Causes of Retail Business Failure:The Critical Failure Factors (CFFs)…Cont’d

A Shopping Centre

Building your strong retail brand is easy(if you know what to do or hire someone or organization who knows) but getting it to fail is even easier! No one establishes a business and deliberately runs it underground; however failure to adopt sound business success practices from experienced experts can very easily send your retail business downhill. As you are reading this, you probably know a business or two that started well,possible did well for some years and then went burst!

Eric Wagner in his publication “Five Reasons 8 Out of 10  Businesses Fail” gives very powerful impetus to this provable fact. Yes, all businesses run on the same set of basic success structures e.g. every business knows that it must operate an efficient customer service system or keep proper books of account but then, there are industry peculiarities that make organizations within the same industry operate in certain ways from others. There is also organizational peculiarities like organizational culture that makes one organization within the same industry, sharing the same set of written and unwritten rules,to operate differently from others. This holds true in the retail sector as it does in other sectors.

To prevent your retail business from failing, you must implement these set of tested rules discussed below(Remember this is a continuation of our publication on “Why Retail Businesses Fail: The Critical Failure Factors”) To get the full list of retail business failure factors to avoid, visit our blog  or  click here and  Sign Up Here  to receive our highly informational and valuable business success posts.

Poor or Weak and Inefficient Internal Control Structure and Sound Processes will KIll Your Business Fast.
From our several years experience in consulting for the retail sector,stealing of goods and cash (by both customers & employees) is one major challenge that is very prevalent in the retail trading sector. This is closely followed by poor and inefficient customer service by employees! To ensure you save your business capital and ensure your business stays afloat profitably, you must institute a strong internal control system. A strong internal control structure will effectively address shoplifting of your goods and cash theft by dubious customers and staff. It will also ensure an accountability culture permeates your organization while putting adequate safeguards on your goods ( whether in storage warehouse,shop floor or receiving bay) and your cash.

Your Internal Control practices must address your procurement/purchasing processes e.g. who do you buy from (supply chain partners),did they supply all that you bought or are there short-supplied or yet to be supplied items? Did the quantities agree with the unit prices and total valuation per invoice? What’s your trade debt profile? How are the goods  confirmed, what processes must they pass through from receiving,confirmation through  to warehouse and back to your shelves? What about physical and logical access to your computers,systems ,networks and warehouses especially unauthorized access to your inventory databases to prevent unauthorized modification or alteration to stock quantities and prices including unapproved discounts or rebates (these are ways “smart” ways to lose your money).

What about handling of cash sales proceeds, who evacuates the cash from your Sales Assistants(Cashiers)? How much cash must a cashier hold as a minimum before evacuation to minimize the risk of cash loss in the event of robbery?How are you handling or planning to handle sales proceeds from non-cash sources like POS, Bank Transfers or other electronic payment sources? How do you provide assurance that all proceeds that came through those sources actually landed in your bank account and adequate not trumped up charges were taken?

Another area to focus your internal control practices on, is employee movement. Uncontrolled movement by employees, in and out of your storage warehouse or shop floor provides a sure ground for all kinds of losses in retail business ,so how  you handle employee entry and exit into the company premises or facility,where they change clothes and keep their belongings is strategic to ensuring your business does not fail. Note, you can only succeed if you have a good control of your system, if you can’t control it yourself or can’t get someone or a team to effectively monitor and control things for you, your business is in serious danger of failure!

Inadequate Capital and wrong Application of the Available Capital

In retail business, capital inadequacy is an important Critical Failure Factor (CFF). This is because you will hold stock (inventory) in your warehouse. Even if you want to go “lean”, that is, maintain very minimal levels of stock in your warehouse, it’s still your money that will be tied down at whatever level of inventory held. This implies that your procurement practices must be strategic,demand-based or market-based! You and your team must resist the temptation of stocking up  products that are not fast moving; they tie down your capital. Procure 80% Fast Moving Consumer Goods and 20% slower moving goods. Retail businesses keep needing more capital especially when sales picks  up, the good part is that you will always be able to pay back whatever you borrowed, once you implement good cash and treasury management practices and apply all the other factors we previously discussed.

Avoid bank loans in your early stages in retail business instead go for trade credits!:Access to trade credit is a distinct possibility in retail so avoid bank loans at least in your early stages and at all stages(if possible). Trade credit refers to a situation where creditors (wholesalers typically) supply goods to you to sell and pay them later. Trade credit is interest free credit and you will have the opportunity of spreading the payments for those goods over an agreed period of time. Ensure you keep to your payment covenants with your suppliers, no matter the cost. It will do you a world of good! The danger of leveraging excessive trade credit will be high prices and a fairly unpredictable cycle of repayment that may affect your cash flow. You may also be forced to stock and “owe” on a limited variety of product lines and categories that may not really be that fast moving!

Avoid spending your business capital on assets you don’t need, don’t need at the moment, don’t need as much or will possibly never need at all. Every retail business has its own unique needs depending on its size, customer base and investment strategy. You probably will need a car or a few cars, a bus or few buses (for deliveries to branches if you have a branch(es) and maybe a truck or trucks for purchases. So, how do you deploy the capital in your business towards acquiring these assets and still stay afloat? Do you really need those? Will it be cheaper to hire both in the short term and long term? If you must acquire fixed assets, why not consider leasing where you have the opportunity of paying for those assets piecemeal? Again a note of warning!Don’t over leverage leasing,it also has the potential to affect payment for goods that you will need to sell especially during repayment periods.

A third challenge against your capital is avoiding the danger of taking money out of the business for personal uses (drawings) or investment in other businesses at least at the early stages. Completely avoid taking money out excessively if you do not want your retail business to fail! Pay yourself some salary or allowance and maintain a compulsory daily savings in a special bank account. Also, ensure that products are regularly and randomly checked against expiration dates and destruction by weevils, other pests and may be rodents (depending in your location. Note that every packet or piece of product expired or destroyed, reduces your capital by that much value!…to be continued

Thinking of starting a business or strengthening your existing business? Come talk to us! Send us an email here or call us on +234 80 561 78895. Also visit our Facebook page @SteepleGlobalServices or our Twitter handle @steepleglobal and let’s discuss ideas and help you begin your journey towards financial freedom!

Steeple Global Services( ) is a business consulting firm based in Uyo, Akwa Ibom State, Nigeria. We help to bring your business idea into reality, set up your new business for you and/or help to turn around your ailing or struggling business(s) into profit making ventures. We help businesses grow!!