Ecommerce Cash Flow – how to maintain a healthy flow of funds

Ecommerce Cash Flow – how to maintain a healthy flow of funds

Cash flow can be a huge challenge for business across all sectors. In fact, 82% of small business failures are caused by cash flow issues, while 1 in 7 small business owners have been unable to pay their employees as a result of cash issues, and 38% have been unable to pay their debts.

The world of ecommerce is incredibly fast paced. Transactions happen in a matter of seconds, but it can take days or weeks for funds to be received. This can lead to unique cash flow challenges for online businesses.

What is healthy cash flow?

Healthy cash flow involves regular, positive movement of cash into and out of a business. To achieve healthy cash flow, a business should have enough free cash to at least cover its outgoings.

Why is cash flow challenging for ecommerce businesses?

The nature of ecommerce means that cash flow can be particularly challenging for the sector, for example:

• Sales volumes can fluctuate significantly, and these fluctuations are often unpredictable
• Inventory management is complex, and getting it wrong can impact cash flow
• Instant digital payments and real time transactions require the close monitoring of cash flow

How can ecommerce businesses maintain healthy cash flow?

Here are the key steps that online businesses should take in order to maintain a healthy cash flow:

Understand your cash flow cycle

All businesses have a cash flow cycle and understanding yours will help you to optimise your cash flow. Identify how long it takes to receive payments from your customers, how quickly you need to pay your suppliers, and any other factors that have the potential to disrupt your cash flow.

Accurate forecasting and budgeting

Developing accurate budgets and realistic forecasts will help you to identify any potential disruptions to cash flow and make informed financial decisions.

Cash flow forecasting looks at factors such as payables, receivables, and trends to predict what cash flow will be like in the future, reducing the risk of any nasty surprises.

Manage your expenses

As well as ensuring a steady flow of funds into the business, it’s also vital that you carefully manage your operating expenses – the flow of funds out of the business. Consider your fixed and variable costs and try to identify any areas of unnecessary expenditure where savings can be made.

Manage your inventory

A key aspect of managing cash flow is ensuring effective and accurate management of your inventory. After all, having too much stock can tie up all your cash, negatively impacting cash flow, while not having enough stock can result in lost sales, equally impacting cash flow.

A specialist ecommerce accountant will be able to help you create an inventory management system that will optimise cash flow.

Streamline payment processing

Payment processing brings money into the business, supporting cash flow. Look for ways to optimise your payment processes. For example, are there ways to implement faster processing? Or could you offer discounts for upfront payments to encourage customers to pay sooner.

Maintain cash reserve

Maintaining a realistic cash reserve or contingency fund will help provide financial stability during difficult periods. Putting aside a percentage of your profits every month until you have saved enough to cover your essential expenses for a number of months will provide protection against cash flow issues.

Work with your ecommerce accountant

Working with a specialist, experienced ecommerce accountant will enable you to implement these strategies and ensure your online business has the steady flow of funds needed to thrive and grow.

Your ecommerce accountant will look at the bigger picture, using your financial data to help scale your business and make recommendations on how to move forward.

Why choose Unicorn Accounting?

Ensure you keep on top of your cash flow and finances by outsourcing to an accountant.

At Unicorn Accounting we are e-commerce accountants who help make your online business a growing success. We offer e-commerce accounting advice, financial management, bookkeeping, cash flow statements, and tax filing services to support and scale your business.

Our team of accountants and Xero-certified advisors have experience working with everyone from small start-ups and family-run online stores, to large-scale, international retail and e-commerce brands.

If you’ve got an online store, we have the best solution for you. Providing you with a financial arm to your business through our sector experience, and skills with innovative technologies. To see how we can help you maximise the scalability of your e-commerce brand all year round, get in touch with Unicorn Accounting today. Or click here to get a free quote.

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