Here’s How Retailers Can Cut Down On Expenses And Improve Cash Flows

Cash flow is the lifeblood of any business, especially more so for retailers. It enables you to meet your payroll, keep the lights on, and the doors open. It is important that your retail business has enough cash on hand to meet all your expenses, even in tough times.

There are a variety of external factors that can affect cash flow negatively such as the economy, bad business decisions, global pandemics, etc. Any of these can put retailers in a difficult situation where they don’t have enough liquid cash to meet their expenses. There are many steps that you, as a retailer, can take to ensure that you meet your expenses regardless of the situation.

Cash Flow – What is It?

To put it simply, cash flow is the money coming into your business and money going out of your business. The money coming into your retail business is from the sale of products to customers. The money going out of your business for expenses is for various expenses such as payroll, marketing costs, rent, supplies, etc.

Importance of Cash Flow Management for Retailers

For retailers, cash flow management hinges on two key points: how quickly they turn over inventory and how much gross margin they have on each sale.

It is important to maintain a good margin on each sale so that there is sufficient positive cash flow in the business. If your margins are too thin, there will not be enough cash left over to pay your bills.

Another significant area that affects cash flow negatively is poor inventory turnover. This can result from various factors such as too much upfront inventory, too much slow-moving inventory or too much inventory in the pipeline. Any of these will have a significant impact on your cash flow as they affect liquidity.

Understand Your Situation and Make A Plan

The first step in managing cash flow is understanding where your retail business stands. Begin by getting a handle on the following:

Cash On Hand

Find out how much cash you have on hand in the bank. This is the fuel for your business and will give you an understanding of what needs to be done to make ends meet, especially during times of economic hardship.


Inventory is essential as a retail business thrives on products to sell. But badly managed inventory can destroy your business by tying up much-needed capital. Understand your inventory, where your money is tied up. Push perishable inventory out the door on a war footing before its expiry date. See what customers are buying and try to have more of that in inventory as opposed to products that haven’t garnered much interest.

If physical sales are difficult, try online sales to move inventory.


These are your business obligations. Understand what your expenses are and when they are due. Call your suppliers and try to renegotiate payment terms to postpone payments. Most creditors are willing to work with you, especially during tough times like the Covid 19 Pandemic.

Another major expense is your tax obligation to the government. For example, if you have sales in Maharashtra, then you would need to make your mahagst payment when due. The government has allowed for deferred payments of tax obligations. Check the GST Portal or ask your CA about details regarding deferred payments. Keep your gst certificate handy as you will need the details to get appropriate information.

Improve Cash Flow

Now that you have a picture of where you stand, you can begin the process of improving your cash flow. Here are some suggestions:

Cut Non-Essential Expenses

There are expenses that are essential for running your business, such as utility bills, payroll, marketing, rent etc. Non-essential expenses are things you can manage without, such as non-essential travel, paid perks, some paid subscriptions, etc. Make a list of all the expenses that your business can do without and cut them for the time being.

It is important to note that Marketing is an essential expense. It is what drives customers to your store. If necessary, reduce your budget and maybe modify your marketing strategy to meet the situational requirement. For example, if you are making more online sales as opposed to instore sales during the pandemic, shift your marketing focus towards online sales.

So unless your retail business is completely shut with no instore or online sales, try to avoid cutting marketing expenses.

Overhaul Your Inventory

Analyze your sales and understand what your customers buy. Adjust your inventory on hand, so you have more of the products that sell quickly and fewer products that tend to stay on hand for a long time before selling.

If you have too much inventory or a lot of perishable inventory, have a sale or promotion to sell those items quickly. Analyze your sales vs your purchases and try to spread your procurement over a period of time. The idea is to minimize the time that the inventory stays in your store before being bought by a customer. These steps will help you free up much-needed capital.

While the above suggestions will help you improve your cash flow, they are just the starting points. There are many ways that you can free up cash. Talk to your staff, you will be surprised at the insight they can provide. Most importantly keep analyzing your cash flow so that you can take action proactively as and when required.

Danny white

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