As a business owner, understanding your sales tax obligations is crucial to ensure compliance with the law and avoid penalties. In this article, we will discuss the factors that determine whether you need to collect taxes and provide guidance on navigating the complex world of its regulations.
What is the Sales Tax?
It is a consumption tax imposed on the sale of goods and certain services. It is typically collected by the seller and remitted to the appropriate tax authority, which can be the state, county, or local jurisdiction.
Determining Sales Tax Nexus
One of the key factors in determining whether you need to collect taxes is establishing a nexus. Sales tax nexus is a connection between your business and a taxing jurisdiction that triggers a sales tax collection obligation.
Nexus can be established through various activities or relationships, including:
Having a physical presence: This includes having a physical store, office, warehouse, or any other physical location in a jurisdiction.
Having economic presence: Economic nexus is based on the level of sales or transactions you have in a jurisdiction. You must collect tax once you meet a certain threshold, usually based on sales revenue or several transactions.
Having affiliate or click-through nexus: If your business has affiliates or generates sales through referrals from other websites (click-through nexus), you may have sales tax obligations in certain states.
Participating in trade shows or events: If you sell at trade shows, conventions, or other temporary events in a jurisdiction, you may be required to collect taxes.
Registering for a Permit
If you have established a nexus in a jurisdiction, you will likely need to register for a permit with the appropriate tax authority. The process and requirements for obtaining a permit vary by state and local jurisdiction.
Once you have obtained a permit, you are responsible for collecting taxes from your customers at the applicable tax rate and regularly remitting the tax to the tax authority, usually monthly, quarterly, or annually.
Exemptions and Exceptions
While most sales are subject to sales tax, there may be exemptions or exceptions based on the type of product or service you sell and the jurisdiction’s specific rules. Common exemptions include certain groceries, prescription medications, and sales to wholesale or reseller businesses.
To ensure accurate sales tax collection, it’s important to familiarize yourself with the specific exemptions and exceptions that apply to your business and jurisdiction.
Consulting with a Tax Professional
Navigating sales tax regulations can be complex, especially when you have sales in multiple jurisdictions or sell products or services with different taxability rules. Consulting with a specialised tax professional can help ensure you understand and meet your obligations.
A tax professional can assist with the following:
Determining sales tax nexus and registration requirements
Managing collection and remittance
Identifying applicable exemptions and exceptions
Keeping up with changing laws and regulations
Understanding whether you need to collect sales tax is essential for your business. Determining a nexus, registering for a permit, and staying informed about exemptions and exceptions can ensure compliance with regulations and avoid costly penalties. When in doubt, consult with a tax professional to ensure your obligations are met accurately and efficiently.
Cash flow is the lifeblood of any business. Without it, you cannot afford to pay employees or make your payments. Small retailers are no exception; however, many small business owners struggle to manage their cash flow. Luckily, there are plenty of ways for retailers to keep their cash flowing. Here are 17 ways to manage a small store that will maximize your retail cash flow.
Retail cash flow is the amount of money that flows in and out of your business. It includes the income you make from sales, the money you spend to buy product, and any other expenses your business incurs. Most businesses need a constant inflow of cash to continue operating. The more cash flowing into your business, the more likely you are to be successful.
Most small retailers struggle with their retail cash flow because they do not keep track of it. This can lead to financial disaster if they do not have enough cash on hand for running payroll or when an emergency need or repair arises. Fortunately, you have several options at your disposal to effectively manage and increase your cash flow.
17 Easy Ways To Manage Your Retail Store’s Cash Flow
TIP 1: Keep track of income and expenses
One simple but often-overlooked solution to cash flow problems is to keep careful track of income and expenses. This is part of creating and maintaining an efficient budget. Make sure you note recurring expenses and predictable income, as well as one-time expenditures and irregular sales and purchases. You should also set up inventory tracking so that you know when it is time to order more product or what sales you need to prioritize. Tracking and analyzing trends in sales and spending data is also an extremely useful tool to keep your business on track.
