Choosing the Right Point Of Sale Software
First, Think Like a CFO
Competition for market share among retail businesses is becoming more intense every year. Large companies have a distinct advantage with high-visibility locations and wholesale pricing. Small businesses need to differentiate themselves with excellent customer service and capitalize on niche markets. Most importantly, small businesses have to increase their margins in order to stay competitive. There’s no need for a small business owner to be an accountant, but thinking like a CFO is a huge plus for increasing margins and cash flow. An effective way for small businesses to improve their earnings is to analyze the individual components of working capital, which includes inventory and cash flow.
Having financial and operations data in an easy-to-access location is integral to creating financial strategies. This allows for real-time analyses of each area of the business. Once areas of concern are identified, cash flow and inventory management contribute to financial strategies that increase productivity. A cloud based point of sale (POS) software can provide the necessary reporting for financial analysis. It acts like an enterprise resource software—something all large companies use.
As a CFO, you’ll need to evaluate software. Making the right decision can be overwhelming, because there are a lot to choose from. The right POS software for your company should meet these three criteria: flexibility, value, and total cost of ownership.
Growth Requires Flexibility
Finding a POS software that accommodates changes in your business is very important, especially if the plan is to grow. The software should allow for many SKUs, into the thousands, and storefronts. Even if growth isn’t the plan, all businesses change and evolve over time. There should be enough functionality and expandability to be a great partner for many years.
One way to find value in a POS is through customer satisfaction. Today’s POS software can streamline inventory and processing customer sales, quickly and efficiently. It should also process returns quickly, too. These benefits can differentiate your store from the competition. And, you will see it through repeat customers and lower customer acquisition costs.
Value can also be found in real-time reports and metrics covering all aspects of the business. Businesses that leverage data-based metrics are in a stronger position to adapt to market fluctuations and find opportunities for growth.
Total Cost of Ownership (TCO)
This broad category includes costs of subscriptions, fees, integration, implementation, training and support, which are hard to pin-down, because most of the costs are associated with time and not money. If a system is too complex or not intuitive, then you and your employees will spend too much time trying to figure it out, or create work-arounds that take more time, adding to the TCO. A great way to lower TCO is through due diligence; find companies of similar size and industries and see what they are using.
Finding an All-In-One Solution
The beauty of POS software is having all of your data in one location. Plus, it’s typically stored in the cloud, so the chances of losing data are nearly 0%. Some packages reside on a single hard drive, but that leaves valuable information open to theft and loss. Cloud-based software resides in a single, easy-to-access location, which means better visibility of inventory and sales, as well as financial reporting. When looking for a POS software, choose one that is an all-in-one system.
The addition of accounting functions can be a valuable time saver, because only a handful of POS packages offer them. Also, more than a cash register, POS software performs automated tasks with inventory, such as creating POs when stock levels hit minimums and scheduling sales reports. Inventory management is one of the main components of a POS software, so it needs to work flawlessly.
Functionality is the key. The software should allow for scanning of items into inventory and at the register. This prevents errors made during manual entry of goods received and sold. Your POS software should provide real-time inventory, produce POs, and allow for new SKUs.
Another area of concern for inventory is “shrinkage.” Simply defined as the loss of physical inventory, shrinkage affects revenue in every business—especially in retail. Inventory shrink is the difference between accounting records, typically from receipts and purchase orders, and physical inventory on the shelves. According to the 2015 National Retail Security Survey, retailers lost $44 billion due to shrink. The loss of inventory equals the loss of profit and potential income. Shrink is often associated with theft, but can also be attributed to paperwork errors, multiple inventory management systems, obsolete product, and damage. Severe occurrences of inventory shrink can result in decreased bonuses for employees and changes in business operations. Preventing the loss of inventory is important to preserving cash.
Reporting on Sales
POS software can provide important business data to understand the key performance indicators (KPIs). This fills the role of a sales manager through tracking current and historical sales activity. Analyzing sales can tell a compelling story. While monitoring reports on sales activity, businesses can quickly assess the health and productivity of their sales force. Here are 3 sales reports a POS software should provide on a daily basis:
Detailed Sales Report
This report shows at-a-glance the items sold, total revenue, and gross margins—and lets you know exactly how well your business is performing. You can also find overall sales trends by tracking sales on a weekly, monthly, or quarterly basis.
Sales by Product and/or Service
Inventory affects sales. The software should report on the sales performance of individual items. This report lets you know what the most popular items are. It can also show the least popular items or the ones that won’t sell, called dead stock. Both affect your revenue and need to be closely watched.
Average Revenue Per Sale
Per sale revenue is an easy way to place a dollar value on each customer transaction. It’s also a great metric to align your revenue goals with sales goals. This is one of the easiest ways to chart the increase in overall sales and can direct you to higher profits.
In the past, managing a sales team was typically through “gut based decisions” and how it felt. Unfortunately, according to the Harvard Business Journal and years of scientific research, a manager’s ability to rate their employees’ performance is probably wrong. The results of these studies talk about how managerial feelings get in the way of true performance indicators. The only objective criteria for a true evaluation is found in the data. The POS software should provide the data necessary to make sound business decisions.
Credit Card Processing
Customers expect to pay with a credit or debit cards—their preferred method of payment. Only 20% of consumers pay with cash, while 80% of total consumer spending was with a card. And, what’s even more interesting is that 100% of consumers 18 – 24 years old reported using a card for everyday purchases, such as gas and groceries. Understanding the payment services offered by a POS software is important. Are these services secure? What are the fees? Any restrictions? The answers to these questions may not be what one would expect. Some software packages do not cover all of the major credit cards, while others have higher fees and restrictions for use.
The fees are dependent upon your transaction volume and best accounting practices. Volume is self-explanatory, however, consistent accounting practices and account set up are important. When each transaction incurs fees anywhere from 1% to more than 4%, you should be aware of your best, low cost options. Many sources suggest choosing a processing company that is transparent about their fees.
Safe and Secure
If you haven’t already noticed, most stores have made the switch to using EMV chip readers. Today, any merchant without a chip reader may be liable for credit card fraud that may occur during a transaction. In 2009, credit card fraud cost businesses and consumers over $190 billion. Over the past seven years, credit card fraud has doubled. And, in 2014, 31.8 million U.S. consumers experienced card fraud, tripling the amount of cases reported in 2013. One drawback of the chip reader is that it takes up to 15 seconds longer per transaction. These security standards have slightly increased wait times at the cash register, but offer better protection against theft.
A Long Term Relationship
Over the past five years, the POS industry has gone through some remarkable changes, mainly through cloud-based services. This gives retailers a chance to be mobile and take their store on the road, or simply step away from the counter and process transactions from a tablet, while walking around the store. Because of these new functions, many businesses are looking for a long-term fit.
Service and support are also important factors when choosing a POS software. Questions about functionality and reporting often come up and need to be answered in a timely manner. And, great service means continuous improvement. Frustrations can arise from lack of response and glitches in the system, leading to more headaches. In order to avoid these, do the research and ask questions about how your business will be supported. The answers you get may lead you in a different direction than you had thought, because long lasting relationships are built upon service and support.
Thinking like a CFO can help guide your choice toward the right POS software. To compete and grow in the global marketplace, you need to adopt technology and best practices that can take you there.
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