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5 Retail Design Tips to Stimulate the 5 Senses… and Sales

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To make retail a winning experience, retail spaces must be both practical and enjoyable for customers. There are still many benefits to “try before you buy” shopping — such as not dealing with the hassle of returns — which means that retail stores will continue to serve consumers.

There are many ways to design retail space to help drive additional sales by making your store appealing to the five senses. Here are four easy-to-implement sensory tips to help improve your customers’ in-store brand experience.

1. Visual: Add mirrors.

Mirrors can make your footprint seem larger and more spacious to your customers. Taller mirrors can draw customers’ eyes upward, which makes rooms feel more spacious. If it turns out that your retail space lacks windows or natural light, you can use mirrors to increase the perception of how big your space really is. In such an instance, you can use small square mirrors to create a tiling effect.

Keeping mirrors in comfortable fitting rooms may be a great way to improve your sales. A study by consumer scientists Maryke Vermaak and Helena de Klerk indicated that use of fitting rooms, and how shoppers felt about a store’s fitting rooms, heavily influenced a consumer’s decision to buy.

Get ready for the future: Soon stores will be trying out interactive mirrors. These mirrors use technology to allow people to virtually try on clothing by scanning barcodes.

2. Visual: Be smart about your use of colors.

Color has a powerful psychological impact on customers’ behavior and decisions. Color can often be the sole reason, or one of the major reasons, why someone purchases a product. Retail consultant Anand Kumar says, “Different colors tend to evoke different feelings in people, which can affect how they perceive products. For instance, red – when used effectively – can highlight passion and power.”

Be cognizant of the colors used in your displays, signage and advertising.

Color and light play combined roles in retail environments, as a Journal of Business Research report suggests, “For fashion-oriented stores, blue interiors are associated with more favorable evaluations, marginally greater excitement, higher store patronage intentions, and higher purchase intentions.” However, consumers react differently when stores use softer lighting. For example, an orange interior with soft lighting generally, “Produces the highest level of perceived price fairness.”

Get ready for the future: Enable your customers to select their own product colors or suggest new ones. Some companies are already experimenting with augmented reality apps to enable customers to test their own colors in-store.

3. Sound: Choose music based on customer behavior.

Customer behavior is greatly influenced by the rhythm and genre of music that plays. The music inside a store helps customers create their perception of your store’s identity and the brands you sell.

It’s important that music for retail spaces reflects both the personality of your store and an awareness of customer perception in each track that plays. For example, one study found that classical music performed better than Top 40 hits for wine shops, influencing buyers to spend on more expensive wines. While popular music may be a good fit for mainstream stores, the complexity of classical music seems more suited for considered purchases like high-end wines.

Get ready for the future: While there are many companies that license music for retail use, automated music selections will soon be able to determine the ages of shoppers, the density of people in your retail business, and more. Soon, the music decisions will be left to computers and be updated depending on your current customer profiles.

4. Smell: Use scent to attract customers to your brand.

“Well-received ambient scents can positively influence purchase behavior if the scent seems to match the products in the store,” according to Shopify. The opposite is also true. If the scent doesn’t seem to match the context of the shop, consumers may turn away from the retail space. This is why it is so important to pick a scent that will help grow your brand. Interestingly, “Gender-designed scents seem to matter as well. A ‘feminine’ scent in a women’s clothing store helps create positive purchase intent.”

At Starbucks, the scent of fresh coffee, without the scent of food is intentional, yet subtle at the same time. Think “New car smell” is natural? It isn’t! Car manufacturers go to great lengths to treat leather with special aromas.

Get ready for the future: As the authors of the book Whiff! The Revolution of Scent Communication in the Information Age state, brands are quite bullish on scent marketing. This may be the single-most underutilized resource in the brand game.  Yet, big brands are learning how to use scent more effectively.

