To be a successful business owner you need to be involved with the
financial planning for 2023 and review of 2022 to better understand the
trajectory of your business, how you performed vs 2022’s plan and
make informed decisions for 2023. Below are ten recommendations as
you begin 2023 and plan for a successful year.
Our Co-Founder, Larry Hebert has assembled the best of the best in terms of advice to get that cash register ringing, owners' draws increasing and your overall cash flow to have a STELLAR 2023!
Before you start in, be sure to get Larry's gems and gold nuggets of financial wisdom in your inbox:
And a special plug for our favorite podcast, The Retail Whore! Live and breathe retail, then this is a must watch/listen podcast. We love Michelle and her program so much, we're an official sponsor, CHECK IT OUT!
Meet with your accountant - Review 2022 results before you begin the financial planning process for 2023. See the results of the operation: revenue, cost of goods, gross profit margin, operating expenses and net income. These will be a key component in planning your 2023 forecast.
2023 cash flow and P/L forecast – based on your 2022 results and new strategies you have developed, create a path for success in 2023. Enter in your anticipated revenue, operating expenses and all non-operating expense cash expenditures (draws, loan principal payments, capital investments, etc., along with additional cash infusions other than operations (loans, personal funds, investors). Look at the projected profitability and ending cash 12/31/23. Make any changes needed and once you arrive at your goal create a strategy to execute the financial plan.
Make financial goals for 2023 – identify clear financial goals you want to accomplish (profitability, ending cash, Gross Profit Margin %, etc.).
Create an OpenToBuy (OTB) Purchasing Plan – Product based businesses on an annual basis spend between 50%-70%+ on inventory. Developing an OTB plan by creating a base inventory and specifying the annual turns will provide a pathway to success for product-based companies. The OTB will specify how much inventory can be purchased each month and monitor it all so retail businesses do not over or underbuy which impact both cash flow and profitability.
Key Product Category Management – An essential part of the OTB plan to ensure investment in inventory is maximized, is allocating dollars to the top Product Categories based on their % of overall sales. When this is done cash flow and profitability increases as you will not over or underbuy in your key categories. Based on client analysis 6-8 Product Categories generate 75%-90% of the business’s revenue. When these are managed properly the business has a better annual inventory rate and less “bad” inventory on the shelves.
Determine 2022 Annual Inventory Turns – This is a critical metric for a retail business. The better the annual turn the less inventory you need on the shelves to meet your projected revenue goals. The is determined by taking inventory totals on the 1st day of a month for 4, 6 or 12 months, add these inventory figures together and divide by the number you used. Then divide this average inventory number into the Cost of Goods Sold for the 2022 and you will obtain your Inventory Turn Rate. Although there are industry
exceptions (jewelry stores average turn is 1.6 annually) the average retail store should turn their inventory 3-4 times per year with 4, or every 90 days, being ideal. If you turn significantly more than 4, you’re missing sales and you can’t replace the goods quickly enough. If you turn less than 3 you have too much inventory that is not “moving”. Both turning too quickly or not enough result in the same issue, lower cash and less profitability.
Move Seasonal and Non-Moving Product – It’s essential to move seasonal and non- moving product in January and February prior to bringing in new items. This generates cash to pay current bills and invent in new merchandise that can be sold a full price. If you don’t your inventory will increase, and annual turns will reduce cash flow and profitability significantly.
Take a Physical Inventory the end of 2022 – It’s critical to take a physical inventory and rectify with your POS system to ensure you begin 2023 knowing exactly how much you have on-hand. Inventory shrinkage and mistakes in recording purchases or sales can happen which all impact inventory. Knowing the exact amount will ensure your OTB is correct, and financials reflect your position accurately. This should be done twice a year and ideally every quarter. But at the very least the end of each year.
Pay Down High Interest Debt with Holiday Cash – With the substantial influx of cash during the holidays more businesses are in the best cash position of the year. For the three months leading up to 1/1 many use high interest credit cards or other means to finance their debt and ensure they have product to sell for the holiday. Many interest rates can be 18%-26% and will significantly decrease your profitability. Create a plan using holiday cash flow to pay these high interest obligations down as quickly as possible using the 2023 forecasted cash flow and P/L outlined above.
Take your Banker to Lunch – A critical partner you have in your business is your banker. They are the key to business and a source of continual financing throughout the year. Show them the results of 2022 and your financial plan and for 2023. They want to be a part of your success and without banks most businesses could not grow, and is some instances cease to exist. Make them a part of your team and encourage them to provide their expertise and ideas on how to grow your business profitably.
If you enjoyed these tips, be sure to sign up for Larry's finance made easy eblasts that are loaded with all sorts of advice to get you on top of your numbers and overall cash flow growing.
Leave a Reply.
Larry Hebert, our Creator and Co-Founder has helped hundreds of retailers both keep their doors open & scale their operation to great success...this is where he drops his knowledge gems and gold nuggets so you can thrive!