Retail Business : 10 Tips to Deal with Inflation

According to the Conseil québécois du commerce de détail (CQCD), there are close to 35,000 unfilled positions in the retail sector. Naturally, this labour shortage means higher salaries and reduced business hours. Since the pandemic, transportation and fixed costs such as rent and insurance have gone up. Furthermore, if prior year trends are an indication, consumers are increasingly shopping online. This inflationary environment is very difficult for merchants. If you are one, here are 10 tips to help you cope with inflation and address the numerous challenges that await you in the coming years.

Perform a financial analysis 

This exercise will help you understand your business’s past and current state. It will serve to identify your good and bad moves, stores that are struggling, products that are profitable and those that are not, and changes in the contribution margin and fixed costs. This way you can react quickly to the problems you find. The analysis should cover a period of three to five years.

Analyze each store’s results 

It is important to analyze the results of each store to see what works and what doesn’t in each one. You could apply what works in one of your business locations to the other ones. For each store, you should calculate: 

• Sales per square foot;
• Cost of returns and transportation;
• Average sales per customer.

Prepare a balance sheet with assets and liabilities 

You should also : 

• Prepare a complete balance sheet of assets, liabilities and shareholders’ equity;
• Check the reliability of your inventory count and valuation;
• See whether intangible assets are relevant (deferred expenses, goodwill, investments in subsidiaries, web investments…);
• Identify excess assets;
• Verify that your bank advances and credit limit are in compliance with the financial institution’s criteria. 

Convert business prospects into financial forecasts 

Once you have completed the financial analysis, quantifying the data will help you determine what direction you want to take. An action plan will help reassure your financial partners. If your data is reliable and your plan holds up, chances are your partners will continue to trust you. Don’t forget that entrepreneurs are often judged on their ability to react quickly! 

Reflect the impact of various measures 

Your forecasts should cover a period of 12 to 24 months to show your partners that your business is viable. The forecasts should define the short- and medium-term cash requirements. You will also have to : 

• Prepare sensitivity and breakeven analyses;
• Analyze ratios and the forecast estimated situation;
• Identify risk factors;
• Define performance indicators and a dashboard to maximize your action plan’s chances of succeeding;
• Follow up monthly and review the budget regularly.

Adapt to change 

As you know, consumers are increasingly shopping online. Why not take advantage of this trend and develop your online offer? Review your action plan taking this new situation into account! 

Reduce your expenses without a legal reorganization 

Before taking legal measures to settle your company’s debts, try to maximize your cost reductions. Here are some options to consider : 

• Negotiate your monthly rent based on your sales;
• Reduce the business hours of one or more stores;
• Apply for a moratorium or enter into a forbearance agreement with your lenders. If your plan is sound and documented, your lenders will be more cooperative;
• Liquidate excess inventory.

File a notice of intention or proposal 

If you’re having difficulties, but your business is still viable, filing a notice of intention or making a proposal may be an option for you. These measures will let you : 

• Keep the business going;
• Manage cash based on the business’s future needs;
• Cancel a commercial lease;
• Cancel non-essential contracts;
• Lay off some staff;
• Recover inventory from closed stores;
• Reduce the company’s debt;
• Get bridge financing.

Declare bankruptcy 

Bankruptcy should only be a last resort. In fact, no matter what steps you take before you get to that point, this option will always be available. You should only consider it if you know that your business is no longer viable and that even the proposal would not be enough to get it back on its feet.

Consult a professional 

In any case, if your business has been accumulating debts, you have recurring cash flow problems and you can’t see the way out, consult a financial recovery professional like the ones at Raymond Chabot who can help you evaluate the different options available to you, whether it’s to : 

• Prepare a restructuring plan;
• Make a notice of intention or proposal;
• File for bankruptcy.

There is no charge for the first meeting and it will help guide your process.

Is your SME experiencing financial difficulties and you can’t see your way out? Book an appointment with one of our recovery and reorganization experts. They will help you find solutions. It’s confidential, judgment-free and the first meeting is free.