It is getting easier to start your online store. Selling physical products online is easy. But managing a business is not.
One of the most common failures in businesses is due to poor cash management.
In this article, we will share how 7 quick tips to manage your E-Commerce business’s cash flows.
Manage Unexpected Risks with Insurance
The most important tip is to manage unexpected and huge cash outflows. Despite your best effort, you may still face unexpected events that result in significant bleeding of your cash flows.
One of the greatest risks facing e-commerce sellers is product liability risk. Product liability is the legal damages if the products you are selling cause personal injury or damage to property. As an e-commerce seller, you will be the first person your customers will look for.
Unless you are selling products from reputable brands, you will face product liability risks.
Fortunately, you can transfer these risks to an insurance company through product liability insurance.
Always Have Cash Buffer
Cash is a scarce resource. When you do your estimate of how much cash you need to start your business, always multiply that amount by at least 2 times. There will always be unexpected spending requirements.
Maintain a Separate Account from Your Personal Spending
One common mistake I see for online sellers is that they mix up their online business and personal spending account together. This has resulted in the following issue:
- Not being able to measure the performance of the e-commerce business; and
- Spending the earnings of the business in its personal capacity.
One of the greatest growth opportunity come within your company. By reinvesting your earnings, you could earn even more in the future.
This also ties in with having a cash buffer both at your personal and business level.
Negotiate for Better Terms with Your Supplier
You will need some time to sell off your products after you purchase it from your supplier unless you are drop-shipping. If you are buying your products in bulk, you may negotiate for delayed payment from your supplier.
Most suppliers have an early payment discount. You will have to evaluate whether is it more beneficial to take advantage of the discount, or delay payment so that your business have sufficient cash flows.
Pay with a Credit Card when It is due
Most credit cards give about 30-days deadline before you make payment. You can use this precious 30 days to market and sell your products.
Combine credit card payment period with better supplier terms, you can have up to 60 days which is sufficient for most products.
However, please pay your credit cards on time. The interest accrued on credit cards is too high to delay payment.
Always Validate Your Product Risks
One of the biggest cash flow crisis is when you are not able to sell your products, even at fire-sale prices. To prevent that, especially when you are a new seller, always validate your products before buying them in bulk.
One good way to product validation is to check out Amazon’s best sellers.
These are products that are proven to sell. Never try to sell anything that is completely new and unproven. In e-commerce, moderate competition is good. It shows that you have a market.
Evaluate Your Refund and Shipping Policy
To attract buyers, you may offer a generous refund and shipping policy. This is a great strategy in the beginning to attract initial customers, but it may not be as good when you have a group of loyal customers.
To evaluate your refund and shipping policy, reach out to your loyal customers and ask what makes them buy from your store. You may be surprised with the reasons they give. You may use tools such as Google Forms or SurveyMonkey to get the initial data.
If the top reasons have nothing to do you with your refund or shipping policy, you may consider removing them.
Cash flow is the lifeblood of any business. Watching your cash flow like a hawk will prevent business failures due to cash management issues. Hope that you got some tips on managing your cash flows from this article.