There is a sentence nearly every shopkeeper says sooner or later: "I don't understand it, the shop is doing well and I still have no money." That is not an illusion, and it doesn't necessarily mean somebody is stealing. Most of the time it simply means that profit and cash are not the same thing — and that weeks, sometimes months, pass between them.
Profit is the result of a calculation: selling price minus every cost. Cash is a state: what is in the till and the bank account this morning. The two drift apart because you put the profit straight back into goods. When a line sells out you reorder — and the profit that was in principle yours is already standing in the boxes of the next delivery.
That is normal, and it is how a shop is supposed to work. The trouble starts when the money you put back doesn't come back in time. Goods on the shelf are worth precisely nothing until somebody buys them — while the supplier's invoice falls due regardless.
Where is your shop's money?
A shop's money can be in four places, and only one of them is visible in the till. If you only look at daily turnover, you know nothing about the other three — and together they add up to far more.
| Where is it? | How big in a typical small shop? | When does it come back? |
|---|---|---|
| Stock on the shelves and in the store room | The largest item — often more than a month's turnover | As it sells; for slow lines, weeks or months |
| Cash in the till and in the bank | The smallest item, yet this is what pays the invoices | Immediately — this is the only part you can spend today |
| Card takings not yet settled | One or two days' worth of card sales | Usually 1–3 working days, depending on the provider |
| Money locked up: deposit, advance, equipment | One-off but large items | Only at the end of the lease, or never |
The lesson is simple: a shop's financial position isn't told by turnover but by how much money is tied up and how quickly it comes free. That is why, of two shops with identical turnover, one can be calm while the other is chasing money at the end of every month.
Stock: your biggest investment
If you sit down once and estimate how much money is standing in your shop as goods, the figure is usually startling. Not because it is large — but because nobody has ever said it out loud. In a small shop the value of the stock is often more than a full month's turnover; and that money becomes money again only when somebody buys the goods.
Within the stock, though, the differences are huge. Some products turn over several times a week: bread, milk, cigarettes. Others have been standing on the same shelf for months. The latter are the shop's frozen money: value paid for and not returned. In most shops roughly a fifth of the stock belongs here, and that money could be released at any time.
This is why cutting stock often improves the cash position faster than growing turnover. If you clear out goods that have been standing for six months, your profit doesn't rise — but you have cash. The two are not the same, and at the end of the month it is the second one you need.
The cash gap: when you pay and when it comes back
The cash gap is the number of days between paying for goods and getting their price back from the customer. In a food shop it is usually small or even negative — the customer pays immediately while the supplier only has to be paid in a fortnight. In a shop with a large, slow-moving stock it is long, and every single day of it costs money.
- 11. Work out how many days your stock takes to turnTake the cost value of your current stock and divide it by the average daily sales at cost. If two million is standing on the shelves and seventy thousand at cost sells each day, your stock turns in roughly 29 days.
- 22. Work out how many days before you pay the supplierThis is the average of your suppliers' payment terms, weighted by turnover. If your largest supplier gives 14 days and the small ones are cash on delivery, the average is well under 14. What counts is what you actually pay, not what the contract says.
- 33. Subtract one from the other29 days of turnover minus 12 days of payment terms = a 17-day cash gap. For that many days you are carrying the stock with your own money. If this number grows month by month, the same turnover needs more and more of your own cash.
- 44. Work out what that means in moneyMultiply the days of the cash gap by the daily sales at cost. In the example above, 17 × 70,000. That much of your own money is permanently inside the shop just to keep it running — even if the shop is profitable.
- 55. Repeat in three monthsA single figure means nothing; the direction means everything. If the cash gap is widening, something is slowing down: either the stock is swelling or the payment terms are shortening. Both can be handled in time if you can see them.
- 66. Don't recalculate every monthQuarterly is enough. This isn't a daily indicator but a direction finder. Anyone who works it out weekly is measuring noise rather than trend — and sooner or later gives up.
