Cash Flow management Tips for your eCommerce store
Recent measures on the Covid-19 have a major impact on all aspects of daily life and undeniably also on businesses. The global economy has taken an unexpected turn and business leaders now face immediate challenges, including managing their cash flow.
Cash flow management becomes immensely more difficult when money is not flowing like it used to. This is often the case during an economic downturn or in situations when you are forced to shut down your operations.
If your business is facing such challenges, here are some tips on how to weather the storm
What is cash flow management?
Cash flow is the amount of money, cash, and non-cash, traveling into and out of a business. Positive cash flow means more money coming in than going out, and negative cash flow means less money coming in than the business needs to cover outgoings.
Healthy cash flow happens when you more money flowing in, while the opposite scenario — i.e., having higher expenses and not enough income — puts you in a cash crunch.
Benefits of cash flow management?
Although it may seem intimidating, there are clear benefits to cash flow control and prioritizing effective cash flow management.
1. Predict shortfalls
The first and most obvious benefit to managing cash flow and working capital is knowing ahead of time when you’re going to have shortfalls. Don’t find out you can’t make rent after the check bounces. With a good system in place, you can predict shortfalls weeks, sometimes even months, ahead of time, which gives you time to come up with a plan.
- Call your landlord and ask them to cash your check a few days later
- Delay a shipment by a couple of weeks to put off paying duty at customs
- Run a promotion to drive additional sales quickly
- Go on a collection to spree to clear up outstanding bills
2. Reduces stress
Managing cash flow will alleviate a lot of stress. Much of the anxiety entrepreneurs experience around paying bills comes from not knowing what’s going on and worrying about whether or not things will work out.
It’s much better to know what’s coming, even if the outlook is not good. When you know where you stand, you’ll feel prepared. More importantly, you’ll be equipped to deal with it.
3. Know when to grow
When you’re managing cash flow, you know exactly how much money you have to spend on growth. Remember, just because your P&L tells you there’s extra money lying around, doesn’t mean it will materialize in real life.
Similarly, just because you have $20,000 in the bank doesn’t mean you can spend it. You might need it to pay for upcoming expenses. When you look at your cash flow over weeks and months, you’ll know how much to keep on hand and how much you can stash away or spend on growth.
4. Gain leverage
Good cash flow management gives you leverage. If you need a line of credit from the bank to get you through a shortfall or you want to get a supplier to give you a break for a few weeks without interrupting service, a good cash flow management system will back you up and establish trust.
Banks generally like to see this kind of planning, especially if you can clearly show when you’ll be able to repay the funds. Suppliers are much more likely to be flexible if you can tell them exactly how you’ll pay and when—rather than cutting communication like most businesses do during tough periods. These people want your business and will be more willing to work with you through the ups and downs if they can trust you.
5. More accurate
Cash flow is significantly more accurate than a budget. Budgets tell you what you want to happen. They’re wishful thinking, and entrepreneurs are optimistic by nature. Cash flow projections tell you what is actually happening so you can deal with it—even if it’s not what you planned at the beginning of the year.
Tip on improving cash flow
If your business is suffering from poor cash management, here are seven ways to improve cash flow today.
1. Focus on inventory control
With cash flow management in mind, consider updating inventory to reflect current supply-and-demand levels in your business. Do frequent inventory checks to determine what’s selling and what’s not. Then, you can keep more inventory on hand that’s likely to move fast and get rid of dead stock at a discount.
2. Lease, don’t buy
Small business finance is always tricky, especially during challenging times. You don’t want to get into much debt, but sometimes you need to invest in equipment or inventory that’ll pay off in the long run. Good cash management practices would be to lease rather than buy. When you lease, you can make small payments over time and keep cash flow for your day-to-day operations. It’s also a business expense, so you can write it off on your taxes.
3. Send out invoices right away
One key part of small business cash flow management is getting paid as soon as possible. If you send out invoices immediately, receivables will come in faster. If you typically operate on a monthly billing cycle, talk with your vendors to let them know you’ll be moving to an invoice-on-demand model. Bonus points if you offer them an early pay discount.
