Boosting cash flow in retail with forecasting tools

Boosting cash flow in retail

Consumer preferences are constantly evolving, and the competition is fierce, none more so than in the retail sphere, where both online and offline companies must face each other daily while navigating the treacherous waters of the market. For small and medium-sized retailers, having an eye on their finances is key. Still, as we look into the future, forecasting won’t just be an option but a mere necessity if retailers want to survive what lies ahead. 

Forecasting in retail

It’s no secret that retail is often at the hands of seasonal variations and ever-changing trends. That’s before we mention the huge effect of global events and political decisions on consumer spending. This can create a series of challenging times for businesses. But what if you could look into the future? What if you could determine which periods might be busy? When stock might not be in demand? And more importantly, what if you knew exactly how much money you needed to cut back or invest?

This is when accurate forecasting comes into play, including cash flow forecasting as a tool for success. Using tools like predictive analysis, machine learning and modelling software, retailers can use data from past sales to predict the future more effectively and strategically. In fact, with the right information, retailers can predict future sales trends and stock demands. They can also better manage their inventory and team, as well as optimise marketing campaigns to suit consumers. And they’ll likely stay ahead of the competition by doing this. 

What is cash flow forecasting? 

One of the most common and important types of forecasting is cash flow forecasting, whereby retailers predict how much money will be coming in and going over a specific period. They can then use this information to create strategised promotions, preempt any gaps and streamline their operations. When we consider that many retailers don’t celebrate five years in business because of poor cash management, the need for cash flow forecasting becomes even greater. 

Accurate forecasting for retailers

Of course, the success of any forecasting system comes down to the data input. What’s more, retailers need to dive deep into the data being analysed to understand it fully. For example, has the data been collected during seasonal fluctuations? Will returns and discount cycles impact payment data?

 As well as this, it’s important to consider expenses such as overheads, rent, website hosting and even marketing expenses. Together, this will provide a holistic forecast which can be trusted. 

It’s not just about the data but also the consistency of forecasting. Experts warn that for the most accurate forecasting, it should be done for the year ahead as well as three and five years and weekly revenue assessments for best results and means retailers can better adapt to change. 

It’s advised that retailers should consider three different scenarios when forecasting – base case, best case and worst case. Base case depicts cash flow based on regular BAU, the worst case considers challenges like a dip in spending and supply chain disruptions, and the best case incorporates a boost in sales and favourable market conditions. 

The right forecasting tools for retailers 

Another consideration which is just as important as the act of forecasting itself is to find an appropriate system and tool to help. This is why it’s important to weigh up your unique needs and requirements and search for a tool that aligns with them. 

As the retail landscape continues to evolve and the market becomes even more unpredictable, forecasting is crucial for retail success. What’s more, whatever their size, retail businesses can find a path to financial success and growth – in any market – as long as they tap into the power of past data and use it to power their decisions going forward. 

Contributor: Chirag Shah, founder and CEO of Nucleus Commercial Finance and has over 20 years of experience in the financial services industry and a deep understanding of the needs of UK SMEs. 

In 2011, he founded Nucleus, a leading alternative finance provider, to offer flexible and tailored solutions for SMEs across various sectors and stages of growth. With an understanding of the challenges that UK SMEs face in the current economic climate, Chirag launched Pulse in October 2022, a free-to-use service that helps businesses and accountants gain insights into financial performance with AI-powered data visualisation and personalised dashboards. Chirag is not only committed to driving growth and innovation in the UK business ecosystem, but he’s also helping SMEs better understand their data to boost their profitability and guide them towards success.