Customers demand convenience.
If your business can’t make the buying process quick, easy, and convenient, customers will go somewhere else.
There are lots of examples that illustrate this point, including the demise of Toys “R” Us. The firm’s success formula was to provide a bigger selection of toys than most of its competitors, and the company had 800 US store locations at its peak.
Then along came Amazon.
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Amazon has a relentless focus on convenience, speed, and choice. They study customer purchase behavior, and use that information to buy inventory and to promote those toys (and other products) on their website.
Rather than battle your way through a retail store location, Amazon lets you shop online and have the toys shipped to your door.
Amazon thrived by removing the pain points associated with toy shopping, and Toys “R” Us went out of business.
How can you avoid the same fate?
Start by embracing technology, and using it to improve the customer experience. Your investment in tech should include a point-of-sale (POS) system.
If you haven’t used a POS system in your business, or if you’d like to get the most out of your existing POS technology, read on.
Understand how POS systems work
The most important function of a POS system is to process a customer payment, and complete a sale.
Assume, for example, that Julie operates Sunshine Greeting Cards, a business that sells greeting cards, candles, and other gifts. The company sells items through its website, and in three retail store locations.
Here are the steps required to complete an online sale:
- Customer selects item: The customer selects an item for purchase by clicking on the item and moving to the checkout screen.
- Entering card data, purchase: At the checkout screen, the customer enters their credit card or debit card information, confirms the dollar amount of the purchase, and clicks a “purchase now” button.
- Processing payment: The payment processor charges the customer and sends the sales price amount, less the processor’s fee, to Sunshine’s bank account.
- Confirmation: The payment processor confirms the transaction to both the customer and Sunshine electronically so that both parties have a record of the sale.
- Product shipment: Once the payment is confirmed, Sunshine Greeting Cards sends the items purchased to the customer.
In addition, the payment processor must be able to handle refunds, sales price corrections, and other changes to a customer order. Sunshine also must be able to use the same technology at POS terminals in each store location.
As a business owner, you need to clearly understand this process, in order to train your staff and manage your business.
If you use your POS system to the fullest extent possible, however, you’ll operate far more efficiently and generate higher profits. Here’s how.
Make smarter inventory decisions
Your POS system can be your most effective tool for managing inventory.
For most retailers, inventory is the biggest asset balance listed on the balance sheet, and also the largest use of cash. It’s important to find a POS system that provides inventory management capability because a lot is riding on your ability to monitor inventory levels.
Here’s an inventory management example:
One of Sunshine’s best-selling products is a Seaside Candle, which sells consistently each month. When the candles are purchased and received at the company’s warehouse, the candles are assigned SKU number SEACAN12.
SKU numbers are alphanumeric codes used by companies to track units of inventory, and Julie tracks the number of items in inventory by SKU number.
Here’s where a good POS system can help. When an item is sold, the POS system reduces the inventory level for that particular SKU number- automatically. If Sunshine sells 20 Seaside Candles on Tuesday the 12th, for example, Julie can pull a report from the POS system and immediately know her new inventory levels.
Why is this important? In order to effectively manage cash flow.
Your cash balance is valuable.
How valuable? According to a US bank study, 82 percent of business failures are due to poor cash management.
If you’re a retailer, inventory is typically your biggest use of cash.
Seaside’s POS system allows Julie to closely monitor inventory levels, so that she can carefully plan her inventory purchases and conserve cash. If the business consistently sells 300 candles a month, Julie can use that information to make purchases, and avoid buying too much inventory.
If too much cash is tied up in inventory, Julie has less cash for other purposes, such as marketing and advertising. Seaside can avoid buying too much inventory, and keep enough candles on hand to fill every customer order.
Find a POS system that offers inventory management capability, including the ability to generate reports on a PC or mobile device.
Ramp up your marketing efforts
Knowledge is power, and your POS system can provide great customer behavior information that you can use to market your products.
When a customer checks out (either in-store or online), you can ask the customer to join your email list for product promotions and discounts. Customers who join your email list are your biggest fans, and your best source for repeat business.
Julie can also use POS data to set up customer loyalty marketing campaigns. For example, the customer receives a 15% discount code when they purchase over $75 in merchandise. These rewards also generate repeat business, and the data can be monitored in a POS system.
Sunshine can also experiment with sales price changes, and monitor the financial impact in the POS reporting system.
For example, Julie could increase the price of Seaside Candles by $5 on May 1st, and monitor the impact on total sales during the month of May. If sales levels remain the same, she can maintain the price increase, or reduce the price if sales fall off during May.
Finally, gift cards are a big source of income for many retailers, and Julie can offer gift cards at checkout.
