For most businesses January means saying goodbye to the hustle and bustle of a mere month earlier. As things slow down and the new year gets its start, it?s important for retailers to pause, review the previous year, and make sure they have a plan?or, rather, plans?in place for the one ahead.
There are three plans in particular every retail business needs:
Marketing Plan
Buying Plan
Cash Flow Plan
Without these three plans and a good understanding of how each one works?and how they work together?consistent year over year growth is practically impossible, says Bill McBean, author of The Facts of Business Life: What Every Successful Business Owner Knows That You Don?t.
?Consistent growth will not occur because the net result of this lack of understanding will result in continual crisis management based around the lack of cash to operate the business properly, or a combination of too much inventory, some of which is very slow to turn, and a marketing and advertising plan dictated by the crisis and cash restraints,? he explains. All of that can be avoided, however, with a bit of planning up front.
A marketing plan will describe the strength of the market, what products will turn (sell) the fastest, and what products will provide the most gross profit, explains McBean?things that you hopefully understand fairly well. Yet you should note any recent changes or trends as you create your new plan for the new year.
From there, plan out what external marketing and internal marketing strategies you?d like to use this year. Set up a schedule based on holidays and sales events; that schedule can then be used to determine when external marketing is needed and what products to place in internal hot spots (premium places on the sales floor like endcaps or displays) to help promote them in coordination with external marketing efforts (such as advertisements).
For example, a Valentine?s Day promotion might include an external campaign urging customers to come into the store for ?something sweet for that person they?re sweet on? and then the store might locate chocolates and flowers in premium spots within the store.
If a retailer overstocks on low margin products, it can disrupt cash flow; but if the store under stocks on the products that bring customers into the store regularly, they?ll lose customer loyalty. This is where creating a buying plan comes into play.
The buying plan should include regularly stocked goods and new products, as well as plans for how often the store will need to restock. This should be based off a combination of the previous year?s sales and expected sales growth for the upcoming year.
McBean says it?s also important to note that there are two common mistakes many retailers make when it comes to their buying plan:
Buying What?s Cheap ? ?They fall into the trap of buying something not in their marketing plan because it?s available at so cheap a price, forgetting it?s cheap for a reason?low demand.?
Over Buying Products in Demand ? ?Many retailers make the mistake of over buying products in high demand. These products can quickly become very competitive in terms of selling price, which means the gross profit available on these products gets squeezed because of the price competition. If this becomes an issue, products that can contribute additional gross profit have to become a consideration. The buying decision is a balance in which the marketing plan and gross profits have to be considered.?
Retailers should keep these things in mind as they create their buying plan and update it throughout the year.
The last?but definitely not least important?plan that every retailer should have is a cash flow plan. Poor cash flow is one of the most common reason small businesses fail. Your cash flow plan should show how much money you expect to flow in and out of your business over a given period of time.
?Cash flow plans are critical, especially for new or expanding businesses,? says McBean. ?Without the understanding of your cash requirements, mistakes in decision making will occur?not maybe, will?because cash burn decisions impact so many areas of the business, from reducing debt requirements to payroll to increasing marketing and advertising to equipment purchasing decisions to additional inventory to paying bills, and so on.?
It?s essential that outgoing products bring in enough revenue to meet expenses while leaving additional cash on the balance sheet for investments that will help the business grow.
A cash plan includes both expenses and income. You need to make sure that the money coming in exceeds the money going out during each given period. Even if overall profits are high, if those profits don?t come until fourth quarter you?ll have trouble paying vendors during the first three quarters of the year.
The Boy Scout motto is ?always be prepared.? That?s an important lesson; unfortunately it?s one that many retailers learn too late. ?Unfortunately the importance of preparation, and how to do it, gets far too little attention,? says McBean. He draws an analogy between running a business and playing a sport??Whether you play an individual or team sport, you probably spend about 90 percent of your time practicing and only 10 percent of your time in competition.?
Businesses should do the same when it comes to planning and preparation for the New Year?after all, he says, sports are just a game. Your business is your life.
Melissa Breau
Melissa Breau is a freelance writer and editor who likes long walks on the beach and arguing about comma placement. She specializes in helping small business owners put their passions into words. Her resume includes a Masters in Publishing and time spent at Pet Business Magazine, Columbia University Press and in the Manhattanville College Marketing Department. Catch her on twitter to chat: @melissabreau.
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