Retail Business stores have two objectives. They need to decide on the price they’re willing to sell the merchandise. Plus the quality of service they need to give customers. Two well-known department stores in the world, and they are Target, and Walmart. Department store may set high prices for items, give quality service, or become a discount store.
A discount store sells items at a frugal price but provides little to none customer service. Target is a discount store, and that’s why they are so distinguished. They give good customer service and high-quality brand name products. Target prices are competitive because they sell well-known material with a nice discount. A merchandising firm does their revenue by the investing and selling of stocks. Every merchandising company whether wholesale or resale use a similar accounting formula.
For a retail company, the management a difficult task. Because buying and selling off goods make an uneasy task. The accounting for a merchandising retail business compared to that of a manufacturing retail business are equal. Cash flow management is important for a merchandising retail business. Requires organizing a company’s receipts and payments of money. If a company is not capable of paying their bills when they needed. The time they go out of retail business.
Retail Business Merchandise
This is typical for merchandising business and the goods that sold known as merchandise catalog. The routine transactions that merchandising transaction goes through known as the operating cycle. First, the business purchases the merchandise inventory, and pay for by either cash or credit. Second, they sell the merchandise inventory for either cash or credit. A risk in merchandising business, purchases made on credit will wait before they receive the money.
But, not a huge issue. The proper management of cash flow is crucial for a merchandising retail business. They keep financing the inventory (goods in stock) until they sold which can be risky. Financing period from buying of goods for inventory until customers come and buy the products. This referred to as the cash gap. So, it takes 50 days to sell inventory, and 60 days to collect sales. A creditor’s payment conditions are 30 days, financing period is 90 days.
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From the financial period, the company will be out of cash. Need to borrow money from creditors such as banks if no fund available. A merchandising business specialist is Claire’s Stores, Inc. They specialize in selling to teenage women and inexperienced adults. They are trying what commodities are moving and which ones are not. Financial target period low because they receive payments by cash as opposed to credit which takes longer.
The sale of goods on Visa and MasterCard considered cash sales. Because they take the money right from the purchaser’s account. The smaller retail stores receive more sales on cash than credit. While the bigger one’s sales come from credit. The average merchandising store will combine both. Again, cash flows not the concern of merchandising retail business because they take into account profitability. The purpose why merchandising businesses sell goods at such a large cost is, so they have sufficient money left to establish an income.