5. Touch: Digital touch points are everywhere.

By the year 2020, most of McDonalds’ 14,000 locations will have kiosks installed to enable you to order your food without dealing with a human being. Simply press which menu items you’d like to eat on a full-color screen and within a couple of minutes your food will be waiting for you. This means shorter lines and less of a chance that someone may mishear your order. McDonalds will add 1,000 kiosks at its stores every quarter for the next two years, according to CNBC. And if this experiment succeeds, expect other retail and food brands to follow suit.

Get ready for the future: With devices like the Amazon Echo, Google Home, and Apple’s Siri ubiquitous in the Western world, customers now have direct access to AI. In the future, when you walk into a retail store, you may be able to say precisely what you’re looking for and then either a human or machine will find that product and bring it to you or bring you to it immediately.

Conclusions

There are many ways to appeal to the five senses to stimulate more retail purchases. But, ultimately, the goal should be to improve the overall customer and shopping experience. Creating an in-store sensory experience that customers can’t get online is a key differentiator for brick-and-mortar stores.

Stores that use sensory design techniques may find themselves better equipped to compete with online retailers. When designing your retail store, be aware how sight, sound, touch, smell, and in some cases, taste can improve your customers’ experience.

Want a Better Credit Score? Put Banking and Credit Card Alerts to Work

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Staying on top of your personal and business credit scores is important if you plan to apply for business financing. Setting up banking and credit card alerts can make the job easier.  Better still, it can also potentially lead to an improvement in your credit rating.

If you’re not already using banking and credit card alerts to your advantage, here’s what you need to know.

How Alerts Can Help Improve Your Credit Scores

Personal and business credit scores are calculated differently.

Your personal FICO score, for instance, is based on payment history, amounts owed, length of credit history, types of credit used and new applications for credit. Business credit scores focus on different factors. The Experian Business Credit Score looks at your credit obligations to suppliers and lenders, legal filings involving your company and public records. Dun & Bradstreet’s PAYDEX Score is determined by how well your business pays its bills.

While personal and business credit scores can measure different things, alerts can help you stay on top of both by encouraging you to be more conscious of your accounts and credit activity. When you’re paying more attention to your credit, you may become more intuitive about what can help or hurt your score. (That’s a good thing, considering that 72 percent of business owners don’t know their business credit score, according to a Manta survey.)

Getting Started With Banking and Credit Alerts

Your bank and credit card company may allow you to set up many different kinds of alerts or notifications. When you consider the things which are most likely to impact your credit scores, specific alerts may prove useful:

  • Bill due date notifications
    Payment history is the central factor in influencing your PAYDEX business credit score; it also carries the most weight for personal credit scores. Set up bill payment alerts to help you avoid late or missed payments, which could negatively impact your credit score. Even better, ensure you pay your bills on time by pairing alerts up with automatic bill payment through your bank.
  • High credit card balance notifications
    After payment history, your credit utilization is the next most important factor for scoring personal credit. Credit Utilization is the percentage of your total credit line that you’re using. Carrying high balances or maxing out your credit cards works against you. Set up an alert to notify you when your balance hits a certain threshold.  This may help you put the brakes on spending.
  • New transaction alerts
    Fraud can affect both your personal and business credit scores if someone steals your credit card or taps into a line of credit you’ve opened and runs up a balance. An easy way to help combat that is to set up an alert to let you know when a new debit or purchase transaction posts to your bank or credit card accounts.

Remember to Check Credit Regularly

Checking your own credit report won’t hurt your score.  So this is something you should do at least once per year, if not more often. Review your credit to look for things that alerts might miss — a new account opened in your name that you don’t recognize or a credit reporting error that might be hurting your score. If you spot a credit error, dispute it with the credit bureaus reporting the information. Doing so could get the information corrected or removed, giving your credit score a lift in the process.

Looking for other ways to improve your credit rating?  Check out these articles.

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Everything You Always Wanted To Know About Debt-Service-Coverage Ratio But Were Afraid To Ask

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Editor’s Note: This is one of an eight-part series about key financial terms all small business owners should know.

Financial literacy is important for all business owners, but it’s absolutely critical for those who are considering raising money in the near future. Here’s everything you need to know about debt-service coverage ratio (DSCR), with an expert weighing in on why it matters.

