Often regarded as one of the key signs of an impending end for most businesses, running dry and having one’s cash flow halted is generally rooted in poor financial management. Although there are many potential factors that could eventually lead to the problem at hand, one catalyst that tends to come up more than anything else is poor and inaccurate cash flow forecasting.
Why proper forecasting is essential for success
Seeing that forecasting is the key to any business’s financial health and the main factor for every case of cash running out, your cash flow should be the first factor that you need to tackle. Failing to properly forecast the way your cash has to be spent and allotting it properly, in particular, has caused many businesses to fail and lose a grip on their cash flow entirely.
As an e-commerce business owner, it is much more essential to get a hold on your forecasting needs because of all the complexities that come with online transactions. Thankfully, pulling off accurate forecasts without fail isn’t an entirely difficult ordeal. In fact, wrangling with the various variables that you’ll come across with can be easily managed with a few simple tips.
If you’ve been struggling to handle the task of forecasting your company’s cash flow, here are three ways to get a hold on your forecasting:
1. Learn the difference between cash flow and revenue
One of the most common reasons e-commerce shop owners struggle with cash flow forecasting is that they confuse cash flow and revenue for one another.
They may sound similar at first, but the cash flow it runs on and the revenue that your business earns from its transactions are two different factors altogether. If you’ve got the terms mixed up quite a bit, here’s a simple guide for you:
Your business’s cash flow has much to do with the way you generate and manage your cash outside of your main activities and how it can remain functional, even in dire straits.
Revenue mostly deals with determining the overall effectiveness of your store’s sales and marketing.
2. Get everyone on board and practice clear communication
If there’s anything that’s holding you back from being able to properly forecast your business’s cash flow as best as possible, it’s definitely inaccurate or unclear communication.
What most e-commerce businesses don’t understand about effective cash flow forecasting is that it requires two aspects to function properly. This essentially means that you’ll have to keep both your financial practices and communication in order. By taking the time to establish clearer lines of communication and implement stricter signals and code, you can avoid various errors that may leave your business strapped for cash!
3. Keep an eye on your business’s own inflows and outflows
The biggest hurdle that e-commerce companies often face today is that there are more online users than ever. This essentially becomes a double-edged sword in itself because it also brings in more inflows and outflows to take care of.
As your business grows and scales at unprecedented rates, it becomes increasingly difficult to get a hold on every single transaction that comes in and out because of all the other responsibilities that you need to tend to. By seeking professional help, you can track your cash as best as possible to better equip your forecasting by getting higher-quality data to work with!
Managing your e-commerce business’s cash flow and properly forecasting it in the long run for effective allocation doesn’t have to be as daunting as initially expected. By simply following the tips mentioned above, you can start turning the tides in your favour and make it far easier to lay out the necessary groundwork for success right away!
Are you an e-commerce business or influencer that’s looking to establish your best shot at success with the help of tight-knit accounting practices? Get in touch with our e-commerce accountants today to see how we can help you!