Turnover speed is worth more than margin
This is the part that is new to most shopkeepers: the good product isn't the one with the highest margin, it is the one that turns over the most times in a year. A product's annual return isn't its margin but its margin multiplied by the number of turns.
| Product | Margin | Turns / month | Annual return on the same money |
|---|---|---|---|
| Fresh bakery | 15% | 30 | Very high — it turns daily |
| Milk, staples | 12% | 8 | High — speed makes up for the small margin |
| Tinned goods, dry pasta | 25% | 2 | Moderate |
| Gifts, seasonal items | 45% | 0.3 | Low — the margin is big but it barely turns |
From this comes the practical rule: if money is tight, don't reorder high-margin, slow-moving goods. Not because they are a bad deal — but because that is where your money stands the longest. While things are tight you have to feed the fast-moving lines, because those bring themselves back soonest.
Supplier terms are the cheapest loan there is
Every day later you pay the supplier is a day less of your own money tied up in stock. That is interest-free financing — and most small shops don't take advantage of it, because they have never asked.
- Ask. Most suppliers won't offer longer terms unprompted, but they will give them to a reliable partner.
- Paying on time is your negotiating position. Someone who has paid punctually for months can ask — someone who slips gets tightened up.
- Don't start with the smallest supplier. Negotiate with whoever supplies the bulk of your turnover: there, even a week is a lot of money.
- Be careful with cash discounts. If immediate payment earns you 3% off, that is often worth it — but only if you genuinely have the money.
- Keep what you promise. The price of being late isn't interest, it is that next time they won't supply you on credit.
How big a reserve do you need?
The reserve should be measured against fixed costs, not turnover. Turnover fluctuates; rent and wages do not. The yardstick is therefore how many months you could cover your fixed costs even if takings halved.
Write down once what your monthly fixed costs are: wages and contributions, rent, utilities, insurance, bookkeeping, system fees. That is the figure you want to have at least one or two months' cover for, held separately — not in the current account you also pay orders from.
And there is a less obvious reserve too: an unused credit line. It isn't good because you draw on it — it is good because its existence means you don't have to mark down in a panic or buy badly. The greatest damage from a cash shortage is rarely the shortage itself; far more often it is the bad decision you make under the pressure.
If the month is tight right now: what to do first
- 1Go through what has been standing on the same shelf for more than two months and mark it down. You aren't protecting the margin, you are releasing cash.
- 2Stop reordering slow-moving lines for one cycle. Keep feeding the fast ones — that is where cash comes back soonest.
- 3Look at waste and staff consumption in money. These two lines are quiet, and they are often the size of the sum you are missing.
- 4Talk to your supplier BEFORE the invoice falls due. Two weeks asked for in advance and an unpaid invoice are not the same thing in a relationship.
- 5Only then think about borrowing. A loan is dearer than your own idle stock — but cheaper than shutting down.
„A shop isn't killed by the bad month. It is killed by having nothing to see the bad month out with.”
What never to do
- Don't measure the health of the shop by what is in the till. A good day still doesn't cover the end of the month.
- Don't order "because it's cheap now" if the product moves slowly. The discount is one-off; the money tied up sits there for months.
- Don't finance a long-term investment out of daily takings. A chiller doesn't come out of this week's bakery money.
- Don't mix personal money with the shop's. If the two are in one account, you will know how neither is doing.
- Don't let an overdue supplier invoice go unmentioned. The silence damages your credit far more than the delay itself.
- Don't mark down the whole stock in a panic. One bad week is no reason to give away the margin on your fast-moving lines too.
- Don't borrow without knowing what would have improved anyway. If the cash gap doesn't narrow, the loan only postpones the question.
Summary
- Profit is a calculation, cash is a state. Stock stands between the two.
- Work out the cash gap once: days of stock turnover minus days of supplier terms.
- Turnover speed matters more than margin — the same money turns over more often.
- Supplier terms are free financing; ask for them, and keep to them.
- Measure the reserve against monthly FIXED costs, not turnover: at least one or two months.
- When the month is tight, the fastest cash is in your own stock that isn't moving.
