STORE OWNERS OFTEN get trapped because they don’t heed the messages their business sends, and they don’t pay attention to basic principles. This checklist represents danger signals that have a clear and negative effect on cash flow. Take a few minutes under the harsh, cold light of reality to ask yourself how many of the following danger signals exist in your business and then evaluate their implications:
Inventory Management
- No physical inventory taken on a regular basis.
- Lots of old inventory and no plan to get rid of it.
- Buying at trade shows without a purchasing plan.
- Buying for brand names versus targeted gross margin and turn.
- No knowledge of what actual price points sell in your store.
- Lack of a good point-of-sale system that shows your gross margin, turns and return on inventory by department.
Purchasing
- Supplier discounts rarely taken.
- Offering credit to boost sales.
- Buying from vendors because you can’t say no.
Banking Relationship]
- No on-going communication between you and your banker.
- Credit line not completely paid off each year for at least 30 days.
- Short-term credit like credit lines used for long-term assets such as store expansions or leasehold improvements.
Accounting Practices
- You brag to others about how much money you save by doing your own books.
- Bank statements not reconciled every month.
- The same person who does your books also deposits your checks, pays your bills, opens your mail, never goes on vacation, etc.
- Balance sheet is prepared only at the end of the year, and then used only for tax purposes.
- You don’t get accurate monthly statements (income statement and balance sheet) by the 15th of the following month.
- You spend more time avoiding taxes than you do actually figuring out how your business is doing.
Danger signals are just that — signals. The longer you wait, the fewer options you will have. Now is the time to gain control and keep it. Get ahead of the game and be in a much better position to weather whatever rough seas lie ahead.
This story is from the October 2008 edition of INSTORE.
