- Ecommerce accountants can offer cash flow advice to their clients using strategies like cash flow planning, expense and inventory evaluation, and improved invoice management.
- Accounting automation software keeps data up to date so accountants can review financials and provide action plans.
Ecommerce is a low margin business—5.6%, according to the latest IBISWorld research—where even the smallest slipup can spell disaster. Because inventory expense has to be realized well before the sales revenue, one small ordering mistake, a temporary account suspension, or a misread of the market can make a seller’s cash flow negative for a time, even if the business is quite profitable. Meanwhile, selling across multiple channels adds complexity to the business and makes it even harder to track expenses/revenue in real time. If your ecommerce clients are losing track of their cash flow, accounting automation software from Webgility can help.
Webgility shows online retailers and their accountants a full picture of their company’s financial health, giving them the information they need to make smarter business moves. The software, in conjunction with these strategies, will keep everyone informed in order to maintain a positive cash flow for the ecommerce business.
Plan Out Cash Flow
As the saying goes, failing to prepare is preparing to fail. Thus, the first step toward a positive cash flow is creating a plan. Planning out cash flow helps to avoid surprises like debts or unexpected costs, and your clients will be prepared for any period of time where they forecast less money coming in the door.
These are a few planning tactics to keep cash flow positive:
- Pay invoices at the optimal time
- Take out a small business loan or open a business credit card
- Save enough for next month’s payroll
- Open a separate savings account for taxes
Sellers can be strategic about when they pay their vendors as long as their invoices aren’t due upon receipt. If there is a 30-day window or longer for an invoice sent during a slow sales month, the invoice can be paid at the end of that month and still report a positive cash flow. On the flip side, sellers should pay as soon as possible if the vendor offers a discount for early payments.
It’s possible that they’ll need extra funding for early vendor payments, payroll, or any other operating costs. A business loan is one option, in which regular installments of a sum are paid back over time. They can also choose a business credit card, which can have added benefits like cash back as long as regular or full payments are made at the end of each billing cycle. It’s easy money if they can maintain usage without carrying a balance.
Savings are another important part of a cash flow plan. Advice tends to sound something like “save enough for three months of operating costs,” but at the bare minimum, make sure there is enough cash for next month’s payroll. As an accountant, remind them to set aside savings for taxes. Many online retailers are shocked by how much they owe in April every year, but they can cushion the blow by setting aside estimated tax payments every month or quarter into a separate savings account.
As business owners learn, it’s beneficial to reevaluate expenses on a regular basis. Unnecessary expenses can be cut, and they can look for lower-cost alternatives for the remaining ones.
They can also optimize business operations in a number of ways. Is there enough work to justify every employee? Are they using their time efficiently? When they streamline their processes, they can see where they can make cuts and reduce the amount of money going out the door.
Business tools like specialized software can help provide insight into operational expenses. While the initial investment may seem costly, the payoff is a net positive once they lean out their operations.
Inventory, like expenses, should be checked routinely—usually because it’s an extra expense itself. Storing inventory is a costly part of ecommerce, and long term storage is even more so. If there is a product that isn’t moving, consider advising your client to heavily discount it or liquidate it altogether.
The discount route allows for recovery of some of the costs incurred purchasing the inventory from the vendor, but they still run the risk of not clearing it out of storage. However, liquidating inventory will require an extra fee from Amazon FBA or whichever company is storing it. Unless a product is included as a free gift in every order (which probably increases shipping costs) excess inventory will be more expensive the longer it’s stored.
Inventory checks don’t have to yield strictly negative results, though. There’s a way to honestly look at their catalog and keep only the products that are benefiting their business. With a complete set of accurate and up-to-date data, accounting and inventory reports yield better, more detailed results. This makes it easier to identify clients’ profit centers (like categories of merchandise or regional sales) and where they should invest more or less of their time.
You’ll be able to see the direction in which they should move and take the appropriate action.
The value of a product, especially a niche product that isn’t being sold by many online retailers, can be challenging to determine. You have to take wholesale price, employee time, and other costs into account while turning a profit but not pricing an item too high. It’s a delicate balance, and it could affect cash flow.
On one hand, products that are too costly could easily scare away potential customers, but on the other, low prices make consumers wary. They tend to ask themselves if the product is low quality and not worth buying.
Once sellers find the pricing that reflects their hard work but remains competitive, they not only learn more about the market but also revitalize their cash flow.
Improve Invoice Management
Invoices hugely affect cash flow, even though it’s sometimes frustrating that the financial health of a business is so reliant upon other people. That’s why online retailers should remain timely and persistent with their invoices.
Sending invoices right away minimizes any potential window of negative cash flow, especially if they’re due upon receipt. But even if the recipient is given 30 days or more to pay, sellers can offer incentives to pay early or on time. Early payers can be given a slight discount, for example, and late payments could come with a penalty. Stick to your schedule and be sure you’re being paid or else risk negative cash flow.
Webgility connects to QuickBooks and helps to manage invoices. The invoices sent from within the software automatically get logged, giving everyone the peace of mind that no details are being missed.
The Importance Of Positive Cash Flow
Profits and cash flow are related, but they’re not the same thing. Cash flow gives insight into a business’s survival chances, versus the money it’s making, and too many consecutive months of negative cash flow can lead to the collapse of a company—even if it’s still turning a profit. If your clients are struggling with their cash flow, there are plenty of strategies that they can implement to boost it and keep their ecommerce business afloat.