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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.




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.


  • 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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