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E-commerce businesses have a lot of moving parts and money is constantly being spent to cover the costs of inventory, packaging, shipping, storage, and staff.
Because there are so many ongoing expenses, having clarity around cash flow is essential.
Crest Accountants are specialist e-commerce accountants in Australia (we’re based on the Gold Coast, but you can work with us from anywhere). Here are some of the steps we recommend to get your cash-flow forecasting under control.
1 Know your starting point
It’s difficult to figure out what will happen next when you don’t know what you have to begin with. Work with your e-commerce accountant to develop a clear understanding of your current cash position, including cash on hand and outstanding receivables or payables.
2 Get clear on your budget and expenses
You also need to have a clear idea of your regular and one-off expenses before you prepare your cash flow forecast.
This is where it may help to negotiate some fixed-price contracts with suppliers; this way at least you can forecast some of your spending with confidence. Many of your prices may already be fixed such as rent, website hosting and paying your core staff.
Creating a budget is essential; if you know the limits you have in place for marketing, trade shows etc you’ll be able to estimate cash flow more clearly.
3 Look at past trends
Many online stores have clear peaks in sales, often due to the weather or time of year.
Review your historical sales data to identify any patterns or trends that can help you predict future cash flow. You may have had great success from an EOFY sale or a Christmas-based campaign; these can be referred to when you’re attempting to estimate income for the next year.
Another idea is to break things down into categories. This will help you see what performs well at which times and will give you ideas to not only forecast but optimise your sales performance.
If you’re just getting started, talk to your e-commerce accountant about the trends they have noticed in the industry.
4 Consider future factors
In addition to looking at past trends, it’s also important to consider future factors that could impact cash flow, such as expected changes in sales volume or seasonality.
Right now, things are changing rapidly and it’s not always easy to make more than an educated guess but doing some form of forecasting will help you create plans for different scenarios.
5 Use a cash flow forecasting tool
There are a number of different cash flow forecasting tools available, both online and offline. Choose the one that best meets your needs and input the relevant data to generate an accurate cash flow forecast.
Some examples are:
With this being said, it’s still worth working with your e-commerce accountant to assess the reasonability of what your forecasting tool comes up with.
6 Run some different scenarios
COVID showed us how anything is possible, and you need to be prepared for the unexpected. Your accountant will assist you to work through some different forecasts, so you don’t end up a long way off the mark without a plan.
7 Review and revise
Even the best cash flow forecast is only as good as the data you input into it. Be sure to regularly review and update your forecast to match what has been going on in your business.
Throughout the year, work with an e-commerce accountant based in Australia to track your performance so you can make good use of it when your next forecasting period rolls around.
8 Create subscription models
Depending on what you sell, you may be able to develop a subscription model. If people commit to spending a certain amount for a specific period of time, forecasting will be more straightforward.
This can work really well for food or wellness brands; for example, a client will receive a discount by signing up for a monthly delivery of products over a one-year period. The model makes cash flow much more consistent, so forecasting becomes easier.
9 Work with a specialist
If the above tips seem overwhelming, it’s probably because cash flow forecasting isn’t your area of expertise! When you work with an e-commerce accountant to help you with the process, it will become clearer, and the numbers will more closely reflect your actual results.
Need help with e-commerce cash flow forecasting? Reach out to Crest Accountants today.
Disclaimer: The information contained in this news post is general in nature and is intended to provide a general summary only and should not be relied on as a substitute for professional advice. Whilst the information is considered to be true and correct at the date of publication, changes in circumstances after the time of publication may impact upon the accuracy of the information.
