How to maximise cash flow for your business

By Ciro Scianna – December 9th, 2021. In this blog we will identify five key strategies on how to maximise cash flow for your business.

An overview of the importance of maximising Cash flow

There is an old quote many people like repeating: ‘Cash is king’. And there is certainly a reason why this quote is extremely powerful when it comes to techniques on how to maximise cash flow for your business.

Cash is the life-blood of any business; it keeps businesses going. It pays the bills, sustains your staff payroll, and most importantly, it give you a purpose for being in business in the first place. Why would you be in business if your business didn’t generated any cash for you?

These are the reasons why you need to have a continuous and healthy cash flow in your business. 

But the question many entrepreneurs ask themselves is: “How do I increase cash flow in my business?”. Maintaining an healthy cash flow is a challenging for many business, and ecommerce is not an exception. This is mainly because of the constant need to invest in inventory, quickly and efficiently. In fact, the reality is that many small businesses struggle with lack of liquidity, and end up bankrupting despite being profitable.  

With this in mind, we will share some useful tips on how ecommerce businesses can optimise their cash flow management. 

1. Maximise your cash flow availability by aligning Expenses with the revenue stream 

If you end up paying your expenses using cash sitting in your reserve, then you are experiencing cash flow difficulties. You should try and pay your suppliers with money received from sales instead. For example, you should wait until your customers have paid you before paying your suppliers or purchasing new inventories.

If you needed to purchase inventory before then, purchase them on credit. By doing that, you will be able to keep your cash flow above a certain level. But most importantly, you will avoid any risk of ending up in red should unexpected and urgent payments come up.

Another important aspect to note is that many suppliers would have a 60 to 90 days payment period. So, here the message is not to rush in making payments; wait until just before the credit period ends. Try also to build a good relationship with your suppliers, and ask them to give you extra time to pay. 

2. Keep more cash in your business by managing Inventory efficiently

It is important not to convert too much of your cash into inventory. In other words, don’t buy new stock until you have cleared old stock and secured new orders. Unnecessary large amount of stocks can reduce cash availability and even increase storage costs.

 

It is good practice to keep track of your inventory and sell first the stock that you have been holding for a long period of time. You could also use some strategies to improve you cash availability, for instance selling excess inventories at discount.

 

You could sell through many online marketplaces in addition to your website, but you need to consider the costs of storage too. For example, you would incur recurring storage fees (E.g. amazon fulfilment) until you sell your stock.

If you have slow-turning inventory you could incentivise customers buying more of your products or services. You could incentivise them by offering discounts when they buy a minimum number of items.

As a result, you will be able to increase sales while clearing your stocks. However, it is important to note that you will need to work out your margins. This is because selling at discount can reduce margins significantly, therefore you might have to review your strategy.

3. Maximise the average value of your orders 

A further technique to maximise cash flow is to boost average order value by selling more to existing customers. However, you can only do so after understanding your niche market and your customers habits.

 

For example, let’s assume the average order amount in your ecommerce business is £30. And let’s now assume that you want to increase the average to £50 or more. One way to do so would be to introduce a minimum order value for free shipping orders. Not only this will push up your average order value, but it will improve your customers service too. And you will be able to build up trust and good reputation.

 

On the other hand, if you are selling digital products, you could encourage your customers to upgrade to premium plans. As an incentive to upgrade, you could give them additional benefits which don’t cost you anything.

4. Preparing a Cash Flow Forecast will certainly assist you in overseeing future issues

Cash flow forecasting is the process of estimating the flow of cash in and out of a business over a specific period of time. Therefore, accurate cash flow forecasts will help you predicting future cash positions and avoid painful cash shortages. It will also help you planning your business operations in the most efficient manner possible.

 

But most importantly, preparing a cash flow forecast will help you predicting the overall financial health of your business. For instance, your ecommerce operations might be profitable today, but might be at loss making in six months from now. A cash flow forecast will help you taking proactive actions before it is too late.

 

Moreover, if your cash flow forecast let you identifying future issues, you would be on time to secure financial support.

Keeping record of your cash movements will also help building trust amongst those financial institutions which will support you.

5. Integrate all your marketplaces in one accounting platform

By integrating your marketplace platform to one accounting system, you will gain full visibility of your revenue streams and related fees.

This is because integration will allows you to easily overview all the cash coming in and out of the business. It will also allow you to build up analysis and visual chart which will assist you in making strategic business decisions.

However, preparing accurate cash flow forecast and conducting integrations can be challenging. You might want to seek support from a professional accountant or financial adviser.

Author Bio:

Ciro Scianna is the Founder of Accontext, an innovative and virtual accounting firm for ecommerce and online businesses.

Ciro is a professional Chartered Accountant who has gained over 15 years experience in small, medium and multinational corporations. 

In 2018 Ciro became a Fellow of the Association of Chartered Certified Accountant (FCCA), after completing 5 years of continuous development. Ciro continued developing his skills by specialising in accounting for ecommerce.

If you have any question of how to maximise your cashflow or require any support, please feel free to reach out at ciro@accontext.com for a FREE friendly chat.

Leave a Comment

Your email address will not be published. Required fields are marked *