As an ecommerce entrepreneur, managing inventory often feels like an endless cycle. Constant borrowing to fund inventory can strain your cash flow and make it difficult to achieve financial stability. Unlike brick-and-mortar stores, ecommerce businesses face unique inventory challenges, adding to the confusion. However, there are proven strategies to break free from this cycle. Let’s go over a few.
Understand Margins and Cash Flow
Understanding your margins is critical, but it’s not enough to ensure a healthy cash flow. Many ecommerce businesses make the mistake of relying on high-interest, nontraditional lenders. These lenders often have strict payback structures that can drain your cash flow, making it difficult to manage day-to-day operations. Instead, focus on maintaining a balance between healthy margins and positive cash flow.
Seek Better Financing Options
Nontraditional lenders aren’t concerned about your business. They often charge up front fees or will take a percentage of sales right out of your selling platforms. They are happy to offer you a loan because they know they will get paid before you will.
Your margins might indicate that you can handle this expense, but this can put you at a disadvantage when trying to set aside funds for an inventory order. You’ll often have to borrow more from the lender to purchase more inventory, and the cycle continues.
Rather than resorting to high-cost loans, explore traditional financing options. Traditional loans and lines of credit generally offer more favorable terms and can be easier to manage. Additionally, look into credit cards with no interest for a limited period. These options can provide the funding you need without the immediate pressure of high-interest repayments.
Plan for Growth
Growth planning is essential to avoid this endless inventory cycle. Start by accurately forecasting your inventory needs. This involves understanding your sales cycles and predicting future demand. Engage in discussions with your suppliers to negotiate flexible terms that can accommodate your growth without putting undue strain on your finances.
When planning for growth, remember to account for all aspects of your business, including your salary, profits, and taxes. Many entrepreneurs overlook these factors, which can lead to financial shortfalls. A comprehensive growth plan ensures that your business can expand sustainably.
Adopt Profit First Strategies
Implementing Profit First strategies can transform the way you manage your business and help keep you out of the inventory cycle. This approach emphasizes prioritizing profit, controlling growth, and managing debt levels. By focusing on profitability, you can ensure that your business grows at a sustainable rate, reducing financial stress and increasing your overall success.
This system involves setting aside profit first and then managing expenses with the remaining funds. This mindset shift can lead to better financial decisions and a healthier business overall.
Consult Experts
They can provide tailored advice and strategies to help you break the inventory cycle and set your business up for success. Reach out to our advisors 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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