TIP 2: Minimize expenses wherever possible
No business can afford to spend more than they make. That means it is important to cut as many unnecessary expenses as you can. First, start with your employees. Look for any redundancies in job roles and scheduling. Opt for part-time positions over full-time ones when possible, and limit overtime to necessary occasions only. Next, examine your product costs and inventory. If you find yourself overspending on products, consider sourcing cheaper alternatives from suppliers. Additionally, manage your utility costs wisely. Consider moving to a smaller building with low utility rates or using clean energy solutions like solar panels. Finally, do not invest in equipment that is not absolutely necessary to run your store successfully.
TIP 3: Reduce the cost of essential business expenses
Cutting down on essential expenses such as rent can have a significant positive impact on your cash flow. It might be worth negotiating rent with your property owner and asking about options such as percentage-based rent instead of a fixed lease. Alternatively, you can explore other business options including operating completely online, using a building you already own, or other creative options.
TIP 4: Establish an emergency fund
Having a financial safety net and proper financial management will protect you from unforeseen expenses and emergencies, such as building repairs, legal fees, or other urgent expenditures. Setting aside money from the start to cover those expenses, while hurting your cash flow initially, will improve it over time, since you will be able to cover unpredictable costs without eating into your regular income.
TIP 5: Forecast cash flow demands
If you want to know how to manage your cash flow, the first step is understanding it. For retail, this means forecasting your cash flow demands. You can do this by looking at your previous years of sales data and estimating what demand will be for the upcoming year. If you are a new company and do not have years of previous data, you can work with what you have, but note that the predictions will not be as accurate. You can build this into your budget and cash flow tracking for optimal efficiency.
TIP 6: Avoid common budgeting mistakes
There are several mistakes that small retailers make when it comes to budgeting. One of the most common mistakes is not accounting for all expenses, which can include utilities, internet, cleaning, and other necessary services. These are easy to miss because they are not always obvious business expenses like purchasing inventory. Other common budgeting mistakes include overestimating sales and income and underestimating expenses. Accurately tracking and forecasting your cash flow can fix this problem.
TIP 7: Automate processes wherever possible
The more business processes you can automate, the more time and money you save, leading to higher cash flow. With technology and artificial intelligence rapidly growing, you will find that there are many tasks that can be completed faster and cheaper than ever before. You can automate invoicing, payroll, emails and marketing content, inventory and expense tracking, website processes, and more. If you are not tech-savvy yourself, consider hiring for roles to manage this department. Even though it might cost money up front to hire and train new employees, effectively capitalizing on technology and automation will give your business an edge over the competition.
Outsourcing certain tasks and jobs is similar to automating processes. While you will need a well-rounded, full-time and part-time staff, sometimes it makes more practical and financial sense to hire contractors or freelancers for occasional tasks or projects. For example, perhaps you want to develop an app for your website. Instead of hiring a full-time software developer, it would be more efficient to work with an independent contractor or freelancer. You will save money by only paying for the specific task or project you need completed, and avoid the costly process of hiring, onboarding, and training a new employee. However, you should be careful that the roles you outsource are not ongoing needs. Evaluate the details of the job, the number of hours it will take, and how often you will need similar work completed. Hiring independent contractors only makes sense if it will save you money.
This might seem obvious, but working with clients that don’t pay on time is bad for business. This can be a challenging problem for new small business owners to navigate, especially as they are trying to build a loyal client or customer base. However, there are ways to tactfully ensure that you are paid promptly. You could require down payments on large and custom orders, so that you are guaranteed a certain percentage of income. You should also set up payment plans and schedules for your customers. Communication is key, so you should follow up about payment if there are any issues. This way, you will know about delayed payments in advance and can plan accordingly.
TIP 10: Improve employee retention
Many businesses waste considerable time and money hiring and training new employees. If your employee turnover rates are high, this has a negative impact on your cash flow. It is vital to retain valuable employees. Consider offering performance-based raises and bonuses to keep current employee morale and commitment high. Additionally, improving your hiring process, onboarding, and training will allow you to hire and retain only the best employees that will add significant value to your company.
