Now that the hustle and bustle of Q4 and tax season is starting to slow down, it’s a great time to start thinking about how much padding you have in your cash reserve cushion. It’s never too late to add some extra stuffing, so let’s talk about how you can build your cushion up this year!
Working Cash Makes More
To start you need a good understanding of your product profitability. Then you can create a strategy that works with your inventory levels and ad costs to keep your margins at the highest level to bring in those dollars. When your strategy is nailed down, take a look at your product mix and see where you can best use your cash.
It’s possible that you’re buying inventory that uses cash but gives little of it back in return. You want to make sure your cash is working for you. If a product moves too slow or makes too low a margin, it’s time to make changes to your product mix.
Add Some Padding
Now you’re ready to work on your strategy to pay off debts and grow your cash reserve cushion. You want those reserves to grow so you have them in case of emergency, and I think we all feel like an emergency is more possible than ever.
The best way to build the cash cushion is to build up cash while paying debts at the same time. Ideally, you’ll want to add up enough to cover 3-6 months’ worth of expenses in your cushion. You will start to feel more frugal, but you’ll also be more efficient and creative with your spending.
Effectively monitoring and managing all your expenses is just an added bonus to this strategy. Add in your profitable products and your new effect product mix, and you’re also increasing sales. This means you’re now bringing in more and sending out less, putting more cash into your pocket. You’re ready to reduce those debts and grow that reserve cushion!
Make a New Habit
When it’s time to start thinking about ramping up for Q4, take a look at what you have in the reserve. Is there enough to pay for the extra inventory without needing to borrow, or at least borrow less than before?
Sometimes it can take 3 or 4 selling seasons before you have enough cash in the reserve cushion, however, as you build the reserve you get all the perks of a debt-free business. Think now about how you can take care of the debt and still stuff your reserve cushion. Maybe you can make minimum payments while you fully flesh out your strategy.
No matter what strategy works out best for you, building those reserves and buying time will always bring you more peace of mind than living in that dreaded Q4 borrowing cycle. Not only will you be prepared for your Q4 every year, but you’ll also be ready for anything else life or the economy might throw at you!
If you’re ready to start building that cash reserve cushion, but don’t know where to start, we can help! Talk with 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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