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You’ve been working hard on your ecommerce business, and it feels like it’s paying off: you’re making more sales, attracting new, loyal customers and increasing your profit.
Despite all these positive signs, there are still times when you feel cash-starved. You’re worried about paying suppliers late, stressing over bills and constantly checking your bank account to see if you have enough money to cover operations.
If this sounds familiar, then you have a problem with your ecommerce business’ cash flow. A healthy cash flow is vital to the success of your business, so it’s important you address this issue quickly. Here are three common reasons retail businesses struggle with cash flow, and how to fix them:
You’re investing in new assets
Investing back into your business is a smart move. If you want to grow, you’ll need to put some of your profits towards purchasing new assets, like machinery, vehicles or computers. While purchasing assets might drain your cash reserves in the short term, they also increase your overall net worth and, if you invest wisely, will help you bring in greater profits in the future.
However, you need to make sure you’re consulting your books before making large purchases.
At a minimum, we recommend performing a quarterly review of your business to understand how you’re performing and what investments you can make. Even better than a quarterly review is actual management accounts, which include more details like a Profit and Loss report and cash flow forecasts. With these reports, you can see how a new asset will affect your bottom line and when is the right time to make a new purchase.
If you’re still confused, it’s time to consult with your accountant. Their job is to analyse all your financial data, including cash flow forecasts, and give you advice so you can make decisions confidently and control your ecommerce business’ cash flow..
You’re struggling with stock control
Stock control is a massive factor in an ecommerce business’ financial health. Your goal is to optimise your inventory so you can meet customer demand while still minimising costs.
If you’re struggling with cash flow, it may be due to poor inventory management. Here are a few questions you can ask to improve your stock control and, eventually, your cash flow:
- How can I improve my supply chain? Are you happy with your current suppliers? Are they reliable and high quality? Are you getting your money’s worth in the value they provide your business, or could switching to a different supplier be a better investment?
- Which products can I restock quickly, and which are harder to get? If you can get a product quickly, there’s no need to keep large amounts in stock. With the products that are harder to get, however, you may have to invest in keeping greater quantities in store.
- Which products sell the most? Another example of where management accounts come in handy! Understanding which products sell the best will help you improve your stock control and your overall Profit and Loss.
Poor or unreliable ecommerce business cash flow is incredibly stressful
The good news is, once you find the cause of your cash flow issues, you can also find a solution. In our Financial Review, we dive deep into all the details of your accounts to catch mistakes or areas of concern and then give you a step by step plan for how to fix them. By reviewing how your business works now, we can start tailoring it to work how you want it to.