What is debt-service coverage ratio?

Debt-service coverage ratio is a measure of a company’s ability to pay its debt based on available cash flow. It is calculated by dividing net operating income (noi) by total debt service.”Debt service” is a term that refers to all obligations due within one year. This includes short-term debt and the current portion of long-term debt on the company’s balance sheet.

Why is debt-service coverage ratio important?

Debt-service coverage ratio is important because it shows investors and lenders that you have positive cash flow. Having positive cash flow shows that you have made smart managing decisions in balancing your debt obligations and operating expenses. If you DSCR calulations show that you have a DSCR of less than one (1), that means your business has negative cash flow.  A negative cash flow indicates, essentially, that you will need to borrow money to pay off existing debts.

How can debt service coverage ratio impact your ability to raise capital?

Though varying economic conditions and differences from industry to industry impact the minimum DSCR an investor or lender will look for, generally speaking, the higher your DSCR, the easier it will be to raise capital. If your DSCR is below one (1), raising or borrowing might prove incredibly difficult — or, at least, prohibitively expensive. Conversely, if you have a high DSCR — say, above 1.5 — you can use it as a bargaining chip. Knowing that your company may be considered an attractive investment gives you the power to seek out favorable terms from potential investors and lenders.

How can you improve your debt service coverage ratio?

To better your chances of getting a loan or other infusion of capital, you will need to increase your DSCR.  Doing this may not be as difficult as you may think. One thing you can consider is looking into increasing your net operating income to cover expense.  Another is decreasing your operating expenses. With both of these, you can use the additional cashflow to pay off existing debt. All three of these – increasing your net operating income, decreasing your operating expenses, and paying off some debt – help to improve youre DSCR.

When looking to increase your net operating income, think of some ways you can quickly and easily increase your revenue such as turning excess inventory into extra revenue, leveraging tactics your customers already trust to increase your sales, and making sure you are taking advantage of every lead or potential customer that comes your way.

Giving a boost to your revenue is only one way to increase your net operating incoming.  Another quick and easy way to accomplish this is by decreasing your operating expenses. Believe it or not, there are a number of ways you can decrease operating expenses and free up some of your capital – from revisiting vendor relations and strategies, to splitting core and convenience ordering to improving your negotiation skills, you’re sure to find an area to cut expenses.   You can also find ways to increase employee productivity, and improve processes.

Ask an expert about debt-service coverage ratios:

Vincenzo Villamena, managing partner of entrepreneur-focused CPA firm Global Expat Advisors, breaks down why debt-service coverage ratio is so important for entrepreneurs to track.

Why is debt-service-coverage ratio an important metric investors and lenders consider before funding a business?

Investors and lenders use the DSCR to see if you can make your monthly loan payments.  It is also used to determine how much they can lend you safely on any economic condition. The DSCR makes you more likely to qualify for a loan and receive better terms for the loan, such as lower interest payments and higher borrowing amount.

What’s a solid DSCR business owners should strive to maintain while growing a business?

Generally speaking, a DSCR of 1.2 or better is considered good.  Although, I have seen loans given to companies with 1.1 ratio. I’ve also seen when the economy or an industry is down, the banks requiring a ratio of 1.5 or better.  So there is always a variance.

If an entrepreneur has a DSCR below 1, what explanation might he/she be able to offer to would-be investors and lenders to ease their concerns?

If the DSCR is below 1, there needs to be a good explanation to give to investors and lenders, such as a lot of R&D costs, hirings or a recent product launch in which the true revenues of the company do not reflect the YTD or LTM financials.

What’s next?

A key to success as a business owner is never being afraid to admit what you don’t know. Don’t know as many financial terms as you’d like to? No problem! Check out the other installments in this series covering The next installment of this series, where you will learn everything you wanted to know about turnover ratio, debt to income ratio, payables turnover ratio and current ratio.

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Six Business Financial Housekeeping Tasks to Get Done Before Year End

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There may be several weeks left in the year before you officially close the books and shift your focus to next year, but getting a head start on your financial housekeeping tasks can ensure you end this year on solid financial footing — and start the next one with a plan to succeed. Here are six business tasks to complete before you ring in 2019.

