United Kingdom

Cash and Working Capital 

Cash flow is a critical part of any retail business. Ensuring that sufficient funds are in place to invest in stock, meet rental payments and pay staff is fundamental.

Cash and Working Capital

Christmas trading update

  • The first quarter of 2012 will require stock replenishment and continued capex to drive sales, but it is not yet known to what extent pre-Christmas cash margin has been sacrificed for sales growth
  • In addition, post-Christmas sales results appear to be much more challenging, leading us to question whether a number of retailers will find themselves cash constrained
  • With many retailers having financial year ends in March, there is limited amount of time to ensure they have sufficient working capital in an environment where lenders are unwilling to provide further capital
  • Financial covenants, particularly the Fixed Charge Cover covenant, will remain a focus for retailers as profitability falls, due to heavy discounting, a tough trading environment, and an increase in the cost base, such as rent and commodities
  • While stronger Christmas trading will help the December covenant tests, a weak first quarter will raise the challenge at any March year ends
  • This issue affects retailers across the spectrum, including those in a seemingly stronger position with healthy cash balances but weaker metrics
  • In addition, retailers who have expanded in recent years are likely to see their rent increasing due to the run off of rent free periods


Currently, one of the greatest challenges for many retail businesses is managing working capital commitments, particularly when refinancing options are scarce. Those retailers with insufficient funds to replenish stock, maintain stores or meet their store occupancy cost commitments will struggle throughout 2012.


The heart of the problem may not be immediately obvious; but they will undoubtedly see excess inventory, excessive markdowns, and weak margins.

Cash is king


Optimising cash management has never been more important for retail businesses, with cash requirements underpinning strategic decision making.

The key to maximising cash flow and working capital is budgeting and benchmarking. A firm plan needs to be in place to ensure the business is able to maintain sufficient cash flow and identify potential hazards, with enough time left to carry out any corrective actions.

To enhance visibility and improve cash management systems, you first need to assess the quality of your short and medium term cash flow forecasting processes and identify inaccuracies or lack of visibility. A more integrated approach may need to be considered, using short term forecasts to drive performance.

Minimising tax payments and identifying areas to reduce outgoings will also help you retain more cash in your business. Expenditure on fixed assets can be significant. Optimising areas for tax relief will mitigate tax paid.


Have you looked at how you can optimise your tax relief to free up valuable cash?


Optimising working capital can be a major challenge when trading is down, especially if your products involve long lead times. Understanding the drivers of working capital ensures that high performing retailers are able to successfully take their working capital management to the next level.


How KPMG can help

Whether you need an immediate understanding of your cash flow position or are struggling to manage working capital, KPMG can assist you in evaluating the full range of options and help you select the most appropriate solution to support your business.

We aim to understand your approach to cash and working capital management, your wider capital imperatives, and most importantly, to listen to your objectives.

We work with retail businesses to gain a detailed understanding of the cash flows, the associated controls and reporting processes. This enables us, together with management, to develop potential additional controls.

This understanding allows bespoke forecasting systems to be developed and implemented, and we provide hands-on coaching for the team involved. We can assess the associated cash controls and reporting structures and recommend enhancements where appropriate.

KPMG also has a team of dedicated tax and VAT experts, who can help you to obtain value from capital allowances and the other forms of tax relief available.


Corporate Tax


Christine HewsonChristine Hewson


Partner, KPMG LLP (UK)


0161 246 4132



Transactions and Restructuring


David McCorquodaleDavid McCorquodale


Partner, KPMG LLP (UK)


0131 527 6718




Roger BaylyRoger Bayly

Partner, KPMG LLP (UK)


020 7694 3079



Debt Advisory

Tim MetzgenTim Metzgen


Director, KPMG LLP (UK)


020 7311 4291