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Tips to keep the cash flowing: How to manage your money
Management of money is a valuable skill for business and life.
Cash shortages can feel like the end of everything when money is tight and the books are not in the right place.
You’re likely feeling the heat as an eCommerce seller. Cash flow problems can be caused by many factors, including over-investing and overstocking of products.
There are many things you can do to improve cash flow and keep your eCommerce company
running smoothly. For top cash flow management tips, continue reading.
What is cash flow?
Cash flow simply means the money that moves in and out of your company. This financial metric measures the liquidity of your company at any given moment.
A positive cash flow
means that your business is receiving more money than it is spending. Negative cash flow
means that your company is spending more than it’s bringing in.
Profit and cash flow should not be confused. Profit is the overall success of your company, but cash flow indicates your financial health on a daily operational level.
You can estimate your cash flow in many ways . Also, you can forecast your cashflow to help budget for business activities or expenses.
What is the importance of eCommerce cash flow management?
Cash flow is key to ensuring your business runs smoothly. Bad cash flow management can lead to major problems in the future, such as:
- Paying bills on time is difficult
- Trouble meeting payroll
- Incapacity to seize time-sensitive opportunities such as investing in new products and hiring talented employees
- To make ends meet, you can rely on short-term loans and credit lines
According to Failory
, poor money management is one reason why 90% of eCommerce businesses fail. Cash flow management in eCommerce can be difficult due to:
- It’s not easy to predict how much money you’ll need.
- Margins are often very slim. It’s easy for consumers online to compare prices and make price comparisons. Margins that are too small can make it difficult to adjust expenses. CPG, electronics, and apparel are the categories with the lowest margins. These are three of the most popular eCommerce categories.
- Hidden costs may exist.
- Payment may still be in the queue You’ll need to continue making regular payments to providers, carriers, and other parties involved with the logistics.
- Costs can quickly rise due to an increase in shipping costs, unexpected repairs, or a sudden surge in demand that calls for additional employees.
All of this being said, proactive planning and calculation of your cash flow can help to reduce these problems.
Six tips to improve your eCommerce cash flow
It’s impossible to predict every problem, but business accounting
best practice is a good start. There are many things you can do to ensure that the money flows.
01. Check that your website is in order
Poorly designed websites can cause problems with sales and cash flow. Your website should be designed to sell.
These are the items you should be looking for:
- Your website is mobile-friendly. Nearly 70% Americans shop on smartphones more frequently than two years ago. It’s vital that your store is mobile-friendly. A mobile-friendly store is essential for ranking high on search engines such as Google.
- High quality product listings. These include professionally taken photos of multiple products and sufficient details to win your customers’ trust.
- Make sure the checkout process is simple and intuitive.
- A website that can withstand high traffic can be a success. This is because a website crash in peak periods can cause sales to plummet.
Do you need a platform to help your online business succeed? Wix’s eCommerce Website Builder
is worth a try.
02. Make sure you have a good inventory.
Owning an eCommerce store requires investing more in products. However, poor inventory management
can cause problems like excessive inventory that keeps your cash tied up in inventory.
You need an automated and reliable system to sync inventory across all your warehouses, sales channels, fulfilment centers, and warehouses. This will help you manage your inventory
efficiently. Regularly audit your inventory. Find flaws in your forecasting. Also, aim to increase inventory turnover
A higher turnover rate will mean you move items faster, reducing spoilage, and freeing up space in your warehouse to store new products. Cash flow is dependent on the ability to effectively manage inventory. This ensures that you have enough product and cash.
03. Offer flexible fulfillment options
The COVID-19 pandemic prompted the adoption of store-based pickup options such as buy online, pickup at store (BOPIS), and curbside pickup. 60%
of consumers still intend to use curbside pickup or other pickup options even though the pandemic is over.
Curbside pickup is a good strategy to reduce costs and improve cash flow by avoiding shipping fees.
is a great way to cut costs and eliminate the need for inventory. This model allows your supplier to ship orders directly to your customer. You no longer need to rent warehouse space or manage fulfillment operations.
04. Improve customer lifetime value (CLV)
Retention can stabilize cash flow. This means that you can increase customer loyalty and build stronger relationships to enjoy repeat purchases and steady revenue growth.
There is much research that shows that even a small increase in customer retention can reduce costs and result in a substantial increase in profit. It is worth tracking (and boosting) CLV.
Find ways to engage
customers again and make them feel better about your brand. Try loyalty programs, subscriptions to products, special discounts, or email marketing. This will keep your brand front of mind and encourage customers
to buy from you again.
05. Be prepared for seasonality
Many online businesses face seasonality, which can have a significant impact on cash flow. Retailers generally see an increase in sales during the holidays, followed by a dip in sales in the first half of the year. Of course, this can be different for every company.
Whatever seasonality you may face, be prepared. You should have enough stock to last you through peak seasons without over-compensating or blindly projecting demand.
You should keep an eye on your accounts receivables (A/R), and request extended payment terms from vendors when cash is scarce. This will allow you to get through tough times.
06. Your marketing campaigns should be planned carefully
Marketing can be either too expensive or too costly. Businesses often increase their marketing budgets to boost sales. If your campaign fails, this can quickly cause cash flow problems.
Marketing can be costly. Marketing is a major investment. If you don’t invest in marketing, you might have trouble generating brand awareness or driving traffic to your website which in turn can increase sales.
It is important to find the right balance between your marketing ROI and scaling up or down your efforts as necessary. Your eCommerce marketing
strategy should be reviewed frequently and optimized to match the latest trends, so that your marketing efforts are as efficient and effective as possible.