This is the first post in our three-part series on bookkeeping for retail businesses. Our next post covers 10 KPIs every retailer should track. The third post in this series looks at what to consider when hiring a bookkeeper for your retail business and why outsourced bookkeeping may be the most viable solution for retailers.
Bookkeeping Tips for Retail Businesses
Effective bookkeeping is crucial for retail businesses to maintain accurate financial records and ensure sustainable growth. Here are some top bookkeeping tips for retail businesses.
Implement a Robust Accounting System
The first step in efficient bookkeeping is selecting the right accounting software that meets your retail business's specific needs. Look for features that support inventory management, sales tracking, and integration with point-of-sale (POS) systems. Popular choices include QuickBooks, Xero, and Sage, which offer user-friendly interfaces and comprehensive reporting tools.
Stay on Top of Inventory Management
Inventory is often a retail business' largest asset. Thorough and consistent inventory tracking helps you understand what is selling, what isn’t, and how much stock you should maintain. Utilize inventory management tools within your accounting software to update inventory levels automatically as sales occur, reducing the risk of errors and discrepancies in your books.
Regular Bank Reconciliation
Regularly reconcile your bank accounts and credit card statements with your book entries. This practice helps catch discrepancies early and ensures that your financial records are accurate and up-to-date. Monthly reconciliations are recommended, though more frequent checks might be necessary during high-volume periods like holidays.
Monitor Cash Flow
Retail businesses often experience fluctuations in cash flow due to seasonal variations in sales. Keeping a close eye on cash flow is essential to effectively manage payables, receivables, and inventory. Use your accounting software to forecast cash flow based on historical data and plan for future expenditures accordingly.
Keep Accurate Sales Records
Every transaction must be recorded promptly and accurately. Sales records should include details such as date, item sold, amount, and payment method. This meticulous record-keeping is vital for tracking revenue and understanding consumer behaviour. Moreover, it aids in precise revenue reporting and helps in quick reconciliation with bank statements.
Separate Business and Personal Expenses
Always separate personal finances from business transactions to avoid confusion and ensure clear financial reporting. This separation simplifies the tax preparation process and minimizes complications during audits.
Automate Your Bookkeeping
Automation can save time and reduce errors in bookkeeping processes. Many modern accounting systems offer automation for tasks like recurring payments, invoice generation, and financial report updates. Leveraging these tools can free up time to focus on other areas of your business.
Understand and Manage Payroll Effectively
If your retail business employs staff, managing payroll accurately is crucial. Ensure all employee records are current and payroll taxes and deductions are correctly calculated and filed. Mismanagement in payroll can lead to significant financial penalties and employee dissatisfaction.
Prepare for Taxes Ahead of Time
Retail businesses are responsible for various tax obligations, including sales tax like GST and income tax. Working with a tax professional helps you understand your tax responsibilities and allows you to plan accordingly. Keeping detailed records and understanding the applicable tax laws will help in efficient and timely tax submissions.
Regular Financial Review
Schedule regular reviews of your financial reports with a financial advisor. Analyze profit and loss statements, balance sheets, and cash flow statements to gauge the financial health of your business. This practice not only helps identify financial trends but also aids in making informed business decisions.
Cash Flow Considerations for Retail Businesses
Cash flow is the lifeblood of every business. You need a steady stream of capital to keep the lights on. A positive cash flow means your business has enough money to run its overhead costs and invest back into the business.
Analyzing your cash flow situation is imperative for your business' financial health and can help you quickly spot negative revenue trends. This will allow you to deal with them immediately, keeping you from experiencing a negative cash flow situation.
Review your credit card terms
One of the easiest ways to improve cash flow is to review your credit card terms with your credit provider or financial institution. A fee is usually with every credit card transaction, and they quickly add up. While these fees are generally small, many companies will allow you to negotiate, and reducing them even by a few cents can go a long way in saving money in the future. If negotiating isn't an option, shop around until you find a rate that's right for your business.
Send out invoices promptly and follow up
Most retail businesses typically accept payment at the time of purchase, limiting how long receivables will sit on your books. However, if your company issues invoices to customers, make sure that you send them out as soon as possible. The faster your customers are invoiced, the faster your business will get paid.
If there is a delay in receiving your payments, don’t be afraid to send out invoice reminders and continue to follow up on unpaid invoices, reminding customers to pay up before their due dates.
For more information, check out our Best Practices Handbook for Accounts Receivable.
Cut out unnecessary expenses
Unnecessary expenses can be hazardous to your cash flow, cutting into funds that could be better used elsewhere. Each month, review your cash flow statements and analyze your business expenses. Ask yourself the following questions:
- Are these expenses necessary?
- Is there a less expensive alternative for these purchases?
Employee salaries are often one of a business' most significant expenses, often accounting for as much as 38% of all expenses. To help reduce your payroll costs, consider outsourcing and save your business the costs of a salary, CPP, and EI.
Time your vendor payments well
Timing your vendor payments can significantly help your cash flow. Most vendors offer a 60—to 90-day payment period. Some retail business owners feel that they should pay right away to avoid late charges, while others wait until the last moment to make their payments. The best method for paying vendors is to time it when it's best for your business and your current cash flow situation.
