Cash flow is a critical area for all companies to manage, improve, and forecast, and it means different things for different types of organizations. Grocers should closely watch these four areas.
Cash is King. It may sound trite, but it’s also very true. Cash flow is a critical area for all companies to manage, improve, and forecast. However, it means different things to different organizations. For grocers, several areas that affect cash flow include inventory management, debt management, tax planning, and loss prevention.
The key to maximizing cash flow is getting all areas within your organization moving toward the same goal, from turning inventory into cash to maximizing tax-saving strategies.
Inventory Management
Shortening the cash cycle, or the time it takes to turn inventory into cash compared to the time required to pay for the company’s goods and services, is one way to improve cash flow and reduce borrowing costs. For many retailers, it’s vital to present a clean, well-lit, fully stocked store. However, it can become difficult to manage the fine line between being fully stocked and being fully stocked with slower moving goods, some of which will become spoilage. Do you view your inventory as future sales and continually look for ways to shorten their shelf life? If so, how does technology play a part in this process? Do your department managers utilize past sales history to base current purchases, or is it based on a “gut feeling”? If you haven’t started using this type of tool at your company, consider trying it — perhaps one department at one store — and study the results. You may find that there’s a better way. The critical concept to continually keep in mind is that the shorter period of time it takes to turn inventory into cash, the shorter your cash cycle will be.
Debt Management
Another area that’s important to review on a regular basis is your debt management strategy. Interest rates have been on the rise over the past year and a half, increasing borrowing costs for most businesses. However, to protect against variable rate increases, some companies have entered in SWAP arrangements, whereby your variable interest rate is exchanged for a fixed rate, protecting against future rate hikes. A SWAP does come with some risk and might not be for everyone; however, it’s a tool that’s becoming more popular and can help save you interest costs.
Tax Planning
Recently, the lawmakers in Michigan were unable to come to a complete agreement on the future of the single business tax. To Michigan’s retailers, this means that the concept of a captive employee leasing company is still in play. If you haven’t analyzed this strategy, it may be time to revisit the issue. For most companies, this can reduce your state tax liability by a substantial amount. For example, one company we analyzed several years ago could have saved between $250,000 and $300,000 by employing this idea.
Loss Prevention
When is the last time you reviewed your loss prevention strategies? Section 301 of the Sarbanes-Oxley act of 2002 requires public companies to install a confidential, anonymous reporting system so that employees may report misconducts. A recent fraud study conducted by Association the Certified Fraud Examiners reports that the average fraud scheme lasts 18 months; moreover, U.S. businesses lose approximately 6 percent of revenues due to occupational fraud and abuse. The best defense? An anonymous fraud hotline. Approximately 30 percent of abuse is reported in this manner, which is much better than the second most common method — pure accident.
Cash Is King
The key to maximizing cash flow is getting all areas within your organization moving toward the same goal, from turning inventory into cash to maximizing tax-saving strategies. Cash is king — it’s time we started treating it like royalty.
