Rant and Rave!!

Sometimes a blog can turn into a bit of a rant and apparently that is what this will be.  I was just in a client’s location in Ohio and for the life of me I cannot figure out what is so difficult to grasp regarding cash flow.  We all say we understand cash flow and what is so important about it.  After all, if you don’t have cash, you can’t pay your bills.  That is what cash flow is all about right??  Oh wait a minute, maybe it is a little more complicated.  Maybe you have to pay your bills at different times during the accounting period.  Maybe your floats are a little different.  Maybe there is an extra payroll in the period.  Maybe your shrink is a little higher than forecast.  (Darn those thieves!!)  Oops, forgot about taxes and oh yes there is that increase in cost on beer this month.  Oh no, said Mr. Bill.  We are out of money.  Chapter what?  7, 11, 13??  Sounds like Vegas and if that is how you are managing your cash, that is what it is. 

The biggest bit about cash is you have two major categories that nibble away at your cash.  First is cost of goods.  No matter what, you have to keep product in the store or you have nothing to sell.  I believe that pretty much puts you out of business.  The next issue is your operating expenses.  Now you have something to sell, you just don’t have anyone to sell if for you or keep the lights on.  Labor alone can be 50% of your revenue.  Ouch.  Goodness, what is an honest man to do?  Back to my original reason for the rant.  I am walking a location with this operator and I am looking at his merchandising.  The bottom shelves of his liquor department which also handles most of his slow sellers is packed out.  Two rows all the way front to back filled with every SKU available.  And of course, my first question is why?? Well, I got a good deal if I bought full cases.  And do you sell full cases?  No.  Well that is probably why he tried to sell you full cases.  Now, whose money are you using to purchase these cases?  Well, mine of course.  Duh!!  Now we have to wonder who to duh refers to, don’t we?

And over and over again, this scenario is played out in stores all across the world.  I got a good deal, everyone is selling it, my competition is doing it, etc.  What we neglect in this scenario is what the best is for us as an operator?  Cash.  And to be more specific, cash flow.  In and out.  Cash is like blood or any other vital medium necessary to support an organism.  Cash supports an economic society just like oxygen supports our bodies.  If you do not think you need an economic society to survive, I hope you have some very large gardens planted.  As a matter of fact, I am watching a program on CNBC about end of the world scenarios.  Not too pleasant to be sure.  The same happens when cash dries up.  Just look at the credit crisis in 2006 after CDO started melting down. Ouch. For everyone in business and everyone who was trying to start a business.  Or anyone who just tries to make a purchase.  So why would someone who has been bitten by this ignore it in their business plan?  It is like someone going to Costco or Sam’s buying ten cases of toilet paper when they use one roll a month.  So, why do we doi it?  Same reasons as before.  I GOT A GOOD DEAL ON IT!!  In sales, the only time you get a good deal is when you can sell it shortly after purchasing it.  Inventory turns are the usual metric monitored to insure you are getting the best bang for your buck.  In the world today, that metric is becoming quickly outdated.  The best retailers are using much more sophisticated metrics in measuring cash flow which is what we will discuss in our next post.