If your vendor offers a discount for early payment, take some time to evaluate how much money this will save you and whether it is worth paying early. If the savings are minimal, plan to pay during the repayment period when your cash flow is at its highest.
Streamline your business processes
Have you ever taken a moment to consider all of your business processes to see if there is a more efficient method to get things done? There are numerous different ways to be more productive, such as:
- Implementing a cloud-based accounting software program to automate your invoicing.
- Using document management software like Dext Prepare or HubDoc to extract essential information from your documents instead of manual data entry.
By finding different and innovative ways to streamline your processes, you save both valuable time and money on having to hire more staff to do the work.
Create a cash flow projection
Even though you will never forecast your revenue with absolute accuracy, it is still important to understand how your business fluctuates. By creating a cash flow projection, you can compare your forecasted revenue to your business expenses to identify potential cash flow issues, giving you time to rectify them before they occur.
Based on your cash flow projection, you can create a budget to manage your expenses better when cash flow is tighter and set aside a cash reserve during busy periods to help cushion you through slower months.
Cash flow projections should be created regularly, giving you visibility on your business's upcoming cash flow situation at all times.
Optimize your inventory management
Inventory management is vital to the success of your business. You want to take advantage of bulk order discounts, but at the same time, you don't want to have excess inventory on hand. Finding the balance between these two can go a long way to improving your cash flow.
When placing orders, try to keep quantities small. Identifying the top-selling products will give you an idea of customer demand. You should order these items in bulk to drive costs down, reducing your per-unit cost.
If times are slow, keep orders to a minimum, determine your economic order quantity, and monitor the lead times for ordering. Also, if you find an excess of slow-moving products in stock, you can speed up their turnover by using sales and other promotions to move them out of inventory as quickly as possible.
Negative cash flow can be detrimental to your retail business and could mean that you don't have the funds required to pay your overhead and operating expenses. Not only does this make it hard to keep your business afloat, but it also makes it nearly impossible for it to grow and thrive.
Accounting Software Every Retail Business Needs
Cloud Accounting Software: QuickBooks Online
QuickBooks Online will make managing your retail business accounting much easier. This cloud accounting software can integrate with your POS system, allowing you to track your daily sales and provide accurate and up-to-date sales information.
Not only can QuickBooks Online help you track your inventory, it also has a wide range of reporting capabilities and can even help handle your payroll requirements.
POS Systems: Square
Square has quickly become one of the most popular POS systems for small and medium-sized businesses, and for good reason. They offer a reliable payment method for both online and in-store purchases and accept a wide variety of payment methods to suit all of your customers' preferences. They also provide their own hardware for in-store payment processing and offer other features such as invoicing and inventory management.
Retail Management System: Lightspeed
This online platform is a full-service company that provides multiple valuable features for retail companies. Lightspeed is a retail management system that can assist with everything from POS to financial tracking and reporting.
Lightspeed also offers users the unique advantage of linking a brick-and-mortar retail store with their eCommerce store. This allows for synchronization from all sales revenue channels for accurate reporting.
Receipt Management Software: Dext Prepare
No matter your specific industry, one thing is certain: your business produces many documents. Dext Prepare has a solution to keep these receipts, invoices, and reports well-organized and easily accessible in the cloud. Using Dext Prepare, you can access your information from anywhere, anytime. You can even use their mobile app to take photos of your documents on the go, eliminating the need to keep physical receipts.
Their expense management feature gives you optimal control over your expenses, allowing you essential insight into your business spending habits and keeping you on track with your budgeting.
Accounts Payables: Plooto
Nothing can help your retail business run more smoothly than automation. Plooto is an online platform that completely streamlines your accounts payable process, allowing you to pay suppliers electronically.
Plooto integrates with cloud accounting software like QuickBooks Online and Xero, and pulls your latest accounts payable listing to show which vendors require payments. After this, you can pay your suppliers electronically on the platform.
This ensures you pay all your accounts on time, avoiding late charges. It also minimizes the cost and hassle of printing and mailing cheques, saving time and money. Plus, if multiple people must approve a payment, Plooto will email them for full authorization before electronically sending funds.
Plooto will keep your suppliers happy and your cash flow visible, improve your record-keeping, and give you the freedom to spend your time doing more important things than making payments.
Payroll Processes: QuickBooks Time
Payroll is an integral part of your business, but scheduling and payroll duties can quickly become tedious and time-consuming tasks. QuickBooks Time offers your retail business a simple solution for all your payroll processes.
This software can help you track your employees' time through an easy-to-use app, create work schedules, and manage your entire team. Plus, it fully integrates and syncs with QuickBooks payroll software and other payroll software like ADP for a streamlined payroll solution. QuickBooks Time also provides detailed reports to help you predict scheduling requirements and payroll budgets.
We understand the unique business needs that retail owners require, especially when keeping your bookkeeping organized. Our team of experienced professionals can provide you with all the guidance you require to grow your retail business to new heights. Contact Enkel for more information on how we can help manage your retail business' bookkeeping.
