Rolling into e-commerce is not as easy as it may seem at first glance. Store owners need to keep many things like fulfilling the stock, orders, delivery, payments, promotions, profit and so on in the forefront of their mind. Many of them think that taking care of profit and revenue is the most important.
Profit matters most for short-term strategies if you are not planning to stay in e-commerce. If you want to be in business for long, make cash flow your main concern. Cash flow is like blood that runs through the veins of your e-store and keeps it alive.
Cash flow is what gives you detailed info on how your business is getting day by day. The three most important things are:
- What you owe to your suppliers and partners;
- What your customers owe you with delayed payments;
- Shortfalls. Nobody wants to have these, but it happens every once in a while and you need to know for sure how to handle it on a constantly changing market.
Focus on cash flow, not profit
These terms are not synonyms. Measuring profit gives a general idea of your business success in long perspective; say a month or a season, or even a year. To reach the far points though you need to be sure that you are doing good every day. All global strategies and plans are about the little steps in the right time, for e-commerce it means cash flow!
Keep some cash reserve untouched
In e-commerce just like in personal life you will have your ups and downs. It’s a regular process and signifies that your business evolves. Stress periods can be fatal stores though and need to be managed properly to avoid failure. A store owner should always have some reserve untouchable money. This boost can be a make or break it point for the whole business.
You should always be conservative and even a bit pessimistic about the business. It doesn’t mean that you need to drive yourself crazy by constantly awaiting crisis. Just estimate low sales and high costs and you’ll always have some additional buffer.
Motivate customers to become early birds and pay faster
Collect receivables as soon as you can. Sometimes customers tend to put off the moment of giving away their money. Provide positive motivation by offering discounts or gifts for early bird customers. By doing this you aim two targets: get loyal clients and have all your money at hand.
Pay off your bills as early as possible
Don’t wait until payments are due. Keep in mind that when a check is paid, it’s not a worry. In addition you will always have a clear and up to date picture of cash flows in your store.
Be creative boosting your sales
It’s better to have an emergency plan on how to quickly boost sales in case you need to quickly make the ends meet. Run a contest for customers or schedule a lottery; this will give you additional money at hand with minimal risk and expenses.
Picture by Backroom Management
Be true to yourself
Budgets are not about prognoses; they mainly reflect your business expectations and show what you want to happen to the business. Cash flow shows the real picture and gets you to what needs to be dealt with, no matter whether it was planned or not.
Take this piece of advice not only in terms of e-commerce. It works in real life just as well. Most people tend to ignore cash flow in their wallets and just hope everything will turn out to good one way or the other. Stay on the safe side, track the cash flow!
Build up trust
Decent management of cash flow makes you trustworthy for banks and suppliers. If you need a bank loan to overcome a shortfall or plan to ask a supplier for a payment delay without fees or extra charges, you need to demonstrate very clearly that you’ll be able to repay the debts in the future. People want your business to be out there on the market. Good planning and accurate data will back up your statements and motivate to compromise.
Update the data regularly
Create a living document for your cash flows and put some effort into keeping it all accurate. Have one of the trusted members of your team do it for you and ask for results once a week, for example. For Magento based e-stores it’s possible to keep a hand on pulse of business with certain addons like Advanced reports from Amasty, for instance. It will give you the latest info anytime and in a comprehensible way.
Cash management is not as hard as you might think. Just figure out once and keep on top of things!
If you’ve already come up with a way to track cash flows, share your experience in comments; I’d love to hear your advice!