Retailers, while not acclaimed fortune tellers, quite often are asked to predict the future. How much inventory must be purchased to meet demand? Will markdowns be required? How will the new selling year fare? Without proper analysis of your financial situation, these predictions are nothing more than uneducated guesses. Instead, retailers must perform a thorough evaluation of their business and its success in past years. This can be done by answering the following five questions, before a business plan is set in full motion for the new year:
1) How did the past year’s sales compare with sales in the past three to five years? If your business has a history, use the archived statistics to your advantage. Look for trends within your sales performance. Hoagland-Smith emphasizes, “You can predict, based on the analysis, what will happen in the future.”
2) How did the past year’s profits compare with profits in the last three to five years? When measuring profitability, add up revenues and then subtract expenditures. Every little bit counts, and if you are saving/earning a little more each day, week, month or year, you are making a profit. Profitability is the key to sustainability.
3) Did your business meet its goals? While most retailers share a similar goal in making a profit and increasing customer traffic, each store owner may have a list of goals they were hoping to meet and exceed for the year. These goals could be in sales, marketing, management, or finances. Meeting goals shows determination, innovation, and makes next year’s goals that much easier to attain. If you haven’t made goals in years past, consider this an opportunity to start your success off on the right track.
4) Are repeat sales up, down or flat? Remember, the target is not only new customers, but loyal customers who continue to add to your bottom line and provide free marketing through recommendations. Hoagland-Smith mentions, “Encouraging repeat business increases profitability, because you don’t have to spend to bring in new customers.”
5) Is overall equity up, down or constant? While your business may seem like your life, as you continually pour your blood, sweat and tears into it, the real value can’t be determined by sentiment. Looking over balance statements and considering items such as the property’s worth, sales figures and the current customer base may help give a more accurate perspective. However, as time is critical in the retail industry and you have products to purchase, inventory to check and your first sale to plan, there are three simple considerations to help you better understand the business numbers, and grow profits in the upcoming year.
First, think of expenditures as assets, and not always as a negative. It can be beneficial to cut out expenses, but not if that expense helps improve your efficiency, build future revenue, or is enhancing your business as a whole. Second, create a smart budget that tells you how much you can afford. If you don’t spend all the budgeted money, you haven’t necessarily done something wrong. Any penny saved may help out with those unexpected seasonal expenses (i.e., energy in the winter or tax season accounting). Lastly, recognize the strategies that work, but more importantly, abandon those that don’t. As Intuit Blogger, Peter Vessenes, writes, “Especially for newer businesses, some strategies will inevitably go awry. A failed strategy does not have to mean a failed business, as long as you know when to pivot or pull out.”