How Ecommerce Entrepreneurs Can Take Control Of Their Cashflow
From my experience of working with hundreds of business owners over the years, one of the key things I’ve learnt is how all businesses, across all sectors, including ecommerce companies, are dependent on cash in the bank.
Cashflow is vital even if you have a profitable business and a great business model. It’s a key factor that will ultimately determine if you will fly or fall and this applies to all ecommerce businesses irrespective of size.
Put simply cashflow is your money in against your money out and it needs to be in a positive state for a healthy, stable business, so that you have funds in place for the day to day, for business growth activities and also for emergencies. For many ecommerce businesses the cashflow problem comes from the constant need to buy more stock, so that you can make more sales, but there can be a variety of other causes of cashflow issues as well.
However, don’t despair, since so long as you have a profitable business these issues can all be solved and here are some useful, practical ways for you to start to take control:
1. Have an effective finance function in place – and keep your books accurate and up to date
Using a great accounting software tool like Xero will be a good start but you need to have an experienced professional looking after your finances so that you have an accurate picture of things. Your finances need to be clear and error free so that you can have confidence that the vital information you’re looking at is correct.
2. Focus on cashflow management as well as just sales or profit
So you should have a regularly updated cashflow forecast in place that you can monitor. Many online businesses have no cashflow tracking in place at all and hence don’t know in advance when money is arriving or leaving their bank account. This often results in critical cash shortfalls at times when you may need to pay VAT, corporation tax, key suppliers for more stock, or your wages. This is important stuff so please make sure you’re looking after yourself and your business by monitoring cashflow.
3. Build a cash reserve – a buffer for emergencies
You never know when unexpected emergency situations can crop up – nobody was really expecting covid-19 – so it’s always a good idea to have some form of cash reserve or an accessible line of credit that you can use if you really have to. So if you know you are able to steer your way through any tricky months by having access to a buffer of cash or overdraft then you don’t need to worry and stress quite so much.
4. Focus on controlling your stock levels
If you’re selling products online then stock is a key part of your everyday life. Make sure you don’t have too much stock building up as you don’t want all your capital tied up here. You should make sure you find out what’s selling and what’s not. You need funds to stock up on your profitable items and you need to move through your slow moving items. You could consider offering your slow moving stock items perhaps as free gifts with other selected purchases, or discount them or bundle them with other products. You have lots of options but make sure you really focus on tightly controlling your stock.
5. Consider raising your prices
Most people realise that selling at a higher price has the potential to bring in more revenue if you don’t lose sales, but the vast majority of entrepreneurs fail to appreciate the huge impact price increases have on profit – and hence positively on cashflow. Look at the numbers and do the maths and it’s clear to see! So increasing your average order value is a real positive whether by increasing price and/or looking for additional revenue streams by cross selling other products or a service.
6. Reduce your overheads
Whilst this option isn’t likely to have the biggest impact on improving your cashflow it’s still well worth analysing all of your existing overheads to see if there’s anything you can reduce. Sometimes business owners find that they are paying for things each month that they no longer use – if so cancel them and save the money. There may also be some products or services that you use that you could get more cheaply elsewhere. So it may be worth spending just a little time shopping around to get a better deal – or maybe calling your existing supplier to get them to give you a better deal if this is reasonable.
7. Negotiate longer payment terms with suppliers
For some online businesses this can really help, and having extra time to pay may assist you with managing your stock even better. You could also try to line up your regular monthly outgoings and direct debits to be on or around the same date each month so you can keep better tabs on them all.
So, if like may other ecommerce entrepreneurs, you’ve had cashflow issues before, you can hopefully now see that there are quite a few things that you can very easily do to overcome the problem.
Whatever you do, don’t bury your head in the sand and just hope that the problem will go away – we both know that it probably won’t.
Take action, focus on some of the above points that you feel you can action quickly and easily, and make your cashflow issues a thing of the past!