Running an online retail business is exciting and will always be challenging. One of the most difficult tasks is how to manage cash flow for online retailers. Entrepreneurs are successful and yet this one aspect is the one that could easily trip them threats to destabilize the business if adhered to.
If you are in such a situation where you need help to maintain the consistent flow of profits and expenses involved, know that you are not the only one. But fear not because it is possible to manage cash flow for online retailers in such a way that the business survives and boom.
In this article, we will look into the details of online retailers’ cash flow management and cash flow forecasting. We will look into the essentials of maintaining a steady cash flow for eCommerce operations, the methodology involved in making such predictions and some specific tactics you can apply to ensure business survivability at all times.
On the flip side, these are also imperative if you start or even scale your business as they will help keep the operational cash from being unnecessarily tied up.
Accounting Firms makes it seamless to search for the best fit for your accounting and taxation needs by applying filters and getting the most customised result. Let’s hire the best accountant now!
What is Cash Flow?
First things first, before we move on to managing the cash flow for online retailers, let us make sure we all understand what cash flow is. In a nutshell, cash flow refers to the money that comes in and goes out of a business or an organisation. Cash flow is considered positive when the amount that comes in exceeds the amount that goes out.
Cash flow is considered harmful when the situation is reversed. Quite simple. But it can get tricky when dealing with multiple sales and refunds, costs of inventories and marketing expenses simultaneously.
Managing Cash Flow for Online Retailers
So, let’s find out how online retailers see that their cash flow is sufficient? That is an excellent question. Money management experts have put several strategies in place, and with particular reference to online retailers, they all relate to managing cash flow. Retail businesses in e-commerce are much more impacted by returns, sales cycles, and associated shipping costs that affect the cash flow. On the other hand brick-and-mortar businesses may encounter different fashions. But with some sound planning, it’s possible to get the cash flowing freely.
The Importance of Cash Flow Management
Cash flow is a critical aspect of any business, and online retail is no exception. Cash management ensures you have enough cash while paying your suppliers or employees. This is why online retailers must manage cash flow, which can make or break their business.
Elements of Cash Flow Management – Cash Flow Forecasting
Cash flow management for online retailers mainly revolves around cash flow forecasting. The better you can anticipate cash inflows and outflows, the more smooth sailing you will have.
Build a cash flow forecast by projecting the cash receipts and cash disbursement activities, which will occur up to a specified date, usually a month or a quarter.
The Need for Separation of Personal Finance and Business Finance
It is straightforward for a small online retailer to put the lines between personal and business money. However, this will only result in chaos and poor cash flow management. A separate business account and credit card will give you a clear view of your cash flow.
Strategies to Improve Cash Flow for Online Retailers
Enhance the Management of the Inventory
Inventory can work for and against the online retailer when balancing the cash flow cycle. For instance, if you have excess stock, you have cash that needs to be fixed. On the other hand, low stocks mean that sales opportunities are lost. Proper stock management systems allow you to maintain ideal stock levels, ensuring you do not have unsold stocks taking up funds.
Lower the Operating Costs
Uncontrolled spending on non-essential items should be avoided at all costs, as it can inhibit the realisation of adequate cash flow. Regarding regular spending, check for video conferencing software licenses, marketing, or outsourcing expenses. Limit expenditures do so, and even small amounts will save a lot with time.
Encourage Customers to Pay Their Invoices Earlier
Customers who are slow to pay their invoices should be penalised, or rather, customers who tend to default should face the consequences. These measures can improve cash flow, as cash will consistently enter the business. With discounts for early payments or loyalty points earned for timely payments, customers can be encouraged to pay their invoices on time.
Cash Flow and Sales
Increase Sales With Promotions And Offers
What is the easiest way to enhance cash inflow? Sales! Limited-time promotions or sales can provide much-needed spikes in cash flows. You should consistently monitor discounts, as excessive discounting may harm margins.