Check your retirement plans

If you don’t have a self-employed retirement plan, there’s still time to establish one, and make contributions to it. In turn, you may also find opportunities to reduce your tax burden. As Forbes explains, a sole proprietor who has a solo 401(k) in the 2018 tax year may be eligible to contribute up to $60,000 to it (based on net business income, and the business owner’s age).

If you prefer a retirement account with little costs and administrative burden, consider establishing a self-employed IRA (SEP IRA). Many providers allow you to complete account set up, funding and management entirely online.  And, you may be eligible to contribute (the lesser of) 25% of your business income, or $55,000, in 2018.

Meet with your accountant (or find one)

If you don’t have consistent contact with your accountant, set aside time to discuss your business’s current financial reality.  You should also discuss  your business goals, future plans and anticipated challenges for the remainder of this year, and next. If possible, schedule the meeting to take place at least two months before year-end.  Doing this will give you enough time to act on any recommendations for optimizing your finances before this year ends.

When you meet, let your accountant know of any additional financial moves you are considering that could have tax ramifications.  Things that could fall into this category include buying or selling new equipment or assets. Beyond the numbers on your financial statements, ask your accountant for any recommendations to improve or optimize your business finances, based on the current and future plans you’ve shared.

Confirm your estimated payments are accurate.

If your business is a sole proprietorship, partnership or S corporation, the Internal Revenue Service says you may be required to make estimated tax payments if you expect to owe $1,000 or more when you file your annual tax return. Corporations have to make estimated tax payments if they expect to owe $500 or more when filing their tax return. (Depending on your business, you may also be responsible for payroll, sales, and excise taxes).

If you picked up new clients or sales were stronger than expected, you may owe more tax than originally estimated. Ideally, your quarterly estimated tax payments are made in equal increments.  But the IRS does put the onus on taxpayers to estimate income as accurately as possible to avoid penalties.  They also expect you to ensure it remains correct based on business or tax law changes that may impact it.

Confirm tax paperwork for independent contractors you’ve hired.

If you’ve hired independent contractors over the course of the year, the IRS requires that you have their completed Form W9 (and that you keep it on file for at least four years). Sites that make it easy to hire virtual help also make it simple to hire contract help.  However, they can also make it difficult to keep in touch with contractors who are several states (or countries) away.

Regardless, the IRS also states that employers who pay an independent contractor $600 or more over the course of one year “may have to file Form 1099-MISC, Miscellaneous Income, to report payments for services performed for your trade or business.” Allow yourself the time to collect the paperwork you need from contractors so you’re prepared to issue the Form 1099-MISC tax forms. Note that you may be required to send them for payments by late January 2019.

Conduct an employee satisfaction survey.

Employee engagement may not seem financial in nature — until you consider the impact that disengaged employees have on business productivity, customer experience, and culture. Experts at Villanova University’s School of Business report that increasing your investment in employee engagement efforts by just 10% can yield $2,400 in profit (either directly or indirectly) from each employee, each year. Engaged employees are also 87% less likely to leave their jobs.  And, having engaged employees may reduce costs associated with employee turnover, hiring and training.

Take a pulse on employee engagement in your company with a basic online survey tool and questions that address what consultancy firm Deloitte says are the five pillars of employee engagement: Whether employees feel their job provides opportunities to do meaningful work, involves hands-on management with positive coaching, guidance and support, a positive work environment and culture, and trust in leadership.

If you find that you have engagement issues, your survey can provide the insights you need to address issues.  Once you know where problems may lie, you can work to improve employee productivity, engagement and satisfaction next year.

Organize your receipts and financial statements.

You have several months until tax season officially arrives.  But, the earlier you compile the receipts, mileage logs and cancelled checks you’ll need to support business-related tax deductions and credits, the less you’ll have to scramble as tax season approaches. If you rely on a bookkeeper or accountant to prepare your business tax return, ask his preference for how you should organize and transfer tax-related documents, to streamline the process (and better manage the billable hours you’re charged for their tax preparation services).

