Problem Solver: 'I have more than €250k worth of stock, some 18 months old - what should I do?'
Q The sales in my retail business are around €10,000 a week, however I have more than €250,000 worth of stock. Some is more than 18 months old and several lines are slow-moving. What should I do?
A That does seem like a lot and, more importantly, it appears you don't have the right stock. Typically, businesses would like to have 30 or 60 days' stock depending on the category they are trading in. That allows enough to cope with delays and ensure you have enough stock for customers who place large orders.
Start by walking through your shop and warehouses and identify all products which have not sold within the last 60 days. Then start to make decisions on which stock you want to get rid of. There will be certain products which have been in stock for some time but maybe servicing a role in the business.
For example, an expensive piece of merchandise which showcases the top of your range might well worth keeping even though it is not selling, as it adds to the tone of the shop. Ignore any of these items.
For the ones you want to get rid of, create a massive sale event, where you reduce these to cost, or below and clear them out. You paid for them a long time ago, so any money you get for them now is better than having them sitting in a warehouse. Of course if you can negotiate with suppliers to take back any product, that would be even better, but less likely.
Once you have removed the surplus stock and got the cash, you can then look at introducing some new lines into which will refresh your shop and counteract any previous damage the older stock hanging around might have created.
You do need to examine how you got into this situation in the first instance. Is it that you are not purchasing the right stock, or not managing the stock holding correctly? Put steps in place to prevent this happening in the future.
Q I own a cafe and while sales are strong, we have not made a profit for the last 24 months. While I am a great chef, I don't understand the management aspects of the business.
A This can be a dilemma for many. You started out because of your love of food, and ended up running a business. Running a business is complex and has lots of moving parts and the best advice I can give you is to approach one of the culinary colleges and sign yourself up for a part-time course which will help address this. You really need to get professional advice to sort the problem properly. Your café needs to make 70pc gross margin or you will not make any profit by the time you pay your wages and deduct all of the overheads. Start by working out the specification for every dish, and the cost. You need to demonstrate to yourself that this 70pc margin is achievable. If you find most products achieve less than this, either the specifications are wrong, or the retail price you are getting is not high enough.
The next area to address is portion control. Many cafes lose focus on this and end up with staff giving 15pc or 20pc more on the plates which costs profitability. This is not about being stingy. It is about setting the specification to providing generous portions and then sticking to that.
There are lots of other controls you need, like ensuring all of your cash procedures are robust. You also need to be sure that you are buying well. No supplier is going to volunteer cheap prices to you so you have to negotiate strong prices.
Going back to what I said at the beginning, the above points are merely simple suggestions to get you on the right road, but you really need to either enrol in a course or bring in a third-party expert to help you in this area.