TSH 30: 10 Tips to improve your cash flow right now

The number one reason that ecommerce business owners run out of money is that they overspend on stock, and it’s the depth of ordering that is the repeat offender.

Stock is the biggest expenditure in terms of cash flow, followed by marketing, followed by staff. So it’s no surprise that when an ecommerce business encounters cash flow problems, it’s generally due to one, two or all three of those items.

It’s not likely to be the almond milk you’ve started ordering for the kitchen.

The answer usually isn't sales

Incorrectly the first port of call to profitability is usually sales. However unless your sales have suddenly dropped for an obvious reason, then you’re probably not able to correct anything - and correcting something that's fixable is much easier than forcing a result that isn’t there.

In other words, you need to know what to focus on and if you do you can usually fix it.

We all want more sales, but we can influence sales, not control them. We can’t control the amount our customers spend (I know this because how often have any of us been surprised, disappointed, stressed out sales results). What we can control is how much we spend.

Here’s the kicker. We just don’t want to.

We know where to focus - now we actually have to do it

So let’s focus on stock.

Without going into the full spiel, you should be ordering enough stock to last you 2-3 months, no more, depending on how quickly you can get it back in stock if you need to.

So if you’re ordering a style, say those great blue boardshorts, then you need to work out how many you can sell in 90 days and that’s your order.

Here’s a dangerous scenario:

Let’s say you’re turning over $1m per month with a margin of 70%, very roughly you should be ordering $300k worth of stock, at cost (there are other factors that determine this, like how much you currently have on hand - refresher on that here).

So you're making that $1m per month, and if you’re spending say $450k on stock instead of $300k, and you’re running your business operating expenses (opex) at 50% of your monthly sales, so $500k, then you’re already up to $950k cash spent that month. If you add a typical freight bill of 11% to your cost of sales, which would be $110k, then you would lose 60k in cash that month - despite the fact you could actually be profitable on paper! Add in any repayments on loans because you've been stuck on this hamster wheel for a while, then you're well and truly in some strife. But you can recover. 

Remember:

Profit on paper is one thing, but to generate a lot of cash in your business, you need to widen the gap between sales and outgoings as much as you can. Keep it simple.

Tips to keep cash flow positive

1. Order less stock than you know you can sell, not more.
2. Adjust your sales targets down. If you miss your sales target, it means you’ve likely also over spent on stock.
3. Keep your stock on hand at no more than 3 months worth of sales. 
4. If you keep finding that you’re low on cash, you're probably buying too much stock for your size. Buy less.
5. Spend your cogs on your stock. In other words, if your COGS are 30%, that’s how much you need to spend on stock to achieve your monthly sales goal.
6. Scale your spend down, if your inventory cover is over 3 months. Don’t stack stock on top of stack.
7. Spend as close to 30% of your monthly sales ex tax on running your business. If you’re at 50% or even close, you’re massively over spending.
8. Get out of a sales mentality and into a cash mentality. 
9. The answer to a cashflow problem is not to spend more money.
10. You’re in business. Business is about numbers. Get good at the numbers.

I’m looking for 5 business owners turning over at least $1m who want to work in my program and work to double their profits in 1-2 years or less. Reply to this email if that’s you - 5 spots only.

Until next week, 
Paul

If you want to work with me, here's how:

1. Startup or under $50k per month: Take my free Ecommerce Masterclass '90 Days to Ecommerce Success' here. 

2. Over $50k per month: Coaching waitlist, reply to this email for next spots (March 2024).

3. Ecom Nation - Digital marketing for your business - Recently named Australia's best digital agency.

4. Buy my book, Shopify for Dummies

5. Pre order my book, Selling Online for Dummies

6. Speaking/Media reply to this email.