Customer Footfall Analysis
February 12, 2025
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In the previous articles, we have already seen how important cash flow is for the retail sector.
We have also explained how the lack of adequate cash flow can be a cause of concern and even causes many retail businesses to shut down. However, the fact that retail businesses have cash flow issues is an oxymoron within itself.
Ideally, retail is supposed to be a cash flow positive business since customers tend to pay upfront whereas suppliers are generally willing to extend credit.
In this article, we will have a look at some of the common reasons which lead to retailers having inadequate cash flows. The reasons have been explained in detail below:
Now, gross profit is the manner in which retailers earn money which can then be paid off to meet their expenses. When the financial statements of retailers with cash flow issues are analysed, lower than industry gross profits seem to be a common factor amongst all of them.
The bottom line is that when a retailer has a high turnover, they are able to generate far more cash than required in order to pay their bills in a timely manner whereas retailers with low stock turnover generally struggle to pay their bills.
It is common for certain new retailers who are in their growth stage to stretch themselves too thin and use all their cash flow to finance growth in the short run. This may become unsustainable and could lead to money being tied up in growth which could further create a cash flow crisis for the firm.
Retailers who do not maintain healthy emergency funds or do not have access to organized financing from where they can borrow money at a reasonable cost tend to end up in cash flow problems as a result of these crises. It is important for retailers to plan for such situations beforehand.
From the above points, it is clear that there are certain parameters which retailers need to be aware of while planning their cash flow. It is also evident that even though retail is generally a business which can be considered to be cash flow positive, it is possible for a retail company to run into cash flow issues.
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