Retail expert, Catherine Erdly tells businesses what they should be doing to get ship-shape for a post coronavirus future…
Do you feel like you’re always on the back foot? Swimming against the tide? It’s very common for business product owners to feel this – no sooner than money comes in from sales, the same money goes straight out of the door to cover costs for stock or other expenses. This is a very frustrating situation for product business owners and it is one that can hit even more experienced business owners who have been operating for several years.
In fact, start their businesses feel like they’re on the treadmill and never really stop feeling that way. Why does this happen?
Quite often creative business owners are given general business advice or advice aimed at service businesses when they first start out. This is problematic – product businesses for example – have a unique cost structure – service businesses have a bigger profit margin as they’re not paying for stock. Up to 50% of your revenue is going straight on stock!
If the advice you’re receiving is not acknowledging that your stock is a big component of your cost structure then you’re going to run into problems.
Start with a plan
Planning, planning, planing, I really advocate sales planning, not least because the process of mapping out the amount of money you believe will be coming into a business each week or each month will help you understand how much money you can realistically expect to be coming in.
Map that against your outgoings, then you can create an accurate or a realistic view of your cash flow – if you don’t then the feeling of swimming against the tide begins.
If you’re not linking the amount of stock you should be buying to the amount of projected sales then you may well be purchasing too much stock – which is already a huge part of your outgoings as a product business owner. So you are on the back foot – literally.
Your profit margin – how much money you’re making every time you make a sale. You need to be clear about how much you need to make with each sale to cover all your expenses – otherwise money is always going out before it comes into your business.
Are you making enough profit every time you make a sale? If not, there’s not enough money coming into the business overall – and your outgoings are quickly going to be catching up with your revenue.
Ignoring stock costs leads to overwhelm
So to recap – advice or support often focuses on either general business advice or service business advice which means ‘stock’ is overlooked and therefore so is your unique cost structure.
You don’t have a clear plan. You can’t see how much money you’re expecting to come in so you’re unable to link that to your sales. Linking your sales plan with your stock purchasing will make sure you’re not spending too much money on your stock.
How do you get off the treadmill?
A couple of quick tips
- Check all your profit margins to make sure you are making the right amount of profit on every sale
- Create a sales plan so you can be clear about mapping out how much money you have coming in
- Make it a monthly plan if you find a weekly plan is too much to maintain
- Create a stock plan linked to the sales plan so that you can avoid spending too much money on stock, as well as clearly identify how much you need to be budgeting for outgoing stock costs
Following these simple principles will help you have a better handle on the costs of your business and help you avoid that treadmill feeling…
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