What is Payables Turnover Ration

Everything You Always Wanted to Know About Payables Turnover Ratio But Were Afraid to Ask

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If you’ve never taken an accounting course, “Payables Turnover Ratio” might sound like a complex, intimidating term. Thankfully, that’s not the case. By the end of this article, you’ll understand what it means, why it matters, and how it can impact your ability to raise capital. Who knows … you may even find yourself calculating this ratio just for fun.

What is a payables turnover ratio?

In simple terms, payables turnover ratio means how quickly a business is able to pay back its suppliers. You calculate the ratio by dividing cost of sales by the average accounts payable amount. Businesses looking to raise capital should be prepared to show payables turnover ratio on an annual basis for the past three years (assuming the company is three years old), and on a quarterly basis for at least the previous eight quarters. Some potential investors may also request monthly reports. The payables amount can be found on a company’s balance sheet under “current liabilities.”

Why does this ratio matter?

Healthy companies are generally able to pay back their debts quickly because they’re operating in the black. Payables turnover ratio gives potential investors a quick look at how frequently a company is paying down its debt obligations. If a turnover ratio is increasing over time, a company may be paying off its debts faster. A decreasing ratio may mean pay back is taking longer. This could be a sign that a company’s financial condition is declining.

A decreasing ratio isn’t always a bad thing. For instance, if your company has one major supplier who provides many of your raw materials and you negotiate longer payment terms (moving from Net 30 to Net 60, for instance), your payables turnover ratio will decrease. Be prepared to explain any such change to a would-be investor, along with its benefits or challenges.

How can payables turnover ratio impact your financing options?

Alissa Bryden, author of 100 Entrepreneurs and a CPA at Virtual Heights Accounting says liquidity ratio is important as entrepreneurs seek funding for their businesses. “Creditors and lenders use the payable turnover ratio to consider a company’s ability to pay off its current debts (specifically its trade or accounts payables),” Bryden explains.

“If a company can easily pay off its current accounts payable and continues to do so, then it indicates that the company will not burn through additional capital catching up on old debts.”

That’s important, she says, because it “offers an indication that the additional capital can be used for future growth.”

This is the kind of investment firms look for.

How can I improve my payables turnover ratio before seeking funding?

“To increase this ratio, companies can ensure they are paying down debts prior to month or period end,” Bryden says. “This is because the average payables are based on an opening and closing month end calculation. Funders want to see you are putting their funds to good use.”

What does it mean to put funds to good use? Although the exact interpretation will vary by industry and company, Bryden says an across-the-board measure is minimizing costs that are not related to growth. “Reducing administrative costs and streamlining processes can assist you in increasing this ratio without affecting your future growth — or the lender’s future return,” she says.

Does the payables turnover ratio go by any other name?

Yes! You’ll sometimes see payables turnover ratio referred to as accounts payable turnover or the creditors’ turnover ratio.  Each term means the same thing and can be used interchangeably.

What’s next?

Just like it’s easier to travel in a foreign country when you know the language, it’s easier to raise capital (or secure any kind of funding for your business) when you’re familiar with key financial terms and their real-life applications. Don’t forget to check out our previous installments on turnover ratio, debt to income ratio and current ratio.

How the SBA May Help You Recover From Natural Disasters

How the SBA May Help You Recover From Natural Disasters

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Hurricanes, wildfires, earthquakes, volcanoes, mudslides — all can be devastating to the health of your small business.

In 2017, 40 percent of small businesses located within a FEMA-designated disaster zone reported natural disaster-related losses, according to the Federal Reserve. Forty-five percent of affected businesses reported asset losses of up to $25,000, while 61 percent reported revenue losses of up to $25,000.

Recovering from a natural disaster can be an uphill climb but the Small Business Administration offers relief in the form of Economic Injury Disaster Loans (EIDL). These loans can help you get your business back on solid ground.