Frequently asked questions
Frequently asked questions
How can the accountant show a profit when I have no money?
Because bookkeeping measures profit, not cash movement. Most of your profit is standing on the shelf as stock, and the supplier invoices haven't been paid yet. That is a completely normal state — the trouble only starts when the stock turns more slowly than the invoices fall due. Ask your accountant to show the value of the stock and the supplier balance alongside the profit: the three together already explain the missing money.
How much stock is right for a small shop?
There is no general figure, because it depends on the range: a shop living off fresh bakery works with a day's stock, a general store with weeks. The usable yardstick is turnover: if your stock takes longer to turn than you have to pay your suppliers, too much is standing on the shelf. At product level the question is how long a line takes to sell out — anything standing more than two months is worth ordering less of next time.
How much reserve should I keep in the account?
At least one or two months of FIXED costs: wages and contributions, rent, utilities, insurance, bookkeeping. Don't measure it against turnover, because turnover fluctuates and fixed costs don't. And keep it separate from the money you pay orders with — in one account it will eventually go on stock.
Is it worth ordering a bigger batch for a volume discount?
Only if the product moves fast and the bigger batch will also sell within its shelf life and while there is still demand. The discount is a one-off gain; the money tied up sits there for weeks or months. Work it out: if a 5% discount means taking two months' stock of something that used to sell in two weeks, you have paid six weeks of cash for 5%.
What are the warning signs of a cash-flow problem?
There are four early ones: supplier invoices creep closer and closer to their due dates, you pay orders out of the day's takings, you increasingly have to choose which invoice goes out first, and your own private money starts going into the shop. All of these come months before an actual failure — and all point the same way: money is coming back more slowly than it is going out.
Does growing turnover help with a cash shortage?
In the short run it often makes it worse. More turnover needs more stock, and the stock has to be paid for before it sells — so growth initially TAKES cash. That is why fast-growing shops run aground. If you have a cash shortage, first speed up turnover and release idle stock; let growth come afterwards.
Is an overdraft a good idea?
Good for bridging, not as a solution. If the cash gap is structurally long — because stock turns slowly or payment terms are short — then a loan only defers the question and adds a cost on top. It is worth having as insurance, though: because an unused facility exists, you don't have to decide in a panic.
What should I do with goods that have been sitting for six months?
Sell them, even at a loss. What has stood for six months won't start turning on its own, and its chances only get worse each day. Mark it down somewhere visible, tie it to a promotion, or bundle it with a fast-moving line. You made the loss when you ordered it — all you are deciding now is whether you get any of the money back.
Does card payment hurt the cash position?
It slows it slightly, because card takings usually arrive one to three working days later while cash is there immediately. At the end of the month, if most of your takings are on card, this genuinely matters. It is manageable: don't schedule payments for the very start of the month, and build the few days' lag into your plan.
Should I keep the shop's money separate from my own?
Yes, and it is the cheapest thing you can do for your finances. While the two are in one account, you can see neither whether the shop supports itself nor how much is left for you. A separate account and a fixed, predictable amount you take out are worth far more than any report.
How often should I recalculate all this?
The cash gap and turnover speed quarterly. Monthly fixed costs once a year, or whenever a large item changes. The daily level is about something else: there it is turnover, waste and stock movement that matter. If you look at the long-term indicators weekly, you are only measuring noise.
What if the shop persistently doesn't generate enough cash?
Then it isn't a liquidity question but a profitability one, and it has to be tackled elsewhere: margin, range, cost structure. The difference is easy to see — if the stock turns, you pay the invoices and still nothing is left, then the problem isn't the flow of money but that the shop in its present form doesn't earn enough. These are two separate problems, and confusing them is the commonest mistake.
Most of your money is sitting on a shelf. Find out which one.
Boltom App's report shows you, product by product, what moves and what sits. Add the daily waste and staff consumption in money — the three lines that quietly make cash disappear.
- Sales per product: what really sells, and what has been sitting for weeks.
- Daily waste and staff consumption totalled in money — that is what is missing.
- With several shops, a separate report for each — not one blended average.
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