The financial statements are a set of documents generated by a business from its different financial data for a certain reporting period, and is intended to give a picture of its financial performance.
A retail business has the following financial statements
Also referred to as P&L or Profit & Loss statement, the income statement tracks the revenue of the business, all the costs incurred in a specific period, and the final net profit generated after subtracting the costs from the revenue.
The line items tracked by a retail P&L statement are:
*Store-level profit is tracked separately before adding common expenses, in order to give a clear picture on whether or not this particular store location is profitable on its own and help in making decisions about stores opening and closures.
You can download this multiple retail stores P&L excel template from members area.
As a Retail Manager, you are expected to actively manage the P&L of your store portfolio. By P&L management, we mean managing every line item of the statement, by analyzing the P&L statement and taking actions to maximize the net profit at the end of the measured period.
Read our complete guide on P&L Management
The balance sheet tracks the assets and liabilities of the business by the end of the specified period.
The shareholder’s equity will include the share capital that the owners invested in the business + any retained earnings/losses that have been accumulated over the years.
It is called balance sheet because total assets have to equal total liabilities + shareholder’s equity. We explain it in details in our article on Retail Balance Sheet
The cash flow statement shows the movement of cash in and out of the business during the particular period measured and under which category of activity this movement is categorized.
Activities are broken down into:
You sold products for 100,000 $ and received the amount from customers. This will reflect as +100,000 $ in your cash flow statement under the operating activities. Then you paid your suppliers 40,000 $ as cost of goods, this will reflect as -40,000$ under operating activities
You bought a new equipment for 3000$, this will show as -3000$ under investing activities
Borrowing 200,000$ to finance your business will show as +200,000$ under financing activities. Then you paid dividend of 50,000$ to the business owners, this will be -50,000$ under financing activities.
At the very end all the cash that went in & out of the business for a specific period will be recorded under the different activities to show whether the business is cash flow positive or negative at the end of that period.
It is also recommended as a business owner to keep a monthly cash flow tracking sheet, that tracks your revenue, payment to suppliers and expenses, to make sure every month will be cash positive and plan for any shortages in advance.
This is different from the cash flow statement issued at the end of the year or every quarter.
Whether you are a retail manager or a retail owner you need to be familiar with the different retail financial statements that apply to your role.
As a Retail Manager at a retail company, you don’t usually get access to the balance sheet and cash flow statement, but you should be aware of all the retail financial statements at least to understand what the business owners are looking at and how they measure the overall business performance .
For e.g if you make a suggestion of opening new stores in certain area, you should be aware that for your suggestion to be executed, the owners/ senior management will need to have enough cash to invest in this expansion. If the business itself does not have enough free cash flow, this would mean that the operation will have to be financed by borrowing, which will add financing costs that have to be taken into consideration while assessing the feasibility of the new operation.
Your main KPI as a retail manager will usually be to manage the P&L of the locations you are responsible for.
Read our complete guide on P&L management for more insights about this process, and check out our Retail Budgeting Course on how to create a full P&L budget for your stores.
