Too often, retail success is measured by the wrong number : profit on paper. But when it comes to staying in business and growing long-term, cash flow is king.

That’s the key takeaway from Management One’s recent webinar, “Cash Flow Rescue – How to Make Sure You Are Making Money in Retail,” hosted by two of the company’s leading voices : Paul Erickson, Director of Mentoring, and Nate Sheth, CEO of Management One.

With decades of experience helping independent retailers thrive, Paul and Nate delivered a fast-paced, practical session packed with insights on how to stop leaks in your cash flow, rethink your buying habits, and invest where it counts.

At the heart of their message? Inventory represents 50% or more of your cash investment—making it the one major expense you can fully control. Most cash flow problems don’t come from overbuying alone, but most often from under-selling what you already own.

Here are the five biggest lessons—and immediate actions—you can take to turn cash strain into cash confidence.

1. Don’t Let “Profit” Fool You: Paper Profits ≠ Real Cash

Many retailers think they’re profitable because their accountant says so. But financial statements often tell a different story than your bank account.

Accounting says: You made a $50,000 profit.
Reality: You spent $1,050,000 and only brought in $1,000,000 in cash—leaving you $50,000 in the hole.

Why? Because inventory is a cash trap. In other words, the cost of goods sold is the most misleading metric in retail accounting.

Most often, retailers are not taking into account the entire financial picture of their business. Without a clear plan for how much to buy—and when—retailers overspend upfront and struggle later.

✅ The solution ? At Management One, we strongly believe that “Failing to plan is planning to fail”.

Use cash flow statements—not just profit and loss statements—to guide decisions. If your business shows profit but you’re short on cash, it's time to rethink how you're buying.

2. Plan Purchases Like You Plan Payroll

Retailers wouldn’t guess payroll or rent, but they often guess how much inventory to buy. That’s a recipe for trouble.

Why ? Common mistakes include a merchandise plan that doesn’t align buy cycles with actual customer demand. Retailers tend to hold on to too much inventory and lack the flow of enough new products.

✅ The solution ? Build a financial plan around your gross margin goal—then back into how much inventory you can actually afford.

For example, if you’re targeting a 50% margin on $1M in revenue, you can only spend $500,000 on inventory. Spend more, and you squeeze out the cash that covers your operating costs.

Match your Open-to-Buy (OTB) with your margin target. And make sure your inventory plan aligns with your real expense structure.

3. Markdowns Aren’t the Enemy—They’re a Tool

Most retailers avoid markdowns like the plague. But in reality, markdowns are your best weapon to clear aged inventory and recover cash.

Instead of viewing them as losses, use markdowns as a planned investment to keep product flowing and customers engaged.

✅ The solution ? Plan ahead, set a markdown budget and don’t go under. Your markdowns should enable you to learn about your products and customer reactions to price changes. Remember : it’s important to never let aged inventory linger—every week it stays, it costs you more !

4. Inventory Turn Is the Health Metric That Matters

Aged inventory is retail cancer blocking you from reaching your full potential. It robs you of cash, takes up space, and slows your turns.

The benchmark? 5.2 turns a year is optimum (which means holding no more than 10 weeks of inventory at a time). Anything slower, and you’re probably overstocked and underperforming.

✅ The solution ? Track inventory by class and by vendor. Each category (apparel vs. footwear, for example) behaves differently—and should be planned and budgeted separately.

This is where software should serve as your best tool to provide you with data, weekly reports and red flags on SKU replenishments problems that you need. Remember : software is a tool, not a strategy in itself.

5. Smart Retailers Compare Vendors by Stock-to-Sales, Not Just Margin

It’s easy to chase high-margin vendors. But margin alone doesn’t drive profitability—velocity matters more.

For example :
Vendor A: 50% margin, 9.0 stock-to-sales ratio = $27,000 return
Vendor B: 45% margin, 3.0 ratio = $9,000 return
Same revenue, very different outcomes.

✅ The solution ? Compare vendors using stock-to-sales ratios. You’re not just buying margin—you’re buying speed.

Start Where You Are: Quick Wins to Improve Cash Flow

Here are a few simple steps retailers can take today :

Identify inventory older than 6 months and mark it down or offload via a third party.
Analyze stock by classification and vendor to spot low performers.
Check your stock to sales ratio.
Adjust prices dynamically to keep inventory turning.

Final Thought: Planning is Power

As the webinar closed, one message stood out: Cash flow is not an accident. It’s a result of planning.

Management One’s approach fuses forecasting tools, real-time data, and decades of retail expertise to help store owners move from gut feel to financial control. Whether you're battling a slow season or prepping for a surge, visibility into your inventory, expenses, and buying cycles is what keeps your business breathing.

Need help building a cash flow plan ? If you’re ready to rethink your buying habits, revisit your vendor strategy, or build a financial plan that protects your cash, get a free consultation with our team here.

Cash Flow Rescue: How to Make Sure You’re Really Making Money in Retail