Managing an eCommerce business is complex, with owners juggling various aspects such as product quality, customer relations, and finances. It’s not surprising that many entrepreneurs find it hard to handle the money side of things. Cash flow issues are often responsible for the closure of 82% of small businesses – making it a critical element for companies of all sizes.
This article will discuss eight vital money management strategies to help you enhance your financial situation by increasing your available funds, creating a proper budget, and ensuring that you invest your money wisely for future growth.
Why is working capital so crucial for the success of a business?
What is working capital?
Working capital is the money a company has access to at any given moment, and it is necessary to manage these funds prudently so the enterprise can remain successful.
Many businesses can find themselves running low on funds without even knowing it due to mistakes in budgeting, such as allocating too much money toward purchasing inventory. This can make them unable to pay their bills and lag behind other competitors. Fortunately, many of these companies could have been more successful by managing their money better and ensuring they had enough funds to expand their business and meet other expenses.
Here are eight essential tips for managing your finances to help improve your financial situation
- Account for recurring annual costs
- Allocate enough for marketing
- Take seasonal trends into consideration
- Use proper inventory management strategies
- Choose the right eCommerce platforms
- Leave room for returns
- Be aware of funding options
- Reduce shipping costs
01. Account for recurring annual costs
Many new businesses make the mistake of not setting up proper budgets, only accounting for their monthly expenses. When annual costs arise, which can be significant, they often find themselves in financial straits as they had no plan for them. For example, when there is $1,000 left after covering the monthly expenses, and that gets spent on other things, an unexpected annual fee of $1,200 for a keyword research tool can put the business in a difficult situation.
Examine your company’s annual, semi-annual and quarterly bills. This can comprise taxes, licensing fees, and yearly subscription costs. Make sure to factor these into your budget beforehand so they will be remembered.
Accounting and expense tracking software can help here, allowing you to store recurring annual expenses, so they don’t surprise you. There are plenty of tools that can do this, with Freshbooks and Quickbooks being two excellent options.
Maintaining a clear distinction between your personal and business finances (e.g., bank accounts and credit cards) is essential. Doing so will assist in tracking cash flow, assessing your business’s well-being, and safeguarding your personal belongings.
02. Allocate enough for marketing
If you are working with a limited budget, it can be easy to overlook the importance of investing in marketing. However, this is a mistake to avoid; allocating an adequate amount of funding for eCommerce marketing is essential for successful money management. You don’t have to spend extravagantly on campaigns or try out new platforms without testing them first, but you need a sound marketing strategy for your business.
Remember, you can expect your business to grow if you try to acquire new customers. Over time, the churn rate of your customers could be as high as 5-7%, but this can vary depending on your industry. To ensure success and growth, you must regularly generate new leads and sales while building relationships with past customers. Doing so will help you keep and exceed your customer base in the long term.
Marketing is essential for building relationships with existing and potential customers. The recommended spending on marketing should be around 5% of your business’s monthly budget. Depending on the extent of any new product launch or PPC campaigns, this percentage can be increased up to 10%.
If you have a limited budget for marketing, there are still plenty of options, such as blogging, email marketing, and social media marketing. These are usually low-cost or free to use.
03. Take seasonal trends into consideration
If you want to succeed in eCommerce, you need to accept that there will be periods of highs and lows. For instance, your online store might be doing very well in March as shoppers are getting ready for beach vacations. However, this success may not last through the year; November is usually when people look for winter accessories such as scarves and boots. Preparing for these seasonal changes is essential to manage your money well.
It would be best if you had reasonable expectations while running a business and saved money from your successful months to cover any slow periods. Additionally, it is essential to be ready for economic fluctuations; having sufficient working capital and reducing debt can help you through these challenging times. Even if your business dips for a few months, you will still be able to survive.
It can be beneficial to employ business and financial forecasting to anticipate seasonal fluctuations. Using Shopiroller’s analytics tool, you can review sales reports from the previous year to identify trends across different periods. Location-based traffic can give insight into what is being purchased and when in various regions.
The “Customers Over Time” report will give you an idea of how many customers are buying from your store daily or monthly, as well as the number of customers gained during a specific period. This is important to check any seasonal trends to prepare for increased business adequately. Additionally, pay attention to industry standards and see if there are any noticeable highs and lows. For example, eCommerce businesses specializing in candles generally experience a surge from November to January and May (for Mother’s Day).
04. Use proper inventory management strategies
Inventory management is integral to maintaining sound financial practices, even though the two may seem separate. Without proper inventory control and forecasting techniques, you could easily find yourself over an expensive product with low demand or be constantly out of stock on popular items.
