Bookselling in Tough Times: Cash Flow

While the results of the presidential election have removed at least some of the uncertainty that has been hounding retailers in the ramp up to the holiday shopping season, there are, unfortunately, still plenty of questions about the economy that won't be resolved anytime soon. Having control of cash flow will be key to determining whether your business is able to handle what lies ahead.

It's all about being in control. Booksellers need to make sure that they have the monetary ability to adapt and respond to market fluctuations as they happen. In his recent letter to members on the economy, ABA CEO Avin Mark Domnitz wrote, "'Cash is King.' The key to being in control of your business is to be in control of cash. Think in terms of cash even more than profitability."

This week, Roxanne Coady of R.J. Julia Booksellers in Madison, Connecticut; Dan Chartrand of Water Street Bookstore in Exeter, New Hampshire; Casey Coonerty Protti of Bookshop Santa Cruz in Santa Cruz, California; and Neil Strandberg of Tattered Cover Book Store in Denver, Colorado, share some cash flow best practices.

Key to controlling cash is to take a look at how sales over the last 60 days compare to last year's sales and to the budget for this year. Check for trends. And then do it again.

R.J. Julia's Coady, a former accountant, told BTW that her bookstore conducts daily, weekly, and monthly budget reports, and adjusts cash flow weekly based on the numbers. "We really monitor this stuff," she said. "We're rarely surprised." This year, she added, "we're more thoughtful about it than typical." As a result of the number crunching, the store has decided to cut its backlist budget "until we see that sales will or won't happen," Coady explained. "We're zeroing in on what will produce sales."

At Tattered Cover, Strandberg said, "We have not invented any novel means to manage cash flow in a cash poor circumstance, but we have gone back to the spreadsheets half a dozen times since mid-September to re-evaluate everything."

He continued, "Our revised anticipation of sales for the next two months, and our cash position relative to these expectations have combined to cause us not to hire holiday temps, which is something of a first. We'll instead prepare staff that has traditionally worked behind the scenes to help with the holiday upswings we hope will still occur."

While seeking out trends is important, in such rough seas, sometimes it's still hard to gauge what each week will bring, said Water Street's Chartrand. For that reason, he has remained cautious in how he doles out cash.

"Not knowing what each week will bring, as you would in a stable environment, is tough, so I'm slowing down how fast I send cash out," Chartrand said. "I'm trying to keep a cushion, just going base-to-base -- so if something unexpected happens I can deal with it." To help, he has created a hierarchy to prioritize who gets paid first: the government, landlord, payroll, and vendors.

And Bookshop Santa Cruz is "try[ing] to hold over more cash from the holidays in order to have reserves in the spring in case the economy is still in bad shape," said Coonerty Protti.

It's at times like these that proactively managing returns to maximize cash flow becomes crucial. "We're looking at titles that we brought in for the fall that have not begun to perform," said Chartrand. "We're looking to ... significantly reduce the amount of stock we have, especially the frontlist, assuming that we're not getting the sales back. But we're trying to do this with a scalpel."

"Returns have cash flow implication," said Strandberg, "but it is also the case that the sales [we've] experienced since September -- and projections -- have warranted a reconsideration of an appropriate inventory level. Everything we know now requires an inventory smaller than when we began forecasting and planning at the end of August."

Coonerty Protti acknowledged that returns are an integral part of Bookshop Santa Cruz's cash flow management. "We set goals for each section based upon sales and turns, and then pull returns each month to meet our goals," she said. "We do heavier pulls in January and September as well in order to free up cash to pay off holiday vendor bills. If we are in slower months, we may be more aggressive with how much we pull." The store may "pull books that haven't sold in five months rather than in six months."

When managing returns, it's important to try to do it methodically, Coady noted, "so you're not making desperate decisions and just clearing shelves. We have very clear parameters under which we do returns. If there have been no sales in 90 days, then we'll keep maybe one or two copies. In this environment, however, we may return them all or use 60 days and leave one or two copies."

In general, its imperative to develop a good relationship with your credit reps, because when there is economic trouble, credit managers are more likely to be a little more flexible with someone they know than, say, with someone who always seems annoyed when they call.

"We use the same approach with credit managers as we always do, and that means a high level of communication and emphasizing that this is a long-term relationship," said Chartrand, "and you try to come to some agreement.... You have to use the right tone -- not panicked, not angry, and you should urge them to stay in touch."

"Communication is the key to keeping a strong relationship with vendors during hard times," said Coonerty Protti. "We find that if we communicate with them about when we can pay, they are more willing to give us flexibility on timing. For instance, during slow months, we call them to say we can pay, but we need to separate the payment over two weeks instead of one lump payment. It is important to keep the stream of money flowing to them, but some of the details can be worked out if you are honest and have a relationship with your credit manager and reps."

"One should always be constructively engaged with one's vendors, but we are hopeful that the suddenness of the economic downturn has created a collaborative negotiating space," said Strandberg. "We are all in this together."

The best way to address a need for cash is to have a line of credit available, as this will allow a bookseller to minimize the need to cut expenses. However, be warned: Operating lines of credit don't exist to help retailers make up sales shortfalls; they exist to help retailers manage cash flow. "In a seasonal business, a line of credit is critical," said Coady.

Bookshop Santa Cruz's credit line "has been a lifeline for the slow months," said Coonerty Protti. "We use it during down months to stay current with vendors and to initiate projects on the timeline that works best for the store as opposed to the timeline of higher sales months. We also make sure that we have one payroll worth of cash in our line of credit as a safety net in case all of our major bills hit at the same time -- rent, sales tax, payroll, etc.)."

There are drawbacks, of course, Coonerty Protti continued, and they include paying interest and "having a false sense of extra money -- we have to pay it back!"

And Coady warned, "After a while, a line of credit hides losses, and it could become what seems to be personal financing, except that a line of credit has to be cleaned up every year for at least 30 days." To meet this requirement, R.J. Julia's credit line is usually kept at a zero balance from December 26 until January 26.

A line of credit may not be right for every store, however. "We deliberately weaned ourselves off of an operating line of credit a number of years ago as it became increasingly crazy-making and frightfully expensive," Strandberg said. "The cost of money was simply too steep for our margins and the discipline we've needed to operate without it has been invaluable to survival." He added: "We ditched [our credit line] but every store is caught in a different web of opportunity and obligation. Each owner must choose best, though it is never wrong to say be careful. Plan well. Plan well 18 times." --David Grogan