In the fast-paced world of ecommerce, financial challenges are inevitable. As a seller, you might find yourself considering debt as a quick fix. Don’t get me wrong, debt is not always a bad thing for growth, but is it truly your only option? Understanding the types and implications of debt can help you make that decision with data and strategy to ensure it aligns with your business goals.
Types of Debt in Ecommerce
- Bridge Loans: Short-term loans to cover immediate expenses until expected payments arrive. These carry minimal risk.
- Leverage: Loans aimed at fueling growth by investing in inventory, staff, or equipment. While calculated, they involve higher risk.
- Delaying the Inevitable: Loans taken to keep a struggling business afloat without addressing underlying issues, leading to high risk and potential personal financial ruin.
Growth and Debt
Growth frequently relies on debt like bridge loans or leverage, but using debt to sustain a failing business is a short-lived strategy. If you’re “delaying the inevitable,” stop borrowing and scrutinize your products to identify those generating a gross margin of 30% or more. Are there any you can raise prices on? Also look at reducing costs aggressively and consolidating debts to minimize payments.
Action Plan
Set a timeline, such as three months, to implement a sustainable business model. This sets a deadline, so you have a finishing point to work at. If no significant improvement occurs, it’s time to consider exit strategies.
The business may still have market value under new ownership. New owners have fresh ideas and more cash. If it’s time for you to exit, consider yourself better prepared for your next idea and move on.
Before opting for debt, assess your overall business position and future goals. Making informed decisions, whether to risk or to let go, is crucial for growth.
We offer a few resources you can use to analyze your business:
Business Performance SmartAssessment
If you’re not ready to DIY analyzing your cash flow or business plan, our SmartCFO Advisors are ready to help. Reach out to the bookskeep Team today!
If your ecommerce business isn’t where you’d like it to be in terms of profitability, check out my book, Profit First for Ecommerce Sellers. It answers important questions about how to implement Profit First in an ecommerce business. Take control of your money and your business, and put Profit First to work for you!
You can also sign up for the Profit First for Ecommerce Sellers Online Course. As a Mastery Level, Certified Profit First Professional, I will teach you why Profit First works so well for ecommerce businesses and the particular challenges for businesses that have physical products requiring inventory management. You will learn how your behavior drives your money management habits for your business and how you can set up your business bank accounts to work with your habits.
Check out all our ecommerce accounting and profit advising services here!
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