How to Improve your eCommerce Cash Flow, 5 Things to Know
Are you an accountant? Me neither. This doesn’t mean that I don’t have to manage my company’s cash flow every single day. Liquid cash is something that all businesses and entrepreneurs have to deal with. Money’s great when you have it on hand, available, usable. Still, behind the numbers in your bank account, there may be debts, IOUs and forgotten operating costs hiding the fact that you are bleeding cash.
Whether you are a startup struggling to make a profit or a growing brand reinvesting to make it big, cash flow is vital. Money makes it or breaks it.
You need money to pay your bills. Simple, right?
Not really. Most small businesses that fail – some say up to 82% – do because of poor cash flow understanding and management. Simply put, if you don’t know how much money comes in and out, you will be out of business. Bad cash flow management kills businesses.
So let’s be honest for a second and let’s look the Money right between the eyes. Managing cash flow is hard. Ins and outs fluctuate every day, weeks, months, seasons and years! Deal with it.
It won’t stop or go away.
So, to make cash flow management bearable I’ve decided to share 5 things that I have learned to be better at it.
1. Use a cash flow budget
No matter what incomes and expenses you are forecasting, this means nothing without an actual cash-flow budget. You need to track the money you have, the money you owe and the money people owe you. Every. Single. Day.
I recommend using a spreadsheet or a specialized software to budget.
Remember this: the best solution is the one you will use!
If you don’t know how to get started or how to stay focused, get help from a pro: (s)he will set everything for you. This is an investment.
Again, you have to use a cash-flow budget to keep track of bills, sales, and receivables. Being in the know about your cash levels is the only way to remain solvable in the long run. How are you going to prepare a cushion for stormy days if you don’t?
2. Profits are not cash
Profits are accounting, not cash. Bluntly, profits are the positive product of an encounter between 2 columns in a spreadsheet (ins and outs).
Is the money really in the bank? Maybe it is. Still, this doesn’t mean it’s yours.
To stay in the green, you need to concentrate more on cash flow than profit. You can’t rely solely on how much money you have right now. A profitable company can have a negative cash flow.
Cash flow is all about timing. It is too easy to see your dollars and think it is all yours today.
As an example, your gross profit may seem clear as day, but what about operating expenses, amortization costs, interests, receivables? Your hard cold cash may already be spent on debts that you are not reimbursing as you should? You may owe twice as much as you have tomorrow. Who knows?
3. Cut on costs, help your cash flow
There are costs to every sale. Audit them. Know them.
Easier said than done? Sure.
When you budget, though, you can quickly see where your money’s going.
Are you spending too much on office supplies? Shipping? Utilities? Rent?
Is your return on investment (ROI) good? Are you wasting money on ineffective ads?
Are you paying for services you don’t really use? Maybe!
Inventory is also money sleeping on shelves, not in your account. Are you managing your inventory closely? Is your inventory turnover good?
If you are using a dropshipping service or sell on a marketplace, are you paying decent fees to turn a real profit?
4. Increase your average order value
You can also generate more income by bringing in more sold items for every customer. To do so, you need to know your customers well. Look at your data, their spending habits are clearly showing (knowing this may help you save on costs as well).
You know your niche? What are you offering them?
First thing first, is your store appealing and well designed? Since customers can’t walk your aisles and grab your products, they judge in an instant if your store looks trustworthy. Having great products photos is a start!
Your overall onboarding must also be great: your customers should know how to get around and find everything they need without having to think about it! This is what we call UX (user experience design).
There are also specific marketing tactics.
Do you have a great popup offering your customers rebates in exchange for their email address? You can stay in touch (top of mind) with a newsletter afterward.
Do you show how much they save when buying from you? Putting a percentage or amount next to your product’s price can be very effective at making your customers spend more!
Are you upselling them related items? Can they bundle items to save? Do you offer free shipping when customers’ orders reach a certain amount?
The best thing is to test, test and test again. If it costs you too much, stop and try something else. You can create a lot of value for your customers through this part of the shopping experience. You can increase their order value as well doing so.
5. Speak with your suppliers to get the best for your buck
When the going gets tough for your supplier, it becomes obvious that you are their customer. Get to know them. Develop your relationship further.
Negotiate. It may help you save on costs and keep money in your pocket longer.
Since you are budgeting, there are many advantages to keeping their money in your pocket longer. Are they flexible? Delaying paying to 90 days instead of 15 or 30, lets you keep a cushion that harvests little interests. Paying them when it is more convenient for you is good on your cash flow, isn’t it?
You can also pay your suppliers with your business credit card and add a couple more weeks without paying any interests. If you are not budgeting though, such delays on unpaid bills are money worries, not financial opportunities.
You can also try to save and get advantages on prices and products by getting to know your supplier(s). Can you get bulk discounts at this point? Did you reach a threshold to get free shipping? Can they send you samples, complementary products or hints about new products?
You can always compare what they offer and maybe even use more than one supplier for the same products. Multiplying sources may help you get more sales on products that get backorder often.
Cash flow management is simple: deal with your money ins and outs to be out of trouble. What is hard is being consistent at doing it every single day. I’ve shown you 5 ways of getting control of your cash flow by understanding it, therefore managing it better… with a little effort.
First, budgeting your cash flow is essential. It will let you know what to expect of the cash you have right now. Which outcomes and incomes are yet to come or are coming from past debts (interests, receivables) and operating costs (utilities, amortization, etc.).
Second, your profits are not cash, they are the result of accounting. Profits are numbers in a spreadsheet, not cash you can spend. You still owe some. Some still owe you. Are you budgeting your actual ins and outs to find out?
Third, audit your costs and try to save. You need money to make money, but it doesn’t mean that you should spend it without counting. At Snapshop, we work hard to save on costs, this way, we offer inexpensive and unique services for your product photography.
Fourth, get to know your customers and be creative in your marketing. You will serve them better and in return, they will spend more at your store. Never forget that users should browse your website effortlessly, don’t make them think!
Fifth, speak with your suppliers often. By getting to know them, you will stay up to date with latest products, maybe save on costs and definitely get more for your buck.