Starting a retail shop or franchise can lead to both thrill and fulfillment. It’s obvious that the journey will also have multitudes of obstacles and hurdles.
16.7% of retail businesses fail in the first year and only 30.4% managed to stay afloat beyond the initial five years, showcasing a low survival rate.
When you look up reasons for why retail businesses fail, accounting backlogs and inaccurate records are the contributing factors along with inflation, supply chain issues, lack of capital, and poor decision-making.
This blog discovers the causes behind the failure of retail businesses and the critical role accurate and timely financials play in the success of your shop or franchise.
Accounting Conundrum: Top Reasons for Why Retail Businesses Fail
Unlike other industries, retail accounting is unique. Be it inventory management, cash flow, budget, financial management, and more, retail accounting challenges stand out as a silent saboteur. Let’s delve into challenges and explore outsourced accounting tips for sustainable growth of your retail business.
Poor Cash Flow Management
Time and again, poor cash flow management is the leading reason that many retail businesses fail.
Cash flow is a lifeblood for retailers like you as it keeps your business operational. While your books may show profit, you may not have enough cash for daily operations.
Difficulty with cash flow emerges from excessive upfront buying, struggling with slow-moving inventory, and overcommitment to stock. Such situations are obvious when there is no predetermined buying budget. Lack of a budget also results in uncontrolled expenses and depleted reserves which means you face financial setbacks, leaving no room for the unexpected.
Another reason for cash flow is long payment terms. Not collecting what’s due can keep much needed cash tied up. According to the survey of 573 businesses, 36% wait between 30 and 90 days to get paid.
“Outsourced accounting experts track and record the cash entering or leaving your retail shop. They have required expertise and resources to streamline collections and payables process, helping to improve your cash flow visibility through cash flow report, accounts receivable aging report, accounts payable aging report, and more.”
Inefficient Inventory Management
You may lack accurate real-time information on how much inventory you have on hand. Understocking or overstocking are also a persistent challenge due to poor inventory management and a lack of demand forecasting.
Only in the retail business, the loss from overstock is $123.4 billion annually and out-of-stock is $129.5 billion.
“Outsourced accounting service providers have knowledge of inventory management and optimization. They ensure accurate inventory data that helps you predict demand accurately and discover trends. That’s how you can make requisite preparation for meeting ever-changing customer demand.”
Any retail business focused on growth needs agile, aligned, reliable, and accessible, financial planning, budgeting, and forecasting process. So, what is stopping you from budgeting better?
Of course, you have to manage a lot of moving things beyond inventory. Employees compensation, rent, utilities, daily and monthly sales, and other operational expenses make budgeting complex.
Why do budgets fail? Overestimating sales, setting unrealistic goals, overlooking expenses, lack of financial visibility, and more have devastating impacts on your retail budget.
“Efficient budgeting is the key to sustaining and thriving, where results speak louder, and time feels well spent.”
“The extended team goes beyond bookkeeping and reconciliation, ensuring accurate and punctual financial data. This provides clear historical data visibility, enabling you to develop realistic budgets and forecasts.”
Failing to Adapt Latest Technology & Tools
We frequently hear retailers struggle to change and adapt to the latest technologies and accounting software.
The retail industry is undergoing a massive transformation, most notably in accounting processes. Unorganized paperwork is a constant challenge for retail businesses resulting in inaccurate or lost financial data and delays in decision-making.
“If you’re not innovating, you’re standing still and that is the most dangerous place to be in retail. Perpetual disruption requires perpetual innovation. The most successful today are those that reject the status quo. They foster a culture of innovation and fail fast. Everything they do begins and ends with the customer. They understand that they have to keep moving, constantly evolving their proposition, and experimenting with new innovation, driven through technologies, in order to stay relevant in this digital era.”
Natalie Berg, Retail Analyst and Founder of NBK Retail
Pro-tip“Outsourced accounting experts generate timely and insightful financial reports. You have accurate and real-time insights into your retail shop’s health. This enables you to make data-driven decisions, identify improvement opportunities, and revitalize retail operations.”
Ultimately, the transformative potential of outsourced accounting greatly impacts the triumph of your retail shop or franchise. It’s a strategic move that uncovers growth opportunities and allows you to dominate in a competitive market. Also, you make informed decisions through precise documentation, regular monthly financials, and key deliverables like account reconciliation, audit support, W9 forms from vendors for 1099 reporting, and more.
Emerge stronger, more resilient, and ready to script a success story that stands the test of time through successful outsourced accounting strategies.