The rise of user-friendly ecommerce platforms like Shopify and marketplaces like Amazon has lowered the bar for entry to ecommerce. Customers seem to be easy to reach, suppliers are ready to respond to purchase orders, and ecommerce platforms promise extensive support for marketing and sales. It's no wonder that so many people have decided to start their own ecommerce business, especially in the era of the side-hustle.
But ecommerce success isn't as easy as it seems. Online sales businesses tend to operate on razor-thin margins. Ecommerce small business owners need to be extremely mindful of their cash flow in order to remain competitive. A much-cited study by The Hartford bank reported that 82% of small businesses fail due to poor cash flow management or poor understanding of cash flow.
With a recession looming, it's even more important for small business owners to track and manage their cash flow. While that might seem daunting, any business owner can take control of their books as long as they have the right tools.
Good cash flow management is a keystone habit
According to Yaron Shapira, co-founder and CEO of the ecommerce planning and funding platform 8fig, cash flow management is one of the most important, yet most overlooked, elements for ecommerce success.
"When you have full visibility of your cash flow, you can spot opportunities to cut expenses, places where you are taking on greater risk, and begin more accurate forecasting that guides you in deciding which products to stock and how much inventory to store," Shapira explains. "Ultimately, good cash flow management is the foundation for better profit margins."
But as Shapira points out, many ecommerce business owners lack the time and/or expertise to map cash flow across their entire value chain, and don't have enough capital to pay consultants or hire employees to do so.
Often business owners have the relevant data somewhere in their ecommerce platform analytics, but don't know how to turn it into meaningful cash flow insights. They might be able to keep on top of sales and expenses, but they certainly aren't able to take a detailed look at the relative benefits of different suppliers or spot weak points in their supply chain.
"Many e-commerce business owners have a general idea of their supply chain operations in mind, but they neglect to make a detailed map of the longer term," says Shapira. "This can lead to difficulties in understanding cash flow across the various stages of the supply chain."
8fig: the tools for better cash flow management
One way for e-commerce businesses to take a complete cash flow picture of their business is through an all-in-one digital platform like 8fig. 8fig offers a single user-friendly dashboard where ecommerce entrepreneurs can collect, gather, and analyze data about expenses and revenue. The platform creates a constantly-updated holistic cash flow model that enables users to understand where their money comes from and goes to.
8fig applies artificial intelligence (AI) to break down cash flow on a product-by-product basis. Each category is displayed as a supply chain "line" through visualizations that enable sellers to trace each product's entire lifecycle, including freight costs, logistics, marketing, and other costs. With these insights, ecommerce business owners gain more visibility into supply chain health and make better business decisions.
"Simply by mapping out the supply chain on a product-by-product basis for the next year or more, sellers can visualize the flow of goods and capital, identify weak points, and come up with solutions," Shapira noted. "Sellers should scrutinize every stage of the supply chain and cut costs where possible. 8fig offers a free supply chain mapping framework for this purpose, as well as a tool to benchmark supply chain expenses against thousands of other sellers."
8fig goes a step further than supply chain mapping. It also matches each product's expenses against its revenue, so sellers can compare profitability and eliminate products that are losing money. For ecommerce sellers, the platform essentially translates financial jargon into everyday language.
What to do with your cash flow insights
Gaining visibility into cash flow is just the first step. Ecommerce business owners also need tools and guidance to act upon the insights they receive. Shapira advises ecommerce sellers who are still experimenting with products and lines to order smaller, more frequent shipments of inventory. "Smaller batches give sellers the ability to adjust to changes more quickly," he explains. "If there is an issue with one batch, less product is affected, and the next batch will be on its way more quickly."
8fig also steps in with vital working capital assistance. It takes money to make money, but new ecommerce businesses often struggle to find capital for purposes like preordering extra stock before the winter shopping season. The platform uses seller cash flow data and business plans to push the right amount of capital to the right business at the right time.
"We don't give a lump sum, we give our sellers continuous capital - the money they need, when they need it, according to their plan," Shapira explained. "Our platform serves as a sort of CFO for their business. We optimize cash flow and help support the business when reality doesn't match what's in the plan."
8fig already has a track record of success. One of its clients achieved 500% revenue growth in over 10 months, while another achieved more than sevenfold revenue growth in one year after working with 8fig.
8fig could be the solution to ecommerce cash flow woes
It's hard to argue with the conclusion that cash flow management is a vital muscle for ecommerce business owners to flex. By helping them strengthen this capability, and going one step further and providing injections of working capital at the right time, 8fig helps ecommerce entrepreneurs to stabilize their supply chain, optimize cash flow, and make better decisions that grow their bottom line.