This assists in managing capital in an informed manner. Good inventory management will help you figure out the right amount and quantity of inventory on hand and prevent any losses due to theft, damage, or misplacement. This helps improve sales and enhances profitability.
If you have built your online store using Shopiroller, you can stay on top of your inventory and manage orders via the store’s dashboard. This includes tracking product variants and sales made across multiple channels. As soon as a product sells out, the listing will be updated to indicate that it is “Out of stock.”
In addition, you can also integrate Multi orders with your store so that all of your inventory is managed from one platform. Other helpful tools to aid with inventory management and forecasting include:
- Shortly
- Odoo
- Zoho Inventory
05. Choose the right eCommerce platforms
Choosing the right eCommerce platform is essential to avoid financial losses. Each forum has its costs associated with it, such as monthly fees, commission fees, listing fees, and transaction fees. It’s wise to research and select a platform that suits your needs and offers competitive rates; for example, opting for a platform offering 2.9% credit card fees instead of one charging 4%. Doing so can help to ensure you keep more money in your pocket.
When selling products online, it is essential to consider the associated costs of using third-party marketplaces such as Amazon and Etsy. While these platforms may be great for reaching a wider audience, they can reduce your profits significantly if not factored into your expenses. It is usually best to have your website with an eCommerce platform that provides complete control over the user experience and lower fees. Shopiroller is an excellent example of a platform with extensive eCommerce features, including multi-channel selling, currency converters, automated sales tax calculators, and more. Consider all your options before deciding to ensure the best outcome for your business profit margins.
06. Leave room for returns
You will still have returns no matter how perfect and customer-friendly your product is. It’s impossible always to please everyone, so it’s essential to be prepared for returns in your budget. This is especially true regarding fragile or personalized products like food, socks, etc., as around 10 – 40% of these items are expected to be returned. Make sure you allow for return shipping costs and any restocking or repackaging fees in your budget.
07. Be aware of funding options
It’s common to need some assistance with funding, especially when purchasing inventory and dealing with unexpected costs. We often reach a financial standstill where to become profitable, we must expand our business, but this requires additional funds for marketing. Therefore, it’s wise to use debt or other funding sources as a tool when necessary. To be a successful money manager, it’s essential to know what funding options are available.
Business lines of credit are revolving, meaning you can access the funds for a set period and only pay interest on the balance you owe. This type of funding can provide financing to help your business expand and develop and can be paid back when profits become more manageable.
You may also opt for a one-time injection of funds through small business loans to be repaid over a set period. You can apply for financing from online lenders, local banks, and credit unions.
08. Reduce shipping costs
This is a critical money management tip: spending too much on eCommerce shipping can be wasteful. Therefore, selecting an eCommerce platform that provides access to cost-effective shipping options is wise. For example, Shopiroller offers multiple partner apps to help entrepreneurs find the best deals. Services like Shippo, ShipBob, and Shipstation offer easy integrations to help manage to ship and keep costs low.
It is essential to ensure that the shipping charges are adequate. Take into account the weight of an item and necessary packaging, the customer’s address, and the cost of expedited shipping, if available.
QUESTIONS AND ANSWERS
Q: What are some benefits of using eCommerce platforms?
A: eCommerce platforms provide complete control over the user experience and lower fees, as well as features such as multi-channel selling, currency converters, automated sales tax calculators, and more.
Q: What funding options should I consider for my online business?
A: Business lines of credit provide revolving funding, while small business loans offer a one-time injection of funds. You can also apply for financing from online lenders, local banks, and credit unions.
Q: How can I reduce shipping costs for my eCommerce store?
A: Select an eCommerce platform that provides access to cost-effective shipping options. Services like Shippo, ShipBob, and Shipstation offer easy integrations to help manage to ship and keep costs low. Also, factor in the item’s weight, customer address, and the cost of expedited shipping when calculating shipping charges.
Q: What other advice is there for money management in eCommerce?
A: When budgeting, account for return shipping costs and restocking or repackaging fees. It would help if you also considered funding options such as business lines of credit and small business loans when necessary. Finally, research cost-effective shipping options to reduce expenses. Shopiroller offers multiple partner apps to help entrepreneurs find the best deals for their eCommerce stores.
Q: Where can I find more information on running an online store?
A: Shopiroller offers eCommerce courses that can provide extra help with running your online business. These courses cover inventory management, shipping and fulfillment, marketing strategies, customer service, and more.
CONCLUSION
Managing money doesn’t have to be a tedious task. Having the necessary resources and implementing some fundamental money management techniques can make sustaining your business much more manageable. To learn more about running an online store, look into Shopiroller’s eCommerce courses for extra help.