TIP 11: Improve customer retention
It is vital for small businesses to build a loyal customer base to ensure consistent income. While you always need to be looking for ways to increase your reach and conversion rates, you should also prioritize keeping the customers you already have. Customers and clients want to feel appreciated. A simple way to do this is to set up a customer loyalty program. You can do this with credit cards, memberships, loyalty-based discounts, or reward points. Be careful not to offer too many discounts, though. You want to keep customers coming back, but you always want to keep your profit margin in mind.
TIP 12: Offer the best customer service
As a small business owner competing with large, efficient companies, you need to excel in areas where these other companies do not. A problem that large companies often face is poor costumer service. This is where small retailers have an advantage. You can create a company atmosphere that puts the costumer first, offers a welcoming and comfortable environment, and demonstrates genuine interest in your customers and clients. By emphasizing excellent customer service, you will earn a reputation for being a pleasant company to do business with. This will increase customer conversion and retention, which will lead to improved cash flow for your store.
TIP 13: Ask for feedback
It is important that you regularly request feedback and reviews from both your employees and your customers. Doing this consistently will improve your business and result in higher cash flow. For example, accepting regular feedback from your employees will allow you to catch mistakes and make improvements to your day-to-day operations, as well as make your employees feel like vital members of your team, which will aid in employee retention. Customer reviews are equally important, as they will give you valuable insight into the quality of your products and services and ways to improve. Responding well to costumer reviews and offering solutions to their concerns is a great way to increase your reputation as a responsible, friendly, and honest business.
TIP 14: Apply for government grants
If you are a small retailer struggling with cash flow, consider applying for a grant. Grants are a great way to get a temporary cash infusion from the government. You can use these funds for anything from marketing efforts to inventory costs. When your business is booming, you can easily cover these expenses. But when business is lacking, applying for a grant can give you enough money to stay afloat. It is common for small retailers to have their loans paid off through government grants or programs. All of this equates to more money coming into your business, which means a higher cash flow.
TIP 15: Manage credit responsibly
When you are running a small store, it is important to establish and maintain positive credit lines with your suppliers. While there is no quick-fix solution to improving credit, the most crucial step is to make your payments on time. Failing to make your payments is a quick way to tank your business reputation and viability. Creditors are more likely to want to work with you and extend your credit limit if you demonstrate responsibility. Additionally, it is critical that any credit or loan terms are favorable for you as the retailer and not just for the creditor.
TIP 16: Consider payment plans for large inventory purchases
For example, imagine that you need to pay $5,000 for an inventory order. Rather than paying the total amount upfront, it is often beneficial to break up the payment into smaller chunks. It will cost you more in interest fees, but it also helps you handle cash flow issues if they arise. That extra money can be significant when your balance sheet is tight, and you are trying to make ends meet. However, you want to be cautious when taking on debt. Always keep your big picture and long-term business goals in mind, and only apply for credit and loans that you can easily manage.
TIP 17: Ensure your team is on the same page
Successful businesses operate with a unified mission and goal. While this might take extra time and effort during onboarding and training, it will help improve efficiency and eliminate costly mistakes. You want your employees to have a clear understanding of the ins and outs of your day-to-day business, as well as your overall company structure and values. This includes aligning your sales team’s goals with your ideal cash flow trajectory, making sure that your employees are not accidentally working against each other. Part of this is also ensuring that your team understands the specific metrics they are measured by and setting up a consistent model for commissions and bonuses. Eliminating confusion upfront will lead to happier employees and more efficient operation, which results in more money for your company.
Conclusion: Retail Cash Flow 17 Tips For Managing A Small Store
Managing a small store is not an easy job and cash flow management for small business is crucial. Fortunately, there are a number of tips you can follow to ensure that your business is running profitably. Forecasting cash flow demands, implementing an accurate budget, improving employee retention, excelling at customer service, and taking advantage of credit and government grants will help you run a stable, successful, and profitable business. By following these 17 steps to manage your small store, you will improve your retail cash flow. You could also hire a company such as Startup Tandem. They offer a variety of financial services and are LA’s best startup accounting partner.
You should now know more about retail cash flow and 17 ways to manage a small store!