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Managing for Bottom Line Cash Flow, Part Eight

  
  
  

In the world we now live in, financial health requires a commitment to proven retail business fundamentals, a commitment to operational discipline, and a heightened attention to detail.

In my last post, I reviewed how variable cost structures promote positive cash flow.

There are a number of proven retail fundamentals that drives positive cash flow. Let’s move on to financing working capital needs.

6. Build Working Capital Internally

Do you borrow the money you need to finance your seasonal working capital needs, or are you able instead to fund your needs from accumulated cash flow? Put another way, at the end of your peak selling season, does the cash on hand go to pay back the outstanding loans, or does it go toward the merchandise you’ll need to bring in for the next season?

After a very difficult couple of years many retailers find themselves highly leveraged. Credit lines have been fully tapped, payables have been extended, and in the most troubling cases, credit cards have been maxed out. While this accumulated debt leaves balance sheets in increasingly precarious positions, the expense of sustaining all of this debt further drains cash.

How do you reverse all of this? By For many, the first step is to consolidate as much of the debt as possible into loans with terms more favorable than extended payables or credit cards. But the larger answer (and a prerequisite for any debt consolidation) is to manage your business to generate consistently positive cash flow.

Ultimately, I encourage my clients to set for themselves the goal of becoming self-financed. I encourage them to finance their working capital needs from accumulated cash flow.

How do you do it? By adopting a monthly cash flow plan that leaves you at the end of each season with ever-increasing cash balances, thus gradually (or not so gradually) reducing the amount of your seasonal working capital needs that you have to finance externally. It’s a project that will leave you with a much healthier balance sheet, and sustained positive cash flow.

A cash flow plan promotes positive cash flow.

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