How to improve your cash flow to maximise eCommerce Success.

We’ve said it before, and we’ll say it again, you can have the best marketing, design, and eCommerce store on the market, but it’s the ability to effectively manage your business’ cash flow that will set your business apart and ensure that it doesn’t fail. With more than 80% of all business failures being a result of insufficient cash flow, this is certainly an area you want to more than get right. 

Even the most experienced and well travelled business owners will spend significant time milling over their cash flow to ensure that their business is ticking away as expected. And it requires a bit more than just having enough cash on hand to cover your expenses.

What is cash flow and how do you manage it?

In short, your cash flow is a net sum of how much money is coming in and out of your business at any one time. This is not the same as profit, as you can actually be profitable, but have a negative cash flow at the same time in some situations.

Effectively managing your cash flow helps to create a forecast of all of the money that will be coming in and out of your business, including your rent, bills, and employee wages. With effective cash flow management, you’ll be able to take proactive steps to get ahead of your cash-flow rather than having to make reactive measures during times of, hopefully short-lived, financial uncertainty.

Steps to improving your cash flow

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Prerequisite - Properly manage and forecast the cash flow you have already.

Before you’re able to make steps towards improving your cash flow, you need to get a sense of what your business’ current cash flow looks like.Assuming you’ve been in business for some time, you’ll likely have regular payments coming out of your business from all angles. In fact, even as a start up you’ll still have your smaller fees such as your Shopify membership. It’s essential that you get a relatively accurate estimate of the money coming out of your business on a weekly or monthly basis. Setting up automated payments is one way to ensure that this number stays relatively consistent on a monthly basis. 

Similarly, by taking the information on how many sales you typically make in a week or month long period you can roughly predict how much money will be coming into your business too. And, by combining these figures, you'll be able to make a rough forecast of your business’ cash flow and give you a benchmark figure to track yourself against, which can help your business succeed in the long run.

It’s key to regularly update these estimates, as business changes could leave you either over or underestimating your cash flow, and in turn, making sub-optimal forecasts. 

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1. Manage your inventory effectively.

Stock is the one aspect of your business that eCommerce marketers most frequently tend to look over, but it really is the channel where the rest of your business flows through. For example, before massively increasing your marketing spend, you have to consider whether you have enough stock in the pipeline to make it worth your while. This is why it’s essential to manage your stock effectively if you ever want to improve your business’ cash flow.

Inventory management is an aspect of your business that you truly have to Goldilocks - that is to say, you have to get it just right. After all, having far more inventory than you can realistically sell at any one time likely means you’ve got far too much capital wrapped up in your stock, however, at the same time, you’ll need enough stock to meet customer demand. 

Using inventory management tools such as Inventory Planner, and having a methodology for categorising your products such as the Boston Matrix will go a long way towards giving you an idea as to how much stock you need, and which SKUs are driving the most profit overall respectively.

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2. Adjust your prices in line with demand to boost sales.

A blanket statement to increase your prices really isn’t much help in articles like these, even if that might actually help your business overall. Alternatively, adjusting your prices, meaning either increasing or decreasing them, to drive overall cash flow is key. 

For example, If you notice that a large portion of your product portfolio doesn’t sell unless there’s a sale on, it might be a sign that those products are priced too high in the first place. A high margin on a product is great in theory, but if a slightly smaller margin might lead to more profit overall, then that’s ultimately preferable from a business perspective.

On the other hand, if you find that products are flying off the shelves of your eCommerce store, it’s an opportunity to marginally boost the price point of those products. Seeing a decrease in sales overall is going to be disheartening, but if the increased average order value tips the scales more in your favour then there shouldn’t be much to complain about, and your cash flow will more than see the benefit. 

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3. Streamline your tech stack and cut unnecessary expenses.

Your eCommerce platform of choice will have a monthly licensing fee. For example, Shopify basic has a monthly subscription cost of £19, and Shopify Plus has a monthly subscription of $2300 for merchants on a three year plan. However, you’re almost certain to have additional fees in the form of add ons too, whether they be third party integrations or just other programs entirely. As these technologies grow, a lot of them add on new features, and it’s not uncommon for an eCommerce business to have multiple parts of their tech stack that do the same thing. Similarly, as your eCommerce business grows, you may find that a tool you used to use is now simply charging you money every month.

It’s important to take regular assessments of the health of the tech you employ to ensure that you’re not unnecessarily spending money on an extra piece of kit that you don’t need. 

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4. Negotiate your outgoings with your third parties.

eCommerce retailers and marketers often get hung up on the end product and marketing side of the business. We can understand why - it’s a fun challenge to drive a higher ROAS or CTR on your emails. Whilst all of that work is helpful to your business, sometimes your time is better spent at the source. When it comes to your partners or service providers, you may be able to negotiate better terms, provided you’ve been with them for an extended period of time, which is certain to have a bigger impact on your business’ cash flow and overall financial health than a small % increase in your ROAS.

Why you need to have a positive cash flow.

Ensuring that your business has at the very least a positive cash flow on a monthly basis is key to your business’ long term ability to stay afloat. It’s important to keep track of your cash flow to spot opportunities for your business to grow - you can’t simply hire new staff without first uncovering whether or not your business can afford it.

If in doubt, it’s best to work with a team of financial experts like Pie Financial, who can advise you on what steps you should take to manage your cash flow effectively. Find out more about our services here.