Q: The constant reports of increasing costs for everything from groceries to fuel, as well as higher interest rates and unemployment, have me worried about the future of our shop. Any advice that will help me sleep better at night would be much appreciated!

A: Many independent retailers have weathered tougher storms than the current economic crisis. In our 34 years of business we've seen interest rates for business loans soar over 20 percent, unemployment top 7 percent, and annual inflation reach 11.3 percent. So take heart — the doom and gloom of today's economy will give way to better days.

A few positive points to ponder:

• Challenging times mean that your orders are more important than ever to your reps and vendors, so you should get higher priority.
• The state of the economy could help you negotiate lower rent, or at least avoid a rent increase.
• Higher unemployment makes it easier to attract retail employees.
• Increased shipping costs for online orders makes buying locally more appealing.
• Buy Local campaigns are helping consumers realize that they can keep money in their own community by patronizing local businesses.
• High fuel costs encourage “staycations,” which means money usually spent elsewhere may stay local.
• Big store competitors are more likely to be hobbled by big debts at high interest rates.
• As an independent retailer you can tailor your inventory selection to the economic situation more efficiently than a chain operation.
• Some of your customers will be experiencing economic hardship, but you can strive to keep sales up by increasing sales per customer from those who have stable incomes.
• Lower sales do not necessarily mean lower profits. Keep an eye on your expenses and make sure they go down when sales go down in order to maintain your margins.

In short, hang in there, watch your inventory and cost levels, and do everything you can to attract and satisfy your customers. They are eager for a positive, “no recession here” experience, and you can give it to them. And just think how wonderful your sales increases will be after you make it through this economically challenging time!

Q: Our computerized bookkeeping system is able to produce all kinds of financial reports. Which ones are important, and how often should we look at them?

A: Many independent retailers go into business because they love the merchandise they sell, but without much financial literacy. They may have no idea what ROI, P&L or even BS means (budget sheet, if you were wondering). While it isn't necessary to go back to school for an MBA at this point in your business career, it is dangerous to own your own business without being able to understand the basic financial reports.

If you don't print out and study these reports at least once a month, it's hard to know how well your business is doing, and difficult to make educated decisions regarding inventory purchases and other expenditures. Not only can you find yourself facing a shortage of funds (probably the most common cause of small business failure,) you can also expose yourself to fraud and internal theft.

It may be embarrassing to admit that you are not comfortable interpreting the basic reports that tell you how your business is doing. I would suggest that you make an appointment with an accountant — either your own, or one that you call in just for this purpose — and ask for a review of your financial situation. Make it clear that you want to learn more about how to interpret the numbers on your reports. The money you spend on this lesson may well save you a lot of worry and hardship later.

What reports should you be examining? A monthly Profit and Loss (P&L) and quarterly Balance Sheet are essential. In order to make these reports more meaningful, set up your accounting program so that you can easily see your Year-to-Date (YTD) figures, as well as a comparison to the previous year in each category. Both of these make it easy to spot problems — for example, if your water costs for the year to date are up 25 percent over the same period last year, you may have a leak.

A large variation in any category compared to the previous month, or year, can also serve as a red flag that there is either an error in the data being entered, or you are experiencing fraud or theft. Balancing your checkbook regularly is also essential for keeping your finances secure.

Ideally you have a business plan, so you can compare your actual figures with those that you projected. Making adjustments to these numbers can help you continue to project your cash flow. Many new businesses (and some older ones) fail because they don't have a clear idea of how much money will be on hand to pay for the costs they incur.

Even if you don't have a business plan, you can create a budget that projects your income and expenses over the next year. Your financial reports can be set up to show how your actual figures compare to those you projected.

If you buy inventory without knowing how you will pay for it, you may end up using a bank loan or credit card to cover the invoice. Once those resources are exhausted, you will be unable to buy more merchandise, so your shelves will be empty and your sales will decline —leaving you with even less money to pay your expenses. Don't get caught in that cycle. Look at your financial reports regularly, and take your cash flow projections into account when budgeting for major items such as merchandise buying, leasehold improvements and advertising.