I want to hold a big sale. But what are the risks?
Thursday, June 16, 2011/
Many smart companies are finding that their cashflow budgets for this year are falling way behind the realities of the cash register, and as a consequence 2009-10 budgets are in danger of being missed.
If you’re thinking of holding a big sale to get a big end of year sales boost, stop and take a breath.
Generally, it is vital to review the likely cashflow from the sale, the likely tax losses you are carrying forward because your budget is not going as strongly as anticipated and your supply and demand profile for the management of that sale.
Before rushing out the sale signs and discounting future profits, there are a number of basic steps that help determine your level of risk. Go back and check the assumptions in that budget to see what was on the money and what has left you battling to make targets.
First, ensure that you have managed your receipts to ensure that you are able to tell your bank manager about your true credit situation and the extent of damage that is due to a fall in demand rather than a delay in payments.
Work out when money is due to come in from your best current customers and the extent that they can be encouraged to bring forward orders by an agreed revision of terms of trade.
Next, examine your inventory to determine its net present value and what is the potential loss of profit that would come from advertising, promotion and discounting in a sale as against a targeted approach to your best customers.
The budget is an indication of your likely position at the end of the financial year, but it is your marketing plan that will inform the way that you go about attracting new customers and building your sales plan for the year to come.
Then take your top team aside and go through your budget to see what has worked and what is still to work rather than concentrate on what’s not happening at this time. Have your sales people identify the reasons that orders are behind your targets and work out a contingency plan. Has your accounts team looked at the cost of sales to weigh up a sales drive to business and households that are “birds of a feather” and/or associates of your customer bass?
These three steps should enable you to compare cut backs and call backs with your current market against the costs and benefits of your proposed GREAT (hopefully) BIG (depending on your inventory and gross profit margin) SALE.