoice when you remember and then crossing your fingers that you will be paid is not a helpful debtor collection system. You are not a bank or a charity but too many business owners act like one by giving extended terms and not charging interest. Make sure you make it clear what your terms of trade are and then have a system to collect your debts. If you’re not good at collecting debts then outsource this function.
Maintain great relationships with your customers It simply makes good commercial sense to have great relationships with your customers so that they want to do business with you. It also means you can rally them if you need to drive your sales and be able to have that difficult conversation if they are taking too long to pay.
Maintain great relationships with your bank
Make sure that your bank manager understands your business and is willing to support you with finance if you need it. If they don’t, then you need to find one who will.
Understand how long it takes for you to get paid
This means getting to know your cash cycle. So understanding the time it takes from a customer placing an order through to you being paid. The whole process from the order to payment might be 40 days and you need to ensure that you can fund both the order and your operations for those 40 days until payment. If it’s a large order and you suspect you might not be able to manage, then it’s time to talk to your bank manager.
Ask for money up front
This might seem cheeky but ask for part or all of the payment up front. You may do this for smaller orders or you may ask for partial payment for large orders. This means that the order can be funded by the customer, rather than by you.
Don’t be a fashion statistic by understanding and taking control of cash flow in your business.
Melissa Browne is the author of More Money For Shoes.