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Maintaining cash flow for retailers in testing times

In the retail world, cash is king and retailers need to ensure they have ready access to funds at all times. Joanna Norris, partner at Ratio Law LLP and retail law specialist, gives her top tips for maintaining cash flow.

Although it’s impossible to deny that times are tough on the high street, there are things that retailers can do to help see them through the tough times, and future-proof their business in readiness for the inevitable turnaround in the economy.

Seek insolvency advice

This may seem like a strange place to start, but even if retailers have confidence that their business will grow in the future, and that any difficulties are simply short-term, it may be worth seeking insolvency advice.

Whilst business insolvency is a worst-case scenario, it is always sensible to have a basic understanding of the process. This knowledge should at least enable retailers to put in place plans to help to avoid collapse, but also to ensure the business doesn’t trade illegally whilst insolvent.

Shut up shop

Retailers with a portfolio of shops may wish to consider closing one or more of their loss-making stores. This should help to cut (in the longer term) the wage bill, as well as delivery charges, insurances and other related outgoings. Of course, there may be redundancy costs in the short-term but these are likely to be a one-off and retailers should be able to calculate whether the longer-term savings will outweigh any short-term expense.

Of course, one potential stumbling block is likely to be rent (unless the business owns the premises). Retailers may be able to negotiate a discount or utilise a break-clause in the lease, and if nothing else, they may be eligible to claim Empty Property Rates Relief for the first three months after closing the shop. One-shop retailers may be able to claim Small Business Rates Relief.

Many retailers pay rent quarterly and from a cash-flow perspective, bumper rent payments can cause temporary cash flow problems requiring the business to take external credit or, as has happened in recent years, cause it to collapse.

Retailers should consider negotiating with landlords to create monthly, rather than quarterly liabilities. Many landlords will have the foresight to recognise that a monthly flow of monies in the short-term is better than an empty shop leased to a bankrupt business in the longer-term.

Retailers may also want to consider sub-letting or leasing their premises. Even a short-term ‘pop-up’ enterprise will off-set a portion of the rent (or mortgage) due. It’s also worth remembering that premises that are unsuitable or unprofitable for some retailers may be perfect for others.

Keep an eye on costs

Now is also the time for retailers to look at their income and expenses, and keep a tight rein on the latter. Business owners should audit their business bank accounts and keep an eye out for any rogue direct debits that have the potential to cause problems.

Retailers should also think about internal savings, and consider outsourcing certain processes, such as HR and accounting. They may wish to analyse how much they pay to suppliers, and consider whether they are getting the best deal. Mobile phone contracts, fleet hire, delivery and insurance costs all fluctuate, and retailers should consider obtaining quotes from different suppliers. And finally they must remember to negotiate – in businesses it’s always ok to ask for a discount or freebie.

This was posted in Bdaily's Members' News section by Ratio Law LLP .