It’s a risky idea in an eCommerce business to neglect cash flow management. If you own an eCommerce business, you must know firsthand how important it is to manage your cash flow effectively. This can be especially challenging if you run a seasonal business with sales spikes at certain times of the year and slower periods in between.
According to Michael Nemeroff, CEO and Co-founder of Rush Order Tees, "At the top of every eCommerce business's priority is generating and maintaining a positive cash flow. That is because being able to effectively manage cash flow is crucial to the long-term survival of any business."
In fact, according to one study, the reason why 82% of businesses fail is due to poorly understanding cash flow management and a lack of the needed skills. That shows how important effective cash flow management is to the success of a business.
When you run a seasonal eCommerce business, you'll have to deal with the challenges caused by fluctuating cash flow. You’ve likely experienced:
- Inconsistent cash flow in your business.
- Large swings in business revenue.
- Slow and sometimes nonexistent business during certain months.
Many eCommerce businesses encounter a certain degree of seasonality. If you've been wondering how to survive those slow months as a seasonal business owner, you’re not alone.
In this article, we'll explore the best techniques you can use to manage your cash flow when your eCommerce business is seasonal. It doesn't matter if you're just starting out or you've been in business for a while. These strategies will help you stay financially stable, one step ahead of your competition, and take your eCommerce business to the next level.
The most effective strategies for managing your cash flow when your eCommerce business is seasonal
There are many strategies that eCommerce business owners can implement to withstand the effects of the occasional seasonal downturns and maintain an overall positive cash flow. These strategies have proven effective. The best part is that they work for all types of seasonal eCommerce businesses.
If you experience significant variation in sales and revenue across the year, chances are that you run a seasonal business. The strategies discussed below will be of great benefit to you.
1. Maximize your peak season and make forecasts through the slow season
You'll have busy and slow seasons when you run a seasonal eCommerce business. While you'll make much revenue during your busy season, it’ll be difficult to say the same during the slow months. It’d be best to prepare for the slow season because you’ll still have several operating costs regardless of the season. Correspondingly, you need to make accurate forecasts of these costs to have enough cash to cover them.
According to Jerry Han, CMO of PrizeRebel, "One way to handle the operating costs during the low season is to go all in during the peak season and make enough extra money that will be sufficient to cover the necessary costs when business is slow."
Another viable option to get through the low season is reducing operating costs. The first step is to consider all aspects of your business and related costs, assess which costs can be diminished, and develop a strategy for going about it.
2. Encourage quicker payments
Delays in payments from clients can have a crippling effect on the cash flow of businesses. About 70% of businesses report being impacted by the negative effect of late payments, and over 40% worry about their cash flow as a result. The impact of late payments on a seasonal business can be devastating.
Late payments may not be of much concern when business is booming during the peak season, but they can quickly become a problem during a slow period. After all, you'll still have some expenses to cover even when not much cash is coming in.
It's best to avoid late payments as much as possible to avoid being in a position where you need more money to pay staff and settle bills and other outstanding debts. The solution is to quickly get all your due payments from clients by using the techniques below:
- Send invoices to clients as soon as their work is completed: As an eCommerce business owner, it’s best to send your invoices to clients promptly. If your customer doesn't receive an invoice as soon as they receive your product or service, they may feel that you aren't too concerned about payment. That's not the impression you want to give them, right? Always send an invoice as soon as the product or service is delivered.
- Show courtesy in your invoice: If you want to get paid on time, you might need to add polite phrases to your invoice terms. Even with a bill, customers still appreciate a friendly tone. Including words like “Please” and “Thank you” can increase your chances of getting paid by 10%.
- Reward clients that pay early with a discount: A great way to encourage timely payments is to offer a discount to clients who pay within a specified period. It's a strategy that has proven effective time and time again.
- Don't forget to send late payment reminders: No matter how hard you try, it's difficult to avoid late payments. When they happen, you can't ignore them. Not every late payment by a client is intentional. Sometimes life gets in the way, and clients forget about their pending invoices. A simple follow-up email may be all you need to prompt them to make a payment. It's best to send your clients a friendly follow-up email on late payments as soon as the due date passes.
3. Look for opportunities to diversify your offerings
If you run a seasonal business that doesn't close during the off-season, a great way to boost your income is to offer extra services beyond your core offering. You should consider what your customers need during the off-season and ensure that it aligns with your brand. If so, you should offer it to your customers.
For example, a business that sells beachwear and summer items could diversify by adding a complementary product line, such as cold-weather clothing or winter sports gear. Similarly, a business specializing in Halloween costumes and decorations could diversify by selling party supplies and decorations for holidays like Christmas, Valentine’s Day, or Easter.
4. Take advantage of a business line of credit
Despite trying your best to maintain an accurate and detailed cash flow forecast, there may come a time when you need to make a large purchase or cover an unexpected expense. If this happens during the slow season, it’s possible that there isn't enough revenue from your business to cover it. Thankfully, there’s an eCommerce financing solution to come to the rescue: a business line of credit.
Managing cash flow in a seasonal eCommerce business can be challenging. While there will be months where your revenue will be off the charts, there will also be months where income will dwindle and sometimes become non-existent. Thankfully, with the implementation of the strategies discussed above, you’ll be able to manage your cash flow effectively and watch your business thrive all year round.
Published April 18, 2023