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This is the time of year when most retailers are scheduled to take their annual physical inventory count. Along with that comes the interruption of daily lives, very serious attitudes of bookkeepers and accountants, and, of course, extra expenses. Oh yes, those! Typically, preparing for and taking the item-by-item count involves a lot of emphasis on "Make sure to count everything. We don't want to miss anything!" This often-loud focus is true whether the counting is done manually, by scanning, or any other means. "We must count it all!" Okay, but why? Why is it so darn important to count every last fish hook or candy bar or tube of lipstick?!
It helps to know why.
At the financial year-end of every business, a 12-month Profit & Loss Statement is prepared to re-cap the year (for tax purposes, etc.) Using a very simplified example, it might look like this:
Easy peasy, right?! But let's look again. Where did that $600,000 Cost of Goods come from? Answer – From a three-part formula:
Ah, but what if they had missed counting $15K of inventory?
Conclusion: Every key person in your retail operation should be reminded of the three-part COGS formula. Why? Without profits, they won't have a job. Simple.
It’s very common for retailers to have their fiscal year end be January 31. It’s after the Holiday season, and inventories are generally low.
Likewise, it’s also very common that retailers are taking (or having a service take) physical inventory this weekend or soon thereafter.
As we all know, counting inventory by hand is tedious, boring, expensive and, frankly, no fun at all. However, whether by hand, by barcode, by any method of technology, the inventory count matters, and it matters a lot!
Let’s review the Big Picture for this business doing $700,000 in revenue, with $290,000 in total operating expenses.
Managing inventory – arguably the #1 responsibility of a retailer – has been beset by a host of new and sometimes daunting challenges since 2020. The last few months of 2022 only made matters worse. As supply chain issues seemed to subside, foreboding talk of a recession dominated, dampening customer spending. Many retailers are feeling a bit over-inventoried as a result. Similar to that sense of having a few added pounds after the holidays. In other words, a situation that is crying out for perspective. And The ROI has you covered on that!
Here we are, in the first week of December, in this tumultuous pandemic year of 2020. Maybe more than ever, you need to have a grip on your cash flow! What will you cash flow look like during December, January and February? Since you must be able to make informed decisions about your business, every day, an up-to-date cash flow calculation is essential. Remember, profits are interesting, but it's cash flow that's significant! Cash flow doesn't have to be fancy. In fact, what most owners need is just to have the basics on the back of an envelope. The savvy ones always have that with them.
A few years ago we were on a PBS news show about retailing's ups and downs. Several months later, one of us ran into a teacher of one of our kids. That person excitedly mentioned having seen us on TV, saying "I didn't know you knew so much about retailing." (Yep, known just as someone's parent, right?) But then this very well-educated person said the key thing: "I never knew there was so much to be known about retailing!" Well, that incident happened a few years ago when retailing was perhaps more understandable, even more predictable. Alas, those days are history! Today, nothing in retailing is quite as understandable or as predictable as before. Or as manageable!
Each year at this time, our thoughts turn to turkeys. No, not the ones that will adorn many dining tables on Thursday. But the "turkeys" lurking amidst your inventory. You know; non-selling, distressed, slow-moving, old, unappealing leftovers among your merchandise. But this year, frankly, our worries extend beyond the turkeys. Here are some of the reasons why.
As a result, in this environment, consumers are scaling back their discretionary purchases, and/or choosing to spend on travel, dining out, or other experiences versus retail merchandise. Not an upbeat prospect for retailers, is it?
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