Improve your marketing results by using the data available in your POS system.
Integrate your POS system with other management tools
Find a POS system that can be integrated with other management systems.
The first priority is for your POS system to link with all of your third-party payment processors, including credit cards, debit cards, PayPal, and other vendors. Ideally, you should be able to generate one POS document that reports on payment activity from all of your payment processors.
An effective POS system can also help you manage your staff. POS systems now include time clocks that track when a particular employee signs into the system and signs out. You can also use scheduling technology to manage staffing at your retail locations.
Your POS system must be integrated with your accounting system, so that data on sales, purchases, and returns is transmitted to your accounting records with minimal human intervention.
These integrations are important so that you can leverage technology as your business grows.
If Sunshine Greeting Cards adds five more retail store locations, for example, Julie needs a POS system that can process more transactions using the same investment in technology. Doing more work in less time allows Julie to leverage her time and increase profits.
Find a POS system that can help other processes to work faster.
Minimize employee theft risk
Company growth increases the risk of employee theft.
Using an effective POS system, however, can reduce the risk of workers stealing cash or inventory items.
To understand your risks, it’s important to review the segregation of duties concept.
How segregation of duties works
This concept states that the less responsibility any one worker has, the less likely it is that theft can occur. Let’s think about a business cash account as an example. Whenever possible, these three specific duties should be kept separate:
- Custody of assets: The person who has physical custody of the checkbook should not have any other duties related to cash processing. Another good example of custody is the keys to a company warehouse where inventory is stored. For cash, let’s assume that the administrative assistant has the checkbook in his desk.
- Authority: Who has authority to sign a check? If you own a restaurant, for example, your manager may have the authority to sign checks for purchases of food received at the restaurant. That same manager should not have access to the company checkbook.
- Recordkeeping: This duty refers to posting accounting entries and reconciling the bank account. The record keeper (typically an accountant) should not have access to the checkbook, or the ability to sign checks.
For a very small business, it may not be possible to segregate these duties. Maybe the owner handles two or even all three of these tasks. A growing business, however, needs to separate these duties.
Your POS system can help you keep duties segregated, and reduce theft.
Less cash, less theft
When you process sales through a POS system, you can sharply reduce the number of cash transactions, and that change reduces the risk of theft.
A POS system provides a clear electronic trail for every transaction. When a $30 candle is sold, for example, the payment processor increases the cash account, and the inventory account is reduced.
At the end of each day, Julie can compare the retail amount of inventory sold to the dollar amount of payments processed, to verify that each inventory item was sold to a paying customer.
This system is much easier that managing cash sales. Cash transactions require a cash count of each POS system at the end of each worker’s shift, and the cash received must match the dollar amount of inventory items sold.
POS systems provide accurate data that can be reviewed immediately. If, for example, an employee processes a fraudulent transaction using a customer credit card, the activity is stored in the POS system. If the payment cannot be matched with an item that was removed from inventory, Julie can investigate for a possible theft.
A POS system also records better documentation for the bank reconciliation process. Assume, for example, that the bank statement lists a debit for a customer refund on the 13th. Julie can review transactions in the POS system and quickly locate the particular customer that received the refund, and verify that the returned item was added back to inventory.
Keeping control as you grow
Many companies experience worker theft when they are in a rapid growth stage.
If Sunshine is added three more locations, for example, Julie must hire and train staff, purchase more inventory, and oversee more sales transactions. However, using a POS system and minimizing cash transactions provides the same level of documentation as you grow.
Sunshine can increase sales from 100 transactions a day to 300, and the POS system will process sales in the same way, which helps Julie control her business and reduce the risk of theft.
Make the decision to implement a POS system to control cash, manage your inventory, and to reduce risk.
Action steps to take
Use these steps to get the most out of a POS system:
If you don’t have a POS system in place, ask your business contacts, your accountant, and other professionals for recommendations. Work with an IT expert who can help you select a POS system, install the software, and train your staff.
On the other hand, if you have a POS system, make sure that you understand all of the system’s capabilities. Ask your vendor for training resources, so that you can get the most out of your system.
Review your POS reports each week, and use the reports to make decisions about inventory purchases.
Compare the monthly POS activity to the information in your bank statement, so that you can reconcile your bank account and follow up on any unusual transactions.
Finally, use your POS system data throughout the year to market more effectively.
If you invest the time and effort, you can make more informed decisions and increase profits by using a POS system.
Want more tips for running a retail business? Check out our guide to managing a retail store.
This article originally appeared on the QuickBooks Resource Center and was syndicated by MediaFeed.org.
Featured Image Credit: rez-art / iStock.