Some actionable steps to take as we start the new year.
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FLOWERING PROFITS: A GUIDE TO PEAK PROFITABILITY IN THE NEW YEAR AND BEYOND
In the ever-blooming world of the floral industry, staying profitable means understanding both the art and the business of flowers. Whether you’re a retail florist bringing beauty to individual customers or a wholesale distributor providing bulk supplies, conducting regular business assessments is as essential as watering your plants. Here, we offer some actionable steps to take as we start the new year. These steps can help your floral business not only survive but thrive.
Cash Flow Management
Just as water is vital for plants, cash flow is vital for the health of your business. However, managing cash flow can be challenging. Too much cash can expose you to risks in case of unforeseen events like a lawsuit. On the other hand, having too little cash can put you in a position where you may have to look for a loan to keep your business running smoothly. When reviewing your cash flow, consider these points:
• Profit Margins: Regularly review your profit margins, considering the unique aspects of floral products, such as seasonality and perishability.
• Cash Management: Determine when to invest in inventory or when to conserve cash, especially during off-peak seasons.
• Current Ratio Test: Calculate your Current Ratio (Current Assets / Current Liabilities) to understand your ability to cover short-term liabilities with short-term assets. Aim for a ratio of 2:1, as this will give you enough current assets to pay your current liabilities twice over.
• Quick Ratio Test: Perform this test (Current Assets (minus Inventory) / Current Liabilities) to evaluate your liquidity without relying on inventory, which can be highly perishable. Aim for a 1:1 ratio or higher.
Once you’ve reviewed your cash flow, it’s time to assess how well you manage your inventory, which is crucial to profitability. Check the following:
• Inventory Turnover Ratio: Aim for high inventory turnover, ensuring your flowers are sold while fresh. To determine if you have too much cash tied up in inventory, you can divide your inventory by the cost of goods sold over the past 12 months. You should get a result of eight or higher. If the result is lower than eight, you have too much money invested in inventory.
• Accounts Receivable Turnover: It is essential to monitor the speed at which customers pay for their purchases. Timely collections are crucial for the smooth operation of the business. To calculate your ratio, divide your accounts receivable by your sales for the past 12 months. Your result should be at least 24. If it’s lower than that, you need to improve your collections.
• Accounts Payable Turnover: To effectively handle payments for supplies and perishables, it is vital to balance making timely payments and managing cash flow needs. To calculate your accounts payable turnover ratio, divide your accounts payable by the cost of goods sold for the year. A result of 12 is considered good, as it means you only have one month’s worth of bills in your accounts payable.
Human Resources: The Heart of Your Floral Operations
Your staff, from florists to customer service reps to support staff, are the heart and soul of your business. But it’s important to precisely manage your labor costs; they should ideally comprise 25% of your sales.
To calculate your labor cost percentage, divide the total payroll by inventory sales (sales minus delivery, service charges, wire commissions, and non-product income). If the percentage exceeds 25%, consider reducing labor costs or, better yet, increasing sales.
Managing expenses in your business requires careful attention. Review your expenses regularly to reduce unnecessary costs and maintain business flexibility. Some expenses to review include:
• Excessive Inventory
• Energy Costs
• Supplier Expenses
• Marketing Costs
• Unused Space
• Staffing Efficiency
• Extraneous Services and Subscriptions
• Transportation Costs
• Excessive Packaging
• Unnecessary Debt
• Wasteful Practices
• Overuse of Water
Market Adaptability and Customer Preferences
In a market as dynamic as the floral industry, it’s crucial that you can quickly adapt to changing trends and seasons. Right now, we are dealing with an economy where our expenses are rising faster than our sales; as a business owner, you need to plan and react accordingly.
Stay abreast of new floral designs, customer preferences, and market shifts to keep your offerings fresh and appealing. It’s important to listen to customers but also balance their feedback with your business knowledge, especially regarding pricing. Keep in mind that the value of beautifully arranged flowers often transcends cost and that customers are less price-sensitive than you may think.
Vision and Growth Planning
What’s your vision for your floral business? Whether expanding your product range, opening new locations, or specializing in events, it’s important to have a clear goal and roadmap. Dedicate time, particularly as we’re heading into a new year, to plan and envision the future of your business.
We hope these guidelines can help you start off the new year strong. Keep nurturing your business with the same care and attention you give to your flowers, and watch it grow!