Research shows that 8 out of 10 retail establishments are out of business within the first 5 years of operation. Why? Simply because many owners do not structure their business for success. Most failures are due to unrecognized problems, solved by minor adjustments after an internal audit.

There are many theories regarding business failures, but all center around 10 crucial areas. As a former retail manager and an employee at Direct POS, I have researched the industry extensively. These are the factors below that other analysts and myself believe contribute to the failure of retail stores:

1. Problems with cash flow
Is your business generating sales but not earning the profit it should? Are you able to track where your inflows and outflows of money are going? A common problem for most small retailers is the lack of ability to know where their money is going.

A POS system will not be able to solve every problem with cash flow, but it can assist you by measuring your sales and giving you information of sales trends so you can prepare for future busy times and defend against impending slow periods.

2. Lack of capitol
Businesses are sometimes like people when they ask themselves “Can I afford this?” Therefore we must justify why we purchase things. For businesses, the decision should always comes down to “How is this product going to generate revenue or improve profitability?” Funds must be spent wisely, because some assets can easily turn into liabilities.

Today retailers have to decide whether to automate or not. This is a question that can no longer be avoided because chances are your competition has already chosen a POS solution. Retailers must consider current needs, but more importantly future needs are essential for an expanding business.

Another factor to consider is that lenders are much more friendly to retailers that have a viable automated system because the statistics for success are much greater when the owner has taken steps to control their business.

3. Control of Operations
Every business owner struggles to keep on top of all areas of their business. Realistically, this is impossible without a viable system to gather real-time numbers in an easy to read format. If a business owner has the capability to track sales, monitor inventory, calculate balances and all the other important aspects of management on a daily basis, they’re obviously not generating enough business.

Point-of-Sale technology is most beneficial to owners who want to be in control of their business. A POS system will give you the means to analyze your data with up-to-the-minute reports. Wouldn’t you like to know what product sell the best, what times of the day your selling and who’s your best salesperson?

4. The wrong employees
Every retailer struggles to find the right help. The perfect employee should be someone you can trust with your life because they handle your front counter and are the direct connection between your business and your customers. Which employees are competent to ring-up transactions correctly time after time? How much are the mistakes costing you? It is also important to remember but difficult to admit that 7 out of 10 thefts occur by employees themselves.

The only effective way of monitoring your staff’s performance and honesty is through point of sale technology. When a cashier is required to log in to the register, it is easy to track down problems. Who would skim money off a monitored till? It could also be that an employee is honest and simply making a correctable error. That’s why it’s important to locate the source and eliminate any possibilities that might be to the contrary.

5. Location
Location, location, location is true to a point. But many retailers limit this to physical location. Customers need know how to approach your store and it must be convenient, but what about Internet location? Using the Internet, your retail store has the ability to grow from a local Monday through Saturday, 10 to 7, to a worldwide, 24 hour, 365 day per week operation.

E-Commerce may seem like a huge step to many small retailers, but with a small investment into the creation of a website and an E-Commerce POS system, your business could easily open a huge market for your products.

6. Marketing
Your product has value, but do your potential customer know about it? Every small business struggles with the question of how to promote. If you don’t have enough capitol to hire a marketer, there are usually 3 ways to start adverting. Simply ask non-competitive retailers for advice, benchmark your competition and take chances. But the most important thing to remember is measuring your advertising dollars by finding out how your customers heard of you. The amount of dollars spent on ineffective advertising is staggering because many business use a “shoot from the hip approach” by just throwing their money into medias without knowing if they’re working.

By taking a moment to ask your customer “How did you find us” and entering that information into a POS system, you’ll generate real numbers to analyze where your money is spent effectively.

7. Lack of customer knowledge
What are your customers looking for? “Friendly” service, affordability and quality are often the first replies many people come up with. Could you then explain how the airlines stay in business? Please don’t misunderstand; it’s just that many retailers confuse “friendly” service with customer service. Of course employees should be friendly because you want your customers to come back, but finding your customer’s need is the true formula of success. Another point to remember, customers will pay more if they feel they’re receiving value.

In general, do people buy gasoline from Jack’s Auto Shop that is 5 cents a gallon cheaper, or do they spend more money at Chevron or Texaco because they can buy snacks and use clean restrooms? Remember to always think as a consumer because we all have needs and businesses with an answer get our money. Perceived value is true customer service!

With POS, it’s possible to ask your customers what they want and while you store that information into your system. Imagine if you knew what type buying habits your repeat customers have. Mailing a husband a reminder of your products or services 2 weeks before his anniversary or the wife’s birthday would be providing a useful service to him. Directing him to items within his price range on your website would be providing a solution to him.

8. Flexibility
Triumphant retailers may not embrace change, but they realize the need to adapt to the evolving ways of our society. Ask yourself, are you selling the same products today as you were last year? They might be similar but I’m willing to bet you’ve added and removed product from your shelves. Are the assets in your store the same now as what retail stores had when you were a kid? All retailers must find the right assets, inventory and employees so that customers will come back to ensure they’ll stay in business. Your current strategies might be wrong, are you willing to change them? It took Apple years to realize their strategy was wrong and it nearly eliminated them from the market while practically handing the world to Microsoft. Opening your mind to change will create many difficult questions, but the answers may save you before it’s too late.

9. Procrastinating
Putting off problems will only double your workload for tomorrow. Paperwork, bills, legalities and maintenance are issues retailers face every day. Would you believe someone would put off earning more money if given the chance? Probably not. Then one must ask, “Why would a business owner neglect problems in their business which subtract from earnings or opportunities for improvement?” It’s because we’re human and we procrastinate decisions which pile-up on our desks and eventually make problem solving overwhelming. The winners in life take care of the issues before they become a mess.

If you’re putting off investments or changes that will increase the productivity and ease of operations, you’re only making your life more difficult. Point-of-Sale technology simplifies inventory management as well as other tasks, giving you more time to concentrate on those looming projects.

10. Lack of planning for success
These 10 areas are not intended to be in order of importance, but it could be said that the lack of vision, goals, and implementation of a business plan encompasses the all of the stated examples and is the primary reason for business failure.

Although it is possible for a retailer to survive without a business plan, operations are much harder to control and measure. Every business should know where, how and when to advertise as well as how much to spend. Have you ever wondered why Burger King advertises only on selected TV stations at certain times of the day? The most successful retailer knows exactly what their operation is and exactly how they want their product and service to be perceived by clients. K-Mart doesn’t try and tell their customer that they’re Nordstroms, nor does Eddie Bauer attempt to sell pastries. It’s surprising how many owners have a difficult time establishing what type of business they own, “Should I add an espresso stand to my shoe shop?”

A POS system will not develop a business plan for you, but in retrospect, a POS system should be figured into your business plan. The retailers that will survive longer than 5 years know how to build their business for long lasting success. A POS solution is one of the first elements they’ll choose as a tool to erect the perfect retail store.

Sources:
www.allbusiness.com
www.alliedacademies.org
www.retailtech.com