Mastering cash flow is key to unlocking growth for your Amazon business
What is cash flow management?
In simple terms, it’s the process of tracking, understanding and optimizing the amount of money that moves in and out of your business over time.
You have positive cash flow when more money comes in than out, and negative cash flow if you have more outflows than inflows.
Improve your Amazon business cash flow through better planning
Mastering cash flow management is a huge advantage as an Amazon seller. You can plan your growth, predict any shortfalls, and reduce overall business stress.
Having spoken to thousands of eCommerce founders, we recognize that keeping on top of your cash flow can be a tedious task. And let’s be honest, you probably don’t want to spend thousands on forecasting software that you need an MBA to navigate.
That’s why we’ve built a free cash flow management template for Amazon sellers like you.
Get a download link now, straight to your inbox.
Want to learn more about cash flow? Read on to find out:
- How to get the most out of our cash flow template for Amazon sellers
- Why cash flow is important for your Amazon business
- 5 expert tips for cash management for Amazon sellers
How to get the most from our Amazon cash flow template
5 steps to plan your growth
1. Set your timeframe
To plan and analyse your cash flow, you should be noting how much free cash (FCFF) is available at the start and end of a specific period. This can be a week or a month. The default for this template is a 12 month statement. In the Excel or Google Sheets spreadsheet, enter the start month and the amount of opening cash you have on hand at that time.
2. Note any expected cash injections
(e.g., from debt, equity raises or personal savings)
If you are expecting any cash injections throughout the year, you should note them down in the template. The most common forms are cash raised in exchange for equity, debt taken on from traditional banks or personal savings you are investing in the business. Plan ahead and estimate which months you expect to receive this cash inflow.
3. Forecast your revenues
Start by taking a look at your sales data for the last year or two of operations. This will give you an insight into sales patterns you need to identify sales trends that will help predict demand, like when sales could begin to pick up and which products are most popular. Use past data to guide your projections, but make sure to account for your growth ambitions too. You can split projected revenue into online sales (for example, via your Shopify, WooCommerce or other DTC store) and wholesale.
All DTC businesses experience some level of demand fluctuations. Fluctuations can be drastic, especially for seasonal businesses. Amazon sellers in particular need to be ready for Amazon Prime Day, Black Friday and Cyber Monday, so try to reflect this in your sales forecasts.
4. Estimate your cash outflows
After forecasting revenues, you’ll have a good idea of what sales demand will be and which products you need to meet that demand. Then you can begin assessing the cash outflows to understand what capital your Amazon business needs to capitalise on this demand.
This is important, because an Amazon seller’s ability to pay for product defines order size. If a business doesn't have access to financing, it might not be able to afford enough product to meet forecasted demand. This is particularly true for growing brands, whose future sales will outpace current operations, which means they won't have enough profit to buy product, and they will miss out on sales opportunities.
You should estimate and create a budget for the expenses you’ll need to pay to meet demand. Some of these will vary depending on seasonal fluctuations, such as inventory and marketing spend. Others remain relatively constant, even in the low season, such as rent, wages, and software subscriptions.
For inventory planning, it is important to understand lead times and payment terms. Lead time is the period of time between when you first place an order with a supplier and when you receive the shipment. In simple terms, it’s how long it takes a supplier to fulfil your order – and it has a big impact on your business.
Lead time dictates when you will need to place an order to prepare for seasonal demand and when you’ll need the funds to pay. It can vary greatly depending on the business and the industry it operates in.
For example, an Amazon seller that specialises in home and garden supplies will need outdoor patio furniture in stock when customers begin shopping for those items in the spring. Manufacturing this type of furniture takes months, translating to six-to-eight month lead time. This means the business would need to place the order in August to have products in stock by February, when it will begin receiving its first orders. The brand should also be prepared to pay a deposit when it places the order, which it won’t recoup until it sells the products months later.
While retailers selling garden furniture have months-long lead times, holiday chocolate sellers may only need to wait a few weeks for a supplier to fill their order. Consider when your demand fluctuations are, and estimate the cash outflows that are needed in advance to meet this demand. After forecasting revenues, you’ll have a good idea of what sales demand will be and which products you need to meet that demand. Then you can begin assessing the cash outflows to understand what capital your business needs to capitalise on this demand.
5. Analyse your projected cash position
When are the most capital intensive periods? Will I have