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Home»For Buyers»Retail News»Leveraging Accounting to Boost Profits
Retail News

Leveraging Accounting to Boost Profits

PublisherBy PublisherNovember 18, 20215 Mins Read
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by Nauman Poonja

Succeeding in business is not only about a great idea and the right product — it is also ultimately about making money, and making money means managing the books. However, just “keeping the books” is not enough to make sure a business’ financial “house” is in order. Too often, independent retailers miss opportunities to increase their profits and streamline their operations because they are not taking a close enough look at accounting. 

Letting accounting serve as a reactive measure to get the bills paid, collect payment, and meet banking requirements means a business may be leaving money, and maybe worse, time on the table. Instead of accounting serving as a potential point of failure or inefficient cog in a company’s well-oiled machine, here are some simple steps every small business can take to tidy up:

Automate Accounting with the Right Tool

First and foremost, a business should automate accounting so it can get more accurate information, avoid missing payment deadlines, and remain compliant with state and federal regulations and tax laws. It can do this with the proper software, but each business is different. The right system will depend on the size of the company and the complexity of its channel(s). If it only operates in the B2B space, then QuickBooks is a great option. However, once a business moves to B2C, then something like Zoho will help management better monitor channels and leverage accounting data. Team members will need to know how to implement the tool and connect it with other tools to get the most accurate information to make the right decisions.

Know What is Making Money

What if a business is underpricing products and has no idea? Could it say what its top product is? When a company sells 1,000 products, it may not have a clear understanding of what its most profitable or highest selling product is, but accounting can. If a retailer has a few bestsellers that maintain strong demand, then it might consider adding a bit of margin. It can test the market by incrementally raising the price until it hears “no” several times, which will both reveal what the client is willing to pay and directly impact the bottom line.

Know Where the Money is Made

Further to understanding top products, accounting can help create visibility into profitability by sales channel. Depending on the system being used, accounting can capture data in a way that allows management to have a clear line-of-sight into what channel is performing the best and making the most profit, ultimately guiding sales strategies accordingly. Additionally, with so many businesses shifting to B2C because of the pandemic, several companies that were formerly wholesalers have had to adjust to account for sales tax across multiple B2C channels. 

What You Need to Know About Taxes

Being proactive is always better when it comes to paying taxes, and states generally allow companies to backdate sales tax payments if needed. If small businesses plan ahead, they can make sure cash flow is healthy during times of higher tax payouts. While management focuses on sales, there are multiple tax and reporting deadlines that it will not want to leave until the last minute, which, if missed, will cost even more. Instead, they can set-up alerts ahead of time and automate payments for things like sales tax, franchise tax, monthly payroll deposits, quarterly and annual payroll filings, 1099 filing, annual payroll taxes, and property rendition taxes in some states.

Stop Funding Customers

Taking a hard look at payment terms can expose what keeps cash flow positive. If accounting reviews long-term contracts for bad payment terms, they might find they are constantly funding customers and paying interest to the bank on their behalf. It may be enticing to have generous payment terms in the name of client relations, but in doing so, companies may compromise financial performance. Also, if retailers know what times of year typically have more or less cash flow, they can plan ahead and bank cash during abundant times in preparation for leaner ones.

It can be tricky to dedicate the brainpower to ask and address some of these deeper questions in the midst of operating a business. Independent retailers are great salespeople, but not numbers people, and may have just one person dedicated to the task, creating a potential single point of failure. Conversely, a built out internal accounting operation may require more headcount than a small business can afford. Tapping outside expertise like a fractional accounting team for either a temporary financial house cleaning or on a long-term engagement can introduce the right thinking – freeing time and increasing profitability. These outside teams are incentivized to find the best solutions, and will dig deeper to identify and help establish the best practices needed to set a retailer on a long-term course for numbers that add up.

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