Apart from founder or management dysfunction and the many other factors kill retail businesses previously discussed, (see our previous posts here), technology, cash flow and treasury management dysfunction, failure to take care of your personal health and safety, poor inventory management practices, over-trading, over expansion without taking present capacity into consideration, are some very Critical Failure Factors that easily, very easily kill retail businesses.
In retail, technology is very crucial to your success or failure no matter your size. To avoid the risk of your business failing, acquire technology solutions that will help control your procurement and inventory processes and enable optimal performances your Sales and customer service management functions. Without an adequate technology solution, it will be difficult or almost impossible to have an accurate value of your stock (in-store and at warehouse). “Balancing” your daily sales account i.e. cashiers’ sales (both cash and POS) and matching those against actual stock that have left your shelves as a consequence of those sales transactions, will be difficult, very difficult to track.
Technology has to do with your systems, computers, networks and data storage. Since all aspects of your retail business operations can be automated,acquire a solution that can handle all the aspects e.g.inventory input, Sales, Accounting and Customer Service. Examples are Metropos by Metrofountain and Quickbooks (there are many others, just do your research).
When buying technology, buy the type that best suits your organization’s needs and budget, and can easily integrate with other solutions in your environment. Scalable technology is that technology that can upgrade to handle the expansion of your operations. Also, buy a solution that will not require monthly upgrade fees and maintenance charges. If possible, buy a one-off license that will only require an upgrade once in a long while. Without adequate technology, control and accountability will be difficult in your business and if you have no control, be sure that you are headed downhill.
Your Personal Health, Safety and Security:
Most retail business owners handle many functions on their own. This is okay in your early stages especially when your capital is not that big. Realize however that you may handle 3-4 people’s jobs but you are not 3-4 people; therefore ensure you get someone or a team to work with you to share the stress of multi-functions and maintain a healthy work-life balance. Your business does not have to close down because you or a member of your management is sick or out of town. For sustainability, ensure there is succession by having someone or a team work with you in your business. This will ensure continuity.
The challenge that most retail business owners usually have,(especially the one man business model types) is who to bring in as a manager or an assistant. Many retail businesses bring in family members, in-laws and friends. Everything is wrong with these decision. Unless and until you have adequate structures and controls in place and have made it clear that everyone, no matter the relationship, must abide by the rules and policies,DO NOT BRING IN FAMILY MEMBERS,except maybe your wife and children,if they share your vision and want to do the business with you! As consultants, and based on our experience with several retail businesses, we recommend that you DO NOT BRING FAMILY MEMBERS INTO YOUR BUSINESS EXCEPT YOU HAVE STRUCTURES & POLICIES IN PLACE. IF YOU HAVE THIS IN PLACE, ENSURE EVERY FRIEND, FAMILY MEMBER OR IN-LAW UNDERSTANDS IT AND IS READY TO WORK WITH IT! Even then, implementation of penalties will be difficult in the event of a breach; so we usually recommend that no family member in your business except your wife and children ,again, if they share your vision and want to continue the business!
From our experience however, continuity and sustainability works best when you give some form of stake or ownership to your senior most trusted, skilled, experienced and loyal employees (this is a topic for another day)
Poor Cash Flow Management:
Poor Cash Flow and Treasury Management is one very important Critical Failure Factor that kills many retail businesses very fast. Making profits is a sign of good business but what keeps retail businesses running is enough cash coming in through sales. An healthy cash flow ensures that you make purchases and can meet your trade obligations (debts) to your creditors.In retail, profit margins are generally low; that you are making so much sales does not mean you are making so much profit! From our experience with several retail businesses, mismanaging cash flows easily kills the business.
Poor Cash Flow Management will weaken your relationship with suppliers when payments become uncertain and unreliable (A big retail brand closed shop few years ago in Uyo,Akwa Ibom State, Nigeria because it couldn’t pay suppliers leading to the suppliers protesting with placards in front of the big shop). Mismanaging your Cash Flow will also lead to loss of payment discounts especially on promotional(promo) deals like the regular “Buy 10 to get 2 Free” discounts by wholesalers. Weakened relationships with bankers, other informal lenders besides your trade creditors, increased and high cost borrowings with higher finance charges and interest expense are also direct fall-outs of poor Cash Flow Management.
To avoid getting into this bind, have a Cash Flow Budget. A Cash Flow Budget will help you maintain a healthy cash management regime. For example, a Cash Flow Budget will help you to plan your payments to suppliers and payments for expenditures on the basis of Cash that comes in daily! This way, your creditors and suppliers will have confidence in your organization. If you do not want your business to fail, manage your Cash Flow adequately, establish a Cash Flow Budget today!
Poor Inventory Control Practices Is a major Retail Business Killer
Inventory is the engine of retail business. It generates all the income and is the reason why customers will come to your shop in their numbers or not. However, inventory takes up a lot of cash, so you must strike a balance between purchases that will not lock up your cash and high-selling-high-demand products. Your purchasing team, current and new suppliers and customers will always want you to stock more and more products; customers will always ask for new or different products and some will never come back to buy after you stock it! In the end, you may hold more than necessary inventory and this can easily kill your cash flow and retail business!
To manage this situation and offset the pressure to over-buy or buy the wrong products, create an Inventory Buying Budget! This budget is usually based on some predetermined factors like high-selling-high-demand products, high profit-high-potential-products etc. There must be a percentage of the budget that’s left to the purchase of new products. Lastly, follow your Open-T0-Buy(OTB) plan and budget! Your OTB budget is the basis of your Inventory Buying Budget!
Understand that over a third of the retail businesses that fail, fail not because they are unprofitable,(most are actually profitable as at shut down dates) but because they fail to avoid what we call the Critical Failure Factors that could act against any retail business! Some retail businesses simply run out of business because their creditors have run out of patience. Don’t let this happen to you.
Thinking of starting a business or strengthening your existing business? Come talk to us! Send us an email here firstname.lastname@example.org or call us on +234 80 561 78895 or +234 81 8170 1100. Also follow us on Facebook @SteepleGlobalServices or our Twitter handle @steepleglobal or Instagram@Steepleglobalservices and let’s discuss ideas and help you begin your journey towards financial freedom!
Steeple Global Services(www.steepleglobal.com.ng ) 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!!