When small business owners get together at trade shows or over dinner, one of the first questions they ask each other is “How’s business?” Typical answers run the gamut from “Amazing!” to “We’re just trying to make it through this week.”
If you were asked that question, how would you respond? Could you answer confidently, or would you stammer and stutter? A POS system can help you answer that question quickly and with certainty.
Bay Area Bikes: A Cautionary Tale
Let’s look at take a look at a fictional business: Bay Area Bikes. Back in 2011, owner Tom Sullivan decided to turn something he was passionate about into a career.
After a year or so, things seemed to be going well for Bay Area Bikes. The store was making consistent sales, developing a loyal customer base, and most importantly: generating a profit. Unfortunately, over the next 8 months, things started to decline quickly. Sales were still consistent, but Tom found himself unable to pay his growing list of invoices. Good employees were let go and angry vendors were calling. Three months later, Bay Area Bike Shop closed its doors for good.
How could have this happened?
All business owners know they need to make a profit to survive. At the end of the day, it’s critical that revenue generated from sales is greater than the cost of inventory and other operating expenses. But what some store owners, like Tom, fail to realize is that just because a company is making a profit, doesn’t mean they have enough cash to keep the business alive. Many businesses have gone under simply because they didn’t have enough to pay their bills.
The Bay Area Bike Shop was making a profit. But Tom had also made some bad decisions when purchasing a large number of high-end bikes for his store. He didn’t realize that his customers typically bought low to mid-range priced bikes and weren’t interested in the top of the line models. Those expensive bikes ended up just sitting in the store collecting dust. And very quickly, Tom found himself inventory rich and cash poor.
Another problem Tom had was that he didn’t know how much money was tied up in Accounts Receivable. Being the nice guy that he is, Tom believed in flexible payment options for his customers. Unfortunately those customers took advantage of this generosity and rarely paid on time or at all. When Tom finally realized how much was owed to him, it was too late.
Both of these problems were the result of not having good information. The type of information that is provided by a great small business pos system.
So how can you keep the same thing from happening to your company?
It’s pretty simple to prevent this problem. You need pos inventory software that provides you with timely and accurate information about your inventory and your customer accounts. You need reports that show you exactly how much your spending on unsold inventory at a given time. And you need to be able to see how much your customers owe you so that you can act accordingly. A small business pos system helps you do just that. And if used correctly, it will help you make the decisions necessary to solve all of your cash problems.
The next time someone asks you, “How’s business?” you’ll be able to answer without hesitation.