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Laurie Owen: Watch Out for Signals of a Cash Crunch

The seeds of tomorrow’s crisis are being sown today. use this checklist so you aren’t caught off guard.

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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.

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