With the cost of living crisis squeezing businesses across Australia, the battle to achieve long-term profitability and sustainability continues. Demonstrating exactly how tough Aussie SMEs are doing it, recent research from Prospa reveals nearly one in five small businesses (18%) have no cash reserves.
Rising costs have impacted consumers’ likelihood to spend on non-essential items and services, leading to a stagnancy in sales. Deloitte’s Retail Holiday Report 2024 indicates the trend is set to continue this holiday season, with 76% of Australians looking to slash their spending. On the other hand, The Australian Retail Association forecasts pre-Christmas sales to be up by 2.7% from 2023, making it hard for retailers to adequately manage their inventory due to conflicting insights.
During similar periods of financial uncertainty, it’s never been more important for retailers to take control of their cash flow. Implementing strategies like flexible operations, embracing technology and accessing alternative finance could be the difference for many retailers this holiday season.
Make your inventory flexible
Inventory management is a tricky balancing act for retailers. Too much stock can incur high upfront costs, while too little can result in revenue and sales left on the table. Optimising your inventory can free up cash that may be tied up to unsold products while ensuring these products aren’t sold out too often. Having a clear view of the amount of stock needed can also prove essential for cash flow efficiency and maintaining a strategic view of a retailer’s future. However, with unpredictable consumer spend, these issues can become unavoidable, making it important for retailers to make the most out of a difficult situation.
One key thing for retailers to consider is past sales trends. Determining the pace of products through historical sales data can support how much of that product is required during the same time period the following year. For example, if a product sells well during the Summer months in 2023, a similar outcome in 2024 can be determined.
When overstocking has occurred, taking advantage of seasonal promotions such as the Boxing Day Sales can help move inventory on. Although some revenue may be lost when applying big discounts to products, having inventory gather dust is more of a financial loss.
Embrace new technologies
In a tech-first society, many retailers have already utilised technology to improve the customer experience. However, technology is just as important in the back-end to ensure cash flow visibility.
Solutions like profit and loss projection tools can improve the clarity of how a retailer’s business model is performing. By calculating expenses through these tools, retailers can develop future sales targets that must be hit to maintain a steady profit while determining the price of products to ensure this is possible.
Similarly, centralising payments and invoicing into one system can make managing cash flow clearer. When all financial activity lives in centralised platforms, funds are more visible and accessible from the get-go, allowing retailers to have more streamlined visibility into finances. Tools like MYOB or Xero can automatically track revenue and expenses, streamlining cash flow management.
Leverage alternative lending
There is a common misconception that borrowing cash equals bad debt for a business. However, with alternate lending, retailers can have easier access to financing with more flexible options compared to traditional banks.
When accessing lending from traditional operators, a standard hurdle is the length of the approval process, typically taking months to finally get the green light. Through an alternative lender, this process can take as little as 24 hours, giving retailers a boost in cash flow whenever needed.
Moreover, if a retailer hasn’t been operational for enough time to provide two years of tax statements, lending under traditional means can be particularly challenging. Alternate lenders strip back these barriers, accepting applications with more leniency depending on each situation.
Alternatively, creating a line of credit with a loan provider can equip retailers with easy access to extra funds, without the hassle of reapplying each time. It also offers more control than usual loan commitments, granting the ability to only draw down what retailers need and only paying interest on what was used.
The ongoing cost of living crisis has been a challenging environment for Australian retailers. Although rising costs have impacted consumer spending, conflicting information has made the environment unpredictable, meaning efficient cash flow management has become paramount.
Flexible inventory handling, up-to-date backend technology and alternate lending options will be key for retailers to remain strong during periods of financial instability, even in the most unpredictable of times.
Beau Bertoli is co-founder and chief revenue officer at Prospa.