Cash Flow Problems Could Kill Your E Commerce Business
E Commerce is an incredibly competitive marketplace so it’s no wonder that so many startups fold within a few months before they’ve even managed to start turning a profit. The number one killer of new e commerce business is cash flow problems. All of that startup cash won’t last anywhere near as long as you think it will and if you don’t manage it properly, you’ll find your bank accounts empty before you’ve got any revenue coming in. It doesn’t have to be that way if you’re sensible with your money and don’t overstretch yourself. Follow these simple tips to keep on top of your cash flow.
Good Bookkeeping
If you don’t realize that you’ve got cash flow problems, then you won’t be able to take measures to combat them. Unless you have good bookkeeping skills then you won’t know that there’s a problem until it’s too late and you’ll surely fold. With an e commerce company, it’s tempting to be slack with your bookkeeping because you have records in the form of emails etc. But this isn’t enough to know exactly what’s going on with your business. You need to be keeping separate records so you have a clear idea of exactly how much money you’re spending and how much you have left.
Unpaid Invoices
Another common problem is that you’re selling products but delayed payments mean that you aren’t seeing a return on those manufacturing and shipping costs. If you don’t nip it in the bud early on, it could spell disaster for your new company. The best way to ensure that you get paid on time is purchase order financing. Interstate Capital offers purchase order financing solutions that can guarantee that you always get paid promptly and don’t run into any problems. This means that you see a quicker return, and it also makes it much easier to manage your finances because you know exactly when you’re getting paid.
Bad Margins
It’s been a few months, you’re making good sales, yet you still don’t have much cash at all and the pile seems to be getting smaller. So, what’s going on? If you’re making sales at a healthy rate but you still don’t see any growth in your bank account, that’s an indication that your profit margins aren’t high enough. It could be one of two things; either your manufacturing and shipping costs are too high, or you’re not selling your products for enough money. The first thing you should do is to reduce those production costs because raising the price of your products could affect your sales and negatively affect profits even more. If there is no way that you can reduce those numbers, you’ll have no other option but to increase prices. However, you need to be careful because if you push them too high, you won’t make any more sales.
Growing Too Quickly
It’s always exciting when your sales are increasing and you’ll probably be dreaming about expansion. Being ambitious is always good, but caution should take precedence. While you might think that you have enough capital behind you to expand, you might be wrong. Crunch the numbers and work out how much you need, then double that figure. It seems drastic but you never know how the markets could change and if you don’t have a buffer zone then you could end up losing everything.
