Ep. 246 Retail Financial Planning That Works: How to Filter Business Advice for Brick and Mortar Store Owners
One of the most common challenges brick-and-mortar store owners face is in their financial planning. From filtering through the advice that actually applies to you and juggling factors out of your control (like tariffs), it’s hard to find something that works.
It’s not necessarily “bad” advice—it’s just NOT good advice for retail brick-and-mortar store owners.
Today, I’m sharing tips for retail financial planning that works and how to tell if financial advice is meant for you (and if it’s not).
6 Common Financial Planning Tips and Whether You Should—or Shouldn’t—Apply Them to Your Business
As a brick-and-mortar retailer, there are some financial planning recommendations that I’ve found work well for my store and others inside the Master Shopkeeper Mastermind—and then there are some that don’t work out at all OR that work, but in moderation.
I’m sharing BOTH and why they may or may not work for retail businesses. I want you to think carefully about whether or not it would work for YOU.
Here are 6 retail financial planning recommendations to consider for your business this year:
#1. “Profit First” Percentages
Let’s start with the Profit First model—it’s helped me and a LOT of small business owners. The basis of “profit first” is to take profit out of your cash deposits BEFORE paying expenses.
Here’s the catch: the recommended percentages for allocating profit, owner’s pay, taxes, and operating expenses are often unrealistic for retail businesses. Your cash flow is very different from a service-based or online business.
In retail, your cost of goods sold (COGS) can take up 50% or more of your revenue. That’s already eating into your margins before you even consider rent, utilities, payroll, and marketing expenses.
For example, setting aside 30% for profit and taxes for those costs of goods would NOT work for indie retailers with brick-and-mortar stores. You’re working with very slim margins—if you were to follow their recommended percentages, it could leave you short on cash for essential operations.
#2. Payroll-to-Sales Ratios
Another common piece of advice is to keep payroll under 50% of your revenue. But, here’s the thing—that rule works great for service-based businesses, where labor is the primary cost and they don’t have COGS.
In retail, payroll costs should generally fall at 25% or LESS of your gross revenue.
As a retail store owner, you’re managing payroll, inventory, rent, and other operating expenses that take up a bigger chunk of your budget. If you aim for a 30-50% payroll-to-sales ratio, you’ll either be overpaying employees or undercutting the cash you need to maintain inventory levels.
#3. Profit and Loss Templates
Have you ever downloaded a free P&L spreadsheet online and thought, “This is exactly what I need!” only to realize that it doesn’t account for half of your expenses? It happens more often than I’d care to admit.
Unfortunately, most basic P&L templates aren’t built with COGS in mind and if your COGS aren’t properly factored in, your profit margins will look better than they actually are—leading you to make decisions based on bad data.
A retail-specific P&L template for brick-and-mortar stores should clearly show:
- Gross revenue
- COGS (broken down by product category if possible)
- Gross profit
- Operating expenses (rent, payroll, utilities, marketing, etc)
- Net profit
Instead of trying to use a P&L template that’s not designed for you, use your bookkeeping software like Quickbooks or Xero, which will also make it easier to outsource to a bookkeeper as you grow.
#4. Lower Your Expenses as Much as Possible to Increase Your Profits
Yes, but within reason. Unlike online businesses that can cut expenses dramatically, a brick-and-mortar store can’t just slash overhead without affecting its success. Rent, utilities, and employee wages are essential to creating a great shopping experience.
Cut expenses where it makes sense—and remember that there are several ways for you to increase profits that DON’T involve expense-slashing.
#5. Your Profit Margins Should be 70% of Higher
This advice might work for service-based businesses with low overhead—like those who mainly sell their expertise—but retail businesses operate with much thinner margins.
For example, gross profit margins on average are 50% because of COGS; net profit margins average 10% or less because of rent, labor, and all the other expenses that come with running a retail store.
#6. Don’t Worry About Cash Flow—Just Focus on Long-Term Revenue
For this advice, service providers can often collect payment upfront or work on retainers, creating predictable revenue. Retailers, on the other hand, have to constantly manage cash flow because of inventory cycles, seasonality, and unpredictable expenses.
A store might be profitable on paper but still struggle with cash flow if it ties up too much money in slow-moving inventory. There’s an entire ecosystem for cash flow in your retail business.
*If you want to learn more about the cash flow ecosystem for your brick-and-mortar business, there’s a dedicated series ready for you in the Master Shopkeepers Mastermind. Learn more here.
Always Vet The Expert And The Advice
Before you adopt business advice—whether it’s from a book, podcast, or article—check the expert’s background. Are they speaking directly to retailers, or is their experience rooted in service-based businesses, tech startups, manufacturing, online businesses, or e-commerce?
While some financial principles apply across industries, it’s clear the nuances of running a physical brick-and-mortar store are VERY different. Look for experts who have firsthand experience with retail financials, such as:
- Retail accountants or bookkeepers
- Coaches who specialize in independent retail businesses
- Business owners who have successfully managed their brick-and-mortar shops
If you’re unsure whether the advice is worth following, here’s a good rule of thumb: Does the advice consider COGS, physical location expenses, and inventory management? If not, it’s probably too generic for your needs.
Why You Need Retail-Specific Planning Advice
It’s about the fit. You have to make sure the financial advice you’re receiving fits the unique structure of your business. Vet your sources, customize your financial tools, and don’t be afraid to adjust general systems and advice to work for YOU.
Brick and mortar retail is unique and the audience is small compared to those with service-based businesses. More often than not, you’re hearing tips, benchmarks, and recommendations that aren’t tailored to your needs.
I’m addressing much of this in the Cash Flow Clarity series in Master Shopkeepers, our territory-protected mastermind group for store owners. I’m providing tools, recommendations, percentages, benchmarks, and more—all specifically for brick-and-mortar retailers.
Join us now to catch the replays from Q1 and dive into Q2! Click here to apply.