How Economic Injury Disaster Loans Work

The EIDL program provides small businesses with funding to repair and rebuild following a natural disaster. As of 2018, qualifying businesses can borrow up to $2 million, which can be used for:

  • Replacing or repairing damaged equipment or machinery
  • Buying new inventory or replacing other assets, such as computers, that were damaged or destroyed
  • Repairing or rebuilding your physical premises if they were damaged or destroyed
  • Making improvements that could help reduce the risk of natural disaster-related damage in the future, such as installing generators or storm windows and doors

The main goal of the program is to help businesses that have been affected by a natural disaster get back to normal operations as quickly as possible. These loans are low-cost, with a maximum interest rate of four percent per year, with terms that can extend up to 30 years.

Who’s Eligible for a Disaster Loan?

In addition to small businesses, the EIDL program is also open to small agricultural cooperatives, small aquaculture operations and most private nonprofits.

It goes without saying that your business needs to be located in a federally declared disaster area to qualify. But, physical property damage to your business isn’t a requirement for eligibility.

There is one caveat, however. The program only offers these loans to small businesses if the SBA determines they’re unable to get credit elsewhere. If you’re able to get approved for an equipment or term loan, for instance, an EIDL wouldn’t be an option.

Covering the Gap When Insurance Falls Short

The SBA has a second program to help businesses that have physical property damages which aren’t covered by insurance. The Business Physical Disaster Loan program also offers up to $2 million to small businesses that need to repair or replace property, equipment, inventory or fixtures following a natural disaster.

The maximum interest rate is four percent if you’re unable to get credit elsewhere. If you have other borrowing options, the max rate tops out at eight percent. Like the EIDL program, repayment terms can stretch up to 30 years.

It’s possible to qualify for both an EIDL and a physical disaster loan — you’re just limited to borrowing $2 million total through both programs. You can submit an application for each loan program online to get the ball rolling on disaster relief for your business.

How to Plan for a Strong Fourth Quarter Finish

How to Plan for a Strong Fourth Quarter Finish

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A strong economic outlook is driving consumer optimism, and as a business owner, you may be similarly inspired to pursue growth. Small businesses are looking towards the future with a bright outlook, according to the NFIB Research Foundation’s latest optimism index survey. The August 2018 report found a record number of business owners — 34 percent — have plans to expand.

As the fourth quarter approaches, consider what you can do now to wrap up the year on a high note.

Fill out the Ranks if Necessary

If you run a retail store or a service-based business that tends to be busier during the holidays, now’s the time to think about increasing your staff.

Review last year’s sales and run an estimated projection for this year’s numbers to get an idea of how strong customer demand is likely to be. That can help you gauge how many employees you need to hire and how to schedule them. Remember to give yourself enough time to fully on-board new hires ahead of the holiday rush.

Check Your Inventory Numbers

The business owners included in the small business optimism index report had an eye on boosting their inventory stock. Ten percent said they planned to increase inventory, the strongest numbers since 2005.

Go back to the sales projections you calculated earlier and compare those numbers to the inventory you have on hand. If certain items tend to be scarce around the holidays, get in touch with your vendors to see if you can pre-order those to avoid selling out when customer traffic peaks. Also, work out delivery schedules in advance so you know when new inventory will arrive.

Begin Your Tax Prep

The next payment deadline for quarterly estimated taxes is right around the corner in January. Yet another good reason to run estimates of sales projections through the fourth quarter is to ensure that you’re setting aside enough money over the next few months to cover your estimated tax obligation.

You can also use the fourth quarter to begin prepping for next year’s tax filing. Start looking for deductible expenses and add up business losses (if any) year to date. If you’re planning to spend capital on something big, such as new equipment, consider whether it makes more sense to do that now or defer your purchase until the beginning of the year.

Consider Financing Sooner, Rather Than Later

One thing small business owners aren’t optimistic about, according to the survey, is an improvement in credit conditions. With interest rates continuing to rise, borrowing may become more expensive.

If you think you may need an equipment or inventory loan, or just a working capital loan to finish up the fourth quarter, check your credit to see how likely you are to qualify. And of course, take time to compare borrowing options from different lenders to find the best fit for your financing needs.

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