eCommerce can be unpredictable. Sales can fluctuate due to seasonal demand, changing consumer preferences, economic changes and other factors outside of your control. However, your business still has bills to pay to keep it afloat.
It is vitally important to keep on top of your business’ cash flow so you can afford to keep paying the bills that keep your business running. Negative cash flow can leave you unable to pay for regular bills and other expenses and while this can be manageable in the short-term, in the long run poor cash flow management could be detrimental to the survival of your business.
If you are experiencing periods of negative cash flow, there are several things you can do to get things back on track.
Taking steps to improve your cash flow can be beneficial in both the long and short term, ensuring that you are able to pay suppliers, employees and other expenses on time each month.
Even profitable eCommerce businesses experience cash flow problems, and negative cash flow can often be unavoidable during periods of business expansion.
Periods of negative cash flow can force you to delay payments or buy on credit which can break down relationships with suppliers and other stakeholders. This can reduce the chance of buying on credit or deferring payments in the future, and potentially contribute to further cash flow problems over the longer term.
Here are some ways to improve cash flow for your eCommerce business:
Look into your cash expenses.
Use your cash flow statements to analyse your monthly cash expenses and identify if there are any outgoings that could be reduced to help improve your cash flow. For example, you may have a good relationship with one of your suppliers, consider negotiating on the price of wholesale purchases with them to reduce your outgoings.
Increase price per item.
Increasing your price per item will directly improve your cash income and help with cash flow management. Analyse the prices your competitors are charging and see if you could increase your prices in a way that allows you to remain competitive but also boosts your cash revenue.
Create a business savings account.
To help manage cash flow challenges, put surplus cash flow into a business savings account to help cover your expenses during periods of negative cash flow. Shop around for an account with a high interest rate to help build up your savings faster.
Increase your average order value.
To increase your average order value you could run a promotion offering free delivery on orders over a certain threshold, or employ upselling or cross selling tactics to encourage your customers to buy more of your products.
Think outside the box.
Consider ways your business model could incorporate other revenue streams and diversify your income. This can help to improve cash flow when sales of your main products are lower due to seasonality, and can also spread the risk and provide additional cash security for your business during times of crisis such as the COVID-19 pandemic.
For more tips to improve your cash flow, download our eBook.
Understanding how to improve cash flow and employing best practices for cash flow management can have a host of benefits for your eCommerce business.
With improved cash flow, you will be able to pay your suppliers and staff on time, compensating them for their hard work and building stronger relationships with them which can help your business navigate challenging times. Additionally, surplus cash from improved cash flow can be reinvested into your business to help you grow and improve. Which can also contribute to improved profitability over the long term. Surplus cash can also be placed into your business savings account for additional support during negative cash flow periods.
Thinking outside the box to improve cash flow and uncovering new revenue opportunities can also contribute to profitability and allow you to grow and scale your business.
Cash flow can be improved in a variety of different ways so any ecommerce business can find a method that suits them. Effective cash flow management and improvements to cash flow in the short term can also support your business in more challenging times, creating the foundations for future growth and the surplus cash to cover negative cash flow months.
For more advice on how to improve your cash flow, download our other eBook chapters and find out how your business can manage and maintain a healthy cash flow.