Expand Maintained Sales Platforms
If you want to reduce risk, avoid putting all your eggs in one basket. Focusing on one source of sales, such as eBay or Amazon, can be risky. By branching out to several sales channels, you diversify risk and increase cash flow by increasing revenue streams.
Upsell And Cross-Sell Existing Customers More Effectively
Remember to use your loyal clients rather than concentrating only on new prospects. Most marketing costs are already covered; upselling and cross-selling methods can help boost cash inflows by increasing average order value.
Dealing with Cash Flow Gaps
Take Short Term Loan
Every company faces a situation when revenue doesn’t meet operational costs. When this happens, several short-term financing methods, such as lines of credit, business loans, and invoice factoring, can help bridge those cash flow gaps.
Try to Negotiate the Payment Terms with the Suppliers
Procuring more favourable payment terms with suppliers can ease the cash flow burden. Extend payment terms or ask for a discount for early payments. The leeway offered is small, but it can significantly assist when you factor it in with the overall cost.
Create a Cash Reserve
In the days when everything is going perfectly, don’t be in a rush to spend all your earnings; instead, save some for the future. Cash reserves are protective measures so that if there are any out-of-the-ordinary expenses or periods of low sales, the businesses don’t have to worry about cash flows too much.
Best Tools for Managing Cash Flow for Online Retailers
Cash Flow Management Software
Using software to assist in managing cash flow these days could make the task more accessible since it is embedded with many features. Software such as QuickBooks, Xero, and FreshBooks automate financial tasks.
Payment Gateways with Instant and a High Rate of Payouts
The payment gateways selected must provide mechanisms where cash can be easily accessed without too many challenges. This method enhances cash flow progression since you can have better opportunities to make sales. Other payment service providers allow you to access cash in one day, which shortens the cash flow cycle.
Mistakes in Cash Flow That Should Be Avoided
Ensuring that Efforts are Solely Aimed at Profit
It is common for entrepreneurs to have one objective: enjoy profitability, but such a business is only partially functional. If a company fails to manage its cash flow properly, it can become successful and fall apart. Therefore, both need to be controlled.
Failure to Keep Close Tabs on Cash Flow Position
Cash tracking and monitoring should be left at the end of the month to learn about the cash flow position. Such an establishment can only use shortcuts and measure its cash balances at the end, which should be different. With the right amount and tools for the job, a company can avoid problems. Make it a point to have these metrics taken weekly or bi-weekly.
Retailing with Seasonal Cash Flow
Having a Sales Planning Strategy
There are times in retailing when sales can be studded with many bumps and rugged industrial loads. At other times, like the summer periods, when sales are at their lowest, traders should learn how to plan for those times. Methods such as creating contingency funds during peak sales seasons will save retailers planning headaches during bad sales.
Offer Pre-Orders
With such items in stock, retailers do not over-purchase, and pre-sales allow retailers to boost cash flow automatically; cash can be available before dispatching the order. This is good for testing how much demand there is for you.
Why Cash Flow Management Is Essential As Your Business Grows
Investing in More Business Expansion
With cash on hand, investing back in the business is more accessible. Whether it’s a new product line, a marketing campaign, or technological improvements, all cash flow is managed effectively to achieve growth targets.
Expanding Your Team
When developing a business, it is often necessary to create a team as well. However, hiring is challenging as it’s a significant cash flow investment. Effective cash management ensures you can hire without going over budget.
Last Word
Managing cash flow for online retailers isn’t just about crunching numbers; it’s about staying on top of your business’s lifeblood. From forecasting and inventory control to vendor management and the cash flow toolbox, all of these tactics should guarantee that your e-commerce business not only exists but grows. With such knowledge of the monetary flow, any entrepreneur will be successful even with the fiercest competition in the retail sector.
Need Help or Have a Query? Get in touch with our professionals at AccountingFirms. Connect with the Best Accounting and Tax Experts near you in just 3 minutes – Register now for Free!
Disclaimer: The information provided on AccountingFirms.co.uk is for informational purposes only and should not be considered as financial advice. Always consult with a professional accountant to ensure compliance with UK laws and regulations.