Elaine Pofeldt is a journalist whose articles on entrepreneurship and careers have appeared in Fortune, Working Mother, Money and many other publications. She is a former senior editor at Fortune Small Business magazine and an entrepreneur herself, as co-founder of 200kfreelancer.com. Her book, “The Million-Dollar, One-Person Business,” was released in 2018. She writes “Your Business Credit,” a weekly column about small business and credit, for CreditCards.com.
How can I improve cash flow for my startup e-commerce site?
When you have a problem with cash flow, it means money is going out faster than it’s coming in. But there are some things you can do to turn the situation around right away:
Dear Your Business Credit,
Help! I just started a small e-commerce site earlier this year and am having some problems with cash flow. If I buy as much inventory as I really need, it ties up money I need to spend on other things in my business. What should I do? – Jason
That can be scary, but there are a few things you can do to turn the situation around right away.
To generate revenue more quickly, running a sale of your merchandise – a tried-and-true approach in retail – can be a smart short-term solution. If you have merchandise that isn’t moving quickly, try offering a small discount to clear your inventory so you can invest in items that will sell faster. This will cut into your profits, so you’ll have to do the math to figure out how much you need to discount to move the merchandise without losing money.
Raising your visibility can help, too. If you are selling consumer products, amping up your presence on a visually oriented site like Instagram or Facebook can keep your brand top-of-mind and inspire more people to buy. You don’t have to be overly sales-y to pull this off. For instance, if you sell coffee mugs, you could invite followers to submit photos of themselves drinking coffee in their favorite mug from your collection.
Tip: Funding your startup business with a credit card can help you manage cash flow. However, if your business fails, you’ll be personally responsible for any remaining debt on the card.
Equally important is to slow down your outflow of cash. Given that your inventory purchases are tying up a lot of your money, you may want to look at drop shipping. With drop shipping, you don’t have to keep inventory in stock. You can order inventory from a wholesaler once you’ve made the sale. The drop shipper also packs and ships your orders. There’s a cost to using drop shipping, but it will allow you to stretch your cash flow and free up more time to focus on growing your e-commerce business. Asking around among other e-commerce merchants in your industry can be a good way to find a reliable drop shipper.
If you don’t want to use a drop shipper, credit card financing can allow you to stretch your cash on hand. Assuming you pay the balance in full, you’ll have a month to come up with the money to pay the bill.
And if you have good or excellent credit, you may be able to qualify for a credit card with a long introductory 0 percent APR. That can give you some breathing room if you need to hold off on paying the credit card bill or spread your payments over several months. Just be sure to pay the balance in full before the 0 percent introductory period ends, or you’ll be charged interest on your unpaid balance.
Also, keep an eye on other costs in your business. Costs like online software that you pay for monthly can add up, and it’s easy to forget you’re paying for services you don’t frequently use. Take stock each quarter to make sure it’s still worthwhile to use these services. The better your grip on cash flow, the stronger your business will be.