4. Look for alternative streams of revenue
If your scenario is changing and putting pressure on your current revenue streams, look for alternative ways to make money. You may be able to temporarily, or even permanently, replace less profitable revenue streams with easier, more effective ones.
5. Check if suppliers offer early pay discounts
One way to preserve working capital and cash flow management is to pay suppliers less. Some suppliers may have early pay discounts you aren’t aware of. Paying your suppliers early can help you save cash and even improve the integrity of your supply relationships, especially if other vendors are delaying payments in abnormal business conditions.
6. Use a high-interest savings account
To maximize your cash flow, put money into a high-interest business savings account. Find an account that gives you more than 1% for leaving your cash in it, with a low minimum deposit. This can improve your cash position month by month and help you prepare for any unforeseen impacts on your customers or suppliers.
7. Increase your prices
If you have poor cash flow, consider raising the price of your products. Start by asking yourself:
- What are competitors charging for the same products?
- Does my price reflect the amount of time I put into creating a product?
- Have the prices for inventory or equipment increased?
- Are my products priced so low they come off as cheap?
Look for opportunities to keep your prices competitive but also make a profit. If you price too low, your company may come off as cheap. If too high, you might scare potential customers off.
Getting a free cash flow projection template
Although most companies cannot survive without proper cash flow management. But anyone can do it. Take the time to get organized now, and it’ll be easy to stay on top of it.
If you haven’t already, don’t forget to grab your free cash flow template. You can access the spreadsheet on Google Drive. You’ll need to be logged in to your Google account to make a copy.
Cash management tips when facing a Downturn or Lockdown
Dig into your numbers and make a plan
The first thing you should do is know where your business stands financially. Go through your financial statements, accounting dashboard, and retail reports and keep an eye on:
Cash – How much money do you have in the bank and how long will your resources last? Knowing how much runway your business has will help you make decisions on what to do in the coming weeks and months.
Inventory – How much of your capital is tied up in your inventory? Are you sitting on a lot of perishable goods? Is there a possibility to liquidate some of your stock? If you’re still selling (say online or in other marketplaces), identify the products that would have the highest demand and find ways to put them in front of your customers.
Debt – Get a handle on how much you owe and when you need to make payments. If possible, call your creditors and ask them if they can hold off on collecting for a month or so, or if they’re willing to renegotiate on your payments. During a global crisis (such as the coronavirus pandemic), there is a good chance that they will be willing to work with you.
Cut non-essential spending
Identify your business needs vs wants and cut back on the latter. Expenses like utilities, marketing, retail management software are examples of what would fall into the “needs” category. On the other hand, things like your Spotify subscription, travel costs, or luxury expenses would be considered “wants” and thus need to be minimized or eliminated, at least for the time being.
Go through your credit card statements or checking account and identify your expenses over the last few months, then use that to figure out which costs should be cut.
As long as you do it within reason, it’s perfectly acceptable — recommended, even — that you invest time and money in marketing. So, don’t cancel your email marketing software or pull out your Facebook advertising budget.
Instead, take some time to figure out what’s working and what isn’t. Which channels, campaigns, and efforts have delivered the most ROI? Double down on them.
It’s also a good idea to come up with more relevant marketing messages. What products do you sell that would help people navigate these times? With more consumers staying home, do you have items that can help your customers be more productive while working from home? Do you sell food or beverages that can support people’s health?
Go through your product catalog, identify the best products to sell, then market the heck out of them.
Tap into financial assistance and resources
If you need an influx of cash, there are a number of financial relief programs that can help. From small business grants and loans to deferred tax deadlines, bills, and suspension, players from both the public and private sectors are stepping up to the plate to offer assistance to merchants affected by the pandemic.
Cash crunch or not, you should always be on the lookout for ways to free up funds in your business. Hopefully, the pointers above gave a few ideas on where to look and how to get more cash flowing through your company.
How are you freeing up cash flow in your business? Let us know in the comments!