Fractional CFO: A Financial Guide to Tackle Retail Industry Challenges

When it comes to taking a business from simply being a “good business” to becoming a leader in the market, a requirement of a Chief Financial Officer or CFO becomes non-negotiable – especially if you are in the retail industry. The retail sector operates at breakneck speed, with fierce competition at every step. To survive and, more importantly, thrive in such an environment takes thinking beyond traditional finance, regular innovation, far-sighted strategizing and an adaptive attitude. All these traits are what an experienced and trained CFO brings to your business, giving it an edge over others.

But such a sharp CFO does not come cheap. How then does a small retail business like yours get the benefit of an expert CFO without the financial burden of hiring one? By hiring a fractional CFO who can help you part-time or even tackle a specific business hurdle. Cost-effective and effective, a fractional CFO can just be the secret ingredient missing in your recipe for retail success.

What Do Retail Industry CFOs Do?

The retail industry is highly competitive and dynamic, with its constantly changing consumer preferences and market trends. Keeping up with these changes is what a retail industry CFO is skilled at. By using data and key performance indicators (KPIs) to understand and analyze where your business stands, a fractional CFO can not only help improve financial systems but also provide practical tips to better manage inventory, develop competitive pricing strategies, and boost profitability without compromising quality.

Furthermore, it is the CFO’s responsibility to outline fraud-prevention strategies, ensure proper compliance, streamline operations, and communicate financials to stakeholders and potential investors in a transparent manner.

Let’s take a deeper dive into how a CFO – even a fractional one – can improve your retail game with some smart planning.

Optimizing Sales Through Pricing Strategies

The retail business is all about what the consumer wants and at what price. And both these factors keep changing, which calls for flexible inventory and pricing. A CFO responds to consumers’ dynamic needs by effectively using alternative pricing models, such as discounts, memberships, loyalty points, and subscriptions.

For instance, the holiday season in December is seasonally strong for retail businesses. But come January, sales begin to dip as the festive-themed products lose their lustre. Reduced demand leads to reduced sales and unsold inventory, which could eat up holding costs. To avoid this post-festive pile-up of stagnating stock, a CFO can adjust prices and offer discounts or giveaways on shopping worth a certain amount to boost sales.

The CFO will seek to optimize sales by selling some inventory at a higher price and some at cost to reduce holding costs and keep cash flow steady. But there are more layers to this problem than meet the eye.

Balancing Sales with Liquidity and Debt

Offering discounts to clear inventory is fine – but is it affordable when the business has debt? A CFO has to balance liquidity and debt through effective sales strategies.

Let’s understand this with an example. Assuming product A is sold at $100 when its demand is at peak during the festive season. Once the season ends and demand ebbs, you are still left with 500 units of your product. The sales team gives two options to clear up the inventory:

Sell 300 units at a discounted price of $80 immediately after the season ends, and the remaining 200 units at $50 in the next season.

Sell all 500 units at $70 immediately.

In the first scenario, you will get a cash inflow of $34,000 ($80 x 300 units = $24,000) + $50 x 200 units = $10,000. In the second scenario, you will get a cash inflow of $35,000 ($70 x 500 units). The sales team would consider only the first scenario beneficial. However, a CFO would choose the second scenario because the cash flow comes in immediately, which will go towards paying debt, and you don’t have to bear the cost of holding inventory.

A CFO knows the cost of liquidity. Even if there is no debt repayment, the CFO will calculate the present value of $10,000 in 12 months to determine whether the company is better off keeping that money in a fixed deposit or holding the inventory and paying the storage costs. This 360-degree view of cash flow is how a CFO balances sales, liquidity, and debt.

Balancing Revenue with Profit Margin

While improving profit margins is one of the ultimate goals of any business, it is the CFO’s duty to maximize profits from the existing revenue. A CFO uses data analytics to analyze Customer Lifetime Value (CLV), popular products, buying frequency, weightage of low and high-margin products in overall revenue and get insights into consumer preferences and spending patterns. They can use these insights to target customers with higher CLV and cross-sell higher-margin products, reducing customer acquisition costs and maximizing profits.

A CFO also looks to optimize costs by removing poor-performing products and negotiating supplier contracts to get the best possible deals. But perhaps more importantly, it is the CFO’s responsibility to ensure these profit-enhancing strategies do not come at the cost of the product quality and brand reputation.

Managing Retail Inventory

The problem of a piled-up inventory can be avoided through proper inventory management, which is also the CFO’s task. A CFO forecasts potential demand in the retail industry using a mix of historical sales data, predictive analytics and upcoming market trends. Based on these calculations, they can order precise quantities and make optimal use of storage at minimal operational costs, which in turn aids better cash flow management and spurs profitability in the long run.

Integrating Omnichannel Financial Systems

Going beyond inventory and sales, a CFO must focus on improving the business’s overall financial health. This includes processing payments, managing supply chain finances, implementing cybersecurity measures, adhering to compliance requirements, building consumer trust, and upholding the brand name and image. That requires a robust financial system.

In retail, the financial system must be integrated with omnichannel stores — brick-and-mortar and digital stores. Even the payment methods, from cash to debit cards, consumer credit and loyalty points, have to be integrated and transactions recorded in a compliant manner.

All these tasks may seem independent, but they are entwined. Thus, fluctuations or disruptions in one of them can affect the other systems. Integrating various channels of cash flow and sales and aligning them with the business’s goals is what forms the mainstay of a CFO’s job.

Though fractional in name, a fractional CFO offers all the services and benefits of a full-time, committed CFO to your business. The scales tip heavily in your favour as an experienced fractional CFO can well prove to be the game-changer you were looking for to take your retail business to the next level.

Contact KSSP Partners LLP in York Region to Help You Optimize the Finances of Your Retail Business

Talk to a CFO to discuss the financial strategies that can help you boost your retail business. At KSSP Partners LLP, our accountants and CFOs can provide services including forecasting, inventory management, and pricing strategies. To learn more about how KSSP Partners LLP can provide you with the best accounting and CFO expertise, contact us online or by telephone at 289-554-5997.