Cash flow forecasting and the advantages for your e-commerce business

The everyday decisions of running a busy e-commerce business can sometimes lead you to lose sight of the bigger picture. An oversight in cash flow forecasting can be at least a hassle and at times, lead to much bigger issues. By carrying out regular cash flow forecasting you are shoring up your e-commerce business for the future.

The primary concern of many business owners is profit. Profit may be integral to your business’ success but without the cash flow to allow necessary transactions your business will lose traction fast. Cash flow forecasting allows you to ensure your business will never come up short because you will have time to bridge any funding gaps or arrange for creditors. Having an accurate understanding of your business’s financial wealth can help you plan and set goals for the future.

Let’s look at how cash flow forecasting can benefit your e-commerce business and have it thriving for years to come.

Less stress

We all want less stress in our lives and money is often the root of it, especially for new business owners. Why worry about whether your business has the funds to stay solvent when you can have the answers you need? Completing a cashflow forecast will enable you to breathe easy knowing your business has the appropriate funds or reduce your stress by knowing what the gap is, allowing you to strategize how to fill it.

With the data right in front of you, you can anticipate cash flow shortages and foresee any issues before they become bigger problems to reduce stress and improve your confidence in your business. When you use cash flow forecasting, you can make informed business decisions without the doubt that you can’t afford to do so.

Maximise your growth

If you don’t know what funds are available, then you won’t capitalise on potential growth. By keeping a regular eye on your business’s finances, you will have a clearer picture of its future. Finances can move quickly and making decisions off old data can have disastrous results. By always consulting an up-to-date cash flow forecast you will minimise the risks as your business expands.

An accurate cash flow projection allows you to maximise your return on any cash surpluses. With the ability to estimate the financial future of your business, you can make important growth-based business decisions with confidence. Whether you want to employ more staff, open a new branch or begin international trade, your cash flow forecast will indicate what your business can afford.

If outside investors or stakeholders come on board, they will also expect to see cash flow forecasts. Having these to hand will make your business appear more committed to its path.

Know your progress

We’re sure you aren’t just winging it in terms of your business strategy. At the start of the year, and the quarter, you outlined where you want to be. Waiting to see the end-of-year statements coupled with a cursory glance at the bank statement once a month will not allow you to gauge your progress. By keeping up-to-date with your online accounts and regularly performing cash flow forecasting you will have a clear expectation of where you will be at the end of the period, and if it’s not where you were hoping to be, you may have time to adjust your trajectory.

When running a business, you shouldn’t leave anything down to chance. Cash flow forecasting ensures you are in control of your business finances and the future of your business. This is even more crucial for businesses affected by the cost-of-living crisis to survive and thrive during these hard times.

A little wiggle room

It is important to understand that even the most diligent cash flow forecasting can still lead to shortfalls. Sometimes we can’t predict whether a client will pay late (although if they have a pattern of it you should be able to factor this in) or whether an urgent large purchase is required. If your cash flow forecasting shows that liquid assets could be tight, then trying to build in a little room in case of contingencies is prudent.

This is one of the biggest advantages of cash flow forecasting and allows you to monitor payments and plan for cash shortages. With this data, you can plan for unprecedented scenarios and run hypothetical business situations.

The Statement of Cash Flows in Xero

A straight up surplus

While it’s not a regular occurrence for many e-commerce businesses, cash flow forecasting may show you have a healthy surplus. At these times you will want to assess what the best use of the funds is. Should you repay loans early, expand your product lines, engage in some Research and Development or take on extra staff? Moving in the right direction is an important opportunity that you will want to capitalise on. We can help you examine the options and make the right choice for your e-commerce business.

Options for cash flow forecasting

Traditionally, cash flow forecasting was carried out in a long-winded and time-consuming spreadsheet. It’s no wonder it was a task business-owners dreaded and tended to outsource. Xero allows you multiple routes. You can create a cash flow forecast using Xero itself, or integrate one of the many apps that cover cash flow forecasting to your Xero account.

With advanced cloud-based software such as Xero you eliminate manual data entry processes that can often result in human error and mistakes. You can also trust that your cash flow forecast is always accurate and up to date to show the most transparent view of your business.

Deciphering the data

If you are unsure of the best course of action for your e-commerce business, then get in touch with our team. We can advise on your business’s cash flow while providing full and specialised e-commerce accounting packages.