Starting an eCommerce business is tough. Entrepreneur pointed to data that showed that approximately 20% of businesses fail within the first year, and about 50% fail by the fifth year. One major cause of these failures is due to business owners not understanding where all of the money in the business went. In other words, there was poor cash flow management.
What is cash flow management?
Income – Expenses = Cash on hand
Simply put, cash flow management is the monitoring of the money coming in and going out. In any business, especially an e-commerce business, money is the lifeblood of the company and it is what keeps it alive and running. Without proper cash flow management, the business could soon end up with no profit, thus eventually leading to the business shutting down.
Cash flow management can be a very difficult and arduous task because there are so many details to pay attention to, such as inventory, rent, salaries, computers, equipment, internet, electricity, accepting electronic payments, fees, international transactions, etc. However, with today’s technology in the e-commerce world, business owners such as yourself have access to many solutions to help solve various e-commerce problems.
Here are five tips to help you improve managing the cash flow for any e-commerce business:
1.Have strong bookkeeping
As stated earlier, money is the lifeblood of the business, so monitoring your blood in an e-commerce business means tracking and having records of all transactions, including purchases, returns, credit, cash on hand, petty cash and producing detailed and accurate financial statements. This will help you keep your eye on the goal, manage your investments and spend funds wisely.
2. Use automation where possible
If you can use technology to automate something, do it! This will save you so much time and it is convenient for you and your customers. This includes, automatic payments, billing, receipts, invoices and monthly expenses. By having these transactions automated, you will have more time to spend on more important things such as expanding your business.
3. Invest in an online point-of-sale (POS) system
Online e-commerce business transactions are now easier than ever to process due to online point of sale systems. These POS systems make it easy to track inventory, process payments, invoice customers, supplier management, improve the company’s image, and personalize customer purchases. While it’s not the only option, Shopify has become a go-to service in this regard. An overview on AskMoney explains Shopify’s Point-of-Sale features and benefits, with a particular emphasis on how it can be used to find customers. The site noted that “sellers have access to an administrator panel where they can add products, accept payments, and ship out orders”. This ease of use allows the sellers to focus much more on providing an optimal customer service.
4. Get your customers to pay on time
One of the crucial parts of managing cash flow is, first of all, getting the cash or credit due from your customers. Delayed payment collection from customers will lead to several setbacks in your accounting and will most likely delay your other important operations as well. To help with this, send your customers the invoice in advance, provide them with proper assistance with processing their payment, and give them an acknowledgement receipt once payment is completed.
5. Plan your business expenses in advance
As money is coming and going out of your business, it is important to plan out where the cash will go next and how it will be budgeted. Allocate funds to go back into the business for investments, payments to replenish inventory, costs for planned maintenance, payroll, and maybe even towards research and development of new products. The important thing is to know in advance where and how the cash will be distributed next.
The wave of e-Commerce Businesses and new technologies are constantly growing and changing. The only way to keep up with this wave is to keep learning about new developments, new features, staying educated and seeking new information. Listening to podcasts is a great way for eCommerce entrepreneurs to stay up-to-date with the new advances in this ever changing field. If you are interested please check out our article on the ‘Top 7 Business Podcasts for Entrepreneurs’.
Article written by Rose Jolson
Exclusively for crowdz