Many hardware retailers have had strong sales in March and April despite states’ various shelter-in-place orders. However, it is possible that many DIY customers have accelerated their purchases and revenue may be lighter from this segment in the second half of 2020. Further, if new home starts and construction projects slow down, you want to be prepared for a drop in commercial sales.
Strategies to help maintain fiscal strength throughout 2020 and into 2021:
- Monitor Payroll: If you have received Payroll Protection Program Loans (PPPL), speak with your CPA, financial advisor and/or banker to develop a strategy to track your expenses to maximize loan forgiveness. As you prepare for the rest of 2020, be sure to monitor payroll so that it stays within a reasonable range. A hardware retailer’s payroll is typically 20- 21% of revenue, so make sure that you have the flexibility to reduce payroll if revenue in the second half of 2020 is down. Remember, payroll is your biggest operating expense. Prudent management can lead to a stronger cash position regardless of the performance of the economy and customer behavior.
- Renegotiate Terms of Credit: Talk to your banker about the terms of outstanding loans. For example, if you have a delivery truck loan, check to see if they would be willing to extend the term and/or lower the interest rate. Banks want to avoid future defaults from their business clients so they are open to reasonable requests. If you could turn a 5-year loan into a 10-year loan and/or reduce your interest rate from 7% to 5%, the monthly savings will help conserve cash for the future.
- Manage Your Inventory: Many owners order a few months of inventory at a time. Since conserving cash is a top priority for hardware retailers, talk to your suppliers about adjusting inventory orders to get 3-4 weeks supply instead of several months. And if you have old inventory in your warehouse, run a sale to generate additional cash.
- Continue Marketing and Advertising: You may have thought about eliminating or reducing these operating expenses to conserve cash, but don’t be hasty. Continuing to allocate funds to these areas lets your community know you are open for business, provides information on what products you have available, and lets customers know how they can make purchases.
- Contact Your CPA About Amendments to Net Operating Loss (NOL) and Excess Business Loss (EBL) Rules: Owners can offset 100% of their taxable income for 2018, 2019 and 2020 with NOL's incurred in those years. EBL limitations for 2018, 2019 and 2020 have also been removed for those who do not file as a C Corporation. If your business is struggling this year, talk to your accountant to explore reducing or eliminating prior year(s) tax liability. It might result in a cash refund when you file your 2020 tax return.
- Conduct an Activities and Services Assessment: Are there areas of your business that are not essential to your core operations? Use our Activities and Services Analysis template to identify time-consuming, lower margin operations so you can focus your resources on your top producing areas. Set aside two hours for you and your key employees to individually complete the questions and then discuss your analysis. This short exercise will help you make operational decisions that can save you money and enable you to invest in operations with stronger growth prospects.