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HAVE YOU MADE PLANS FOR THE NEW YEAR?

You wouldn't go on a driving trip without having some kind of plan on where you want to end up and how you are going to get there. You wouldn't drive down the highway with your eyes closed. However, I see it all the time that retailers do not make any plans for how they are going to achieve their profit goals.  Not only that, too many do not even have any profit goals! They just go on from day to day and year to year "hoping" they will make a profit, be able to pay their bills and remain in business. 

There is a better way and it does not have to take too much time. Prepare a proper retail plan so you can define what it is you want and how you are going to achieve it. The first time you prepare a proper plan, it will take some extra time.  But once you get through the first one, the plans in subsequent years will be much easier and faster.

What is a PROPER retail plan?
Retail is about Sales, so that is where the plan starts. However, in a retail store it is not just overall sales but sales by classification. This is why for my clients the first step is the preparation of a Gross Margin Plan by classification for the year. The Gross Margin Plan is prepared on an annual basis and requires the retailer to plan by classification:Sales, Initial Markup %, Markdown %, Shrinkage %, and Stock Turn Rate. The completed plan is the foundation for the annual budget as it gives the store's total planned Sales and anticipated Gross Margin. It also provides the store's overall Stock Turn Rate which is then used to calculate the planned monthly inventories for the store (needed for the budget's Cost of Goods Sold section). 

After this has been completed we are ready to plan the store's Operating Expenses. Operating Expenses are relatively easy as we can look at what happened last year and make adjustments for future anticipated changes. For example, we may plan to add a web site so would need to add the monthly costs associated with that. Or, we may have received notice from our electric company that rates are increasing by 15% so would need to adjust that expense upward. Or, due to continuing increases in health insurance premiums we may have found a new carrier and our expense will be reduced.

Unless the store is operating without any debt (which is rare), there will be interest expense which must be calculated. Also, a store can show a profit and still have cash flow problems. Therefore, once the budget has been set up the next step is to prepare a Cash Flow Projection so you will know if there will be any cash crunches in the future that need to be taken care of, either by arranging some dating with your vendors or a short term bank loan. The Cash Flow Projection will tell you when you will need the extra funds and when you will be able to pay them back. Take this to show your banker and you will be much more likely to receive the short-term loan you need.

In summary, a good retail plan includes:
            Gross Margin Plan
            Expense Budget
            Cash Flow Projection

It will take little time, especially the first time it is done, but it is well worth the effort and can mean the difference between survival and a GOB (Going out of business sale). For those who would like some help with this project, I provide this service at a flat rate of just $1,500.

FINAL IMPORTANT STEP
Once the plan has been set, do not just put it into a drawer thinking your job has been done. For the budget to be useful to you to help you achieve your goals it must be compared to your actual numbers every month. The easiest way to do this is to enter your budget into your accounting software so the comparisons are made automatically for you every month. Also, you must take a few minutes every month to review the comparisons to budget. Unless you do this, the plan is worthless as you will not be making the adjustments that must be made to achieve your goal.

Remember that a goal without a written plan is just a fleeting thought.


The Retail Management Advisors is a BBB Accredited Management Consultant in Allen, TX

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