In retail it’s important to stay on top of your finances to enable improved forecasting and risk management. This is where budgeting comes in and there are some key components that a budget should comprise of.
- Incoming funds need to be balanced with outgoing expenditure.
- Revenue Streams – cash, cheque, vouchers (another form of credit sale), credit card payments
- Short term liabilities i.e. payments owed to suppliers
- Overheads such as rent, payroll, taxes.
Taking all these elements in to account and following the simple steps below will put your retail store in good stead.
Step 1 Create a Cash Flow Projection
Not as complicated as it sound. It’s a simple spreadsheet.
The spreadsheet is completed as follows:
Step 2 Projected spending and earnings
This is where you need to enter into the spreadsheet how much you think you are going to earn end spend in each month for the forecasted period (usually the next year). At this point you should take a look at figures for last year. This will help you to forecast sales patterns and seasonal fluctuations.
Tip: Don’t forget to factor in any developments you’ve made over the last year. Have you added retail space? Launched an advertising campaign? Such enhancements may alter your budget figures for the coming year so it’s important factor this in to your figures.
Time for some maths…
Add together your revenue streams on the top half of the spreadsheet. This will give you your gross revenue for the month.
Then add together your outgoing expenses on the bottom half of the spreadsheet, which will provide you with your gross expenses.
To work out if you have any surplus or deficit for each month do the following calculation:
Gross Revenue – Gross Expenses
If you do have any surplus or deficit, then carry the amount over to the revenue section for that month.
Step 3 – Is everything correct and what next?
Take a look at your cash flow projection and make sure your happy with your projected figures. Now identify any periods where you think you might have difficulty making repayments on loans to suppliers or paying wages. DON’T PANIC. The key to overcoming difficult periods is developing a strategy. Are there any loans that you could make available for this period? Or could you negotiate a longer repayment period with your supplier? What about making cuts in expenses? It’s important to create a strategy so that you are prepared when the time comes.