eCommerce is the purchasing and selling of products and services over the internet. These transactions might be business-to-business or business-to-consumer (B2B or B2C), and consumer-to-consumer or consumer-to-business (C2C or C2B).
However, eCommerce is about much more than just selling and shipping products. Like any other business, your eCommerce store will require money management behind the scenes.
It all comes down to cash flow.
Since eCommerce trends can be unpredictable, the financial health of your business might fluctuate dramatically. Slow months will be just as unavoidable as peak months. Meanwhile, you're incurring everyday business expenses such as rent, internet, employee compensation, among others.
So how can you maintain a healthy balance in all of your financial flow so that you never run out of money? Cash flow is the key, and it is one of the essential components of financial reporting.
Cash flow is simply your company's income minus all its expenses. It relates to readily available value—the greater the amount of money that comes in, the greater the money that leaves.
Here are some ideas to help you maintain constant awareness and enhance your cash flow:
1. Calculate Safety Margins into Your Financial Projections
The goal is not to eliminate all of the fat from the cash flow calculations and reserves. Prepare yourself for a sluggish day, week, month, or quarter, as well as applicable taxes. Also, make sure you have emergency funds for repairs and other issues you may need to resolve to maintain operations quickly.
2. Keep Your Financial Records in Order
Ensure that your financial records are in order and that your books are regularly and accurately balanced. Sometimes, some issues can arise when small business eCommerce owners consolidate personal with business expenses or when bookkeeping is not routinely done. Avoid these blunders by keeping your business account separate and ensuring that the ingoing and outgoing cash flow is recorded accurately.
3. Collect Payment from Consumers on Schedule
Collecting payments diligently is critical in terms of cash flow planning. Of course, this is something you have little control over. However, if late payments are an issue for your company, think outside the box about making up for unpaid expenses. You can check if the invoice's due date is prominently displayed on the front or if clients are getting enough reminders.
You may automate a payment reminder in the same way you automate a bill or invoice. For example, if your customer fails to meet a deadline, you can set auto emails to remind them.
4. Automate Recurring Payments
Everything from invoices to bills to expense reports to receipts — any recurring payments your company makes or gets should be automated. It is best to invest in a system that enables you to do this easily.
It assures you to know that your money is moving in the proper direction and at the right time. In addition, automatic receipts and automated costs also assist you in maintaining digital bookkeeping records for yourself, your suppliers, and your clients.
5. Use Financial Reports or Cash Flow Forecasts
Financial reporting is essential for your company, and visual aids are beneficial. It is highly efficient to get accounting software that performs various tasks quickly. This includes analyses of your sales and costs and generating balance sheets and other financial data about your business. This way, you can look over various analytics to identify patterns, weak seasons or items, and make wiser business decisions to boost your sales and operations.
Conclusion
These strategies can help you manage and increase your cash flow better, so take advantage of all of them. It is all about keeping your cash flow in order, so you continually boost your eCommerce business to success. You can improve your cash flow by focusing on increasing revenue, lowering costs, or raising financing, or a combination of these strategies.
At The ECommerce Accountant, we help eCommerce business owners increase their profits while minimising tax. We take your business and meet its needs holistically through different eCommerce solutions to boost your ROI. We have top-notch accountants for online businesses who are well-trained in the Australian ECommerce Industry. We are passionate about eCommerce and can help your business develop. Call us now!