Earlier this week, two more retailers became insolvent which takes the total to five over the past week. Sales figures for December and January vary depending on where you look but suffice it to say that sales were flat. It is not unusual for retailers to hang in for the Christmas trading period and then go belly up in January or February. So why are so many retailers in strife? Well, the answer to this would consume several volumes. But arguably the single most important reason is cash flow or
lack thereof. When retailers hit a brick wall and run out of options, one which they consider is to sell the business – not a bad option. However it takes time. On occasion we are asked to find buyers for retail businesses and the question we ask up front is how long do we have. The answer varies but can be anywhere from 1 week to 6 weeks!
This illustrates how short sighted and naive many retailers are. Of course we don’t even consider these cases. If the time parameters are 6 months or more, we may pursue the matter.
There is another question that is most odd. Why is cash flow so hard? It is something that a junior school student could be taught in about 60 seconds. There are free tutorials and templates on the internet. But this is clearly not the issue. Cash flow problems arise from badly controlled debtors, overly demanding creditors and owners taking too much cash out of the business leaving it high and dry. And then there is the urge to grow and spend money on fit outs, inventory and other items. If the retailer imports goods, this is an added burden. Quite simply, there isn’t enough cash to keep the business liquid.
So the moral of the story is simple. Plan ahead in a responsible manner and if you think you may have a problem, act early and get professional advice. It really isn’t that hard.
Stuart Bennie is a retail consultant at Impact Retailing www.impactretailing.com.au and can be contacted at stuart@impactretailing.com.au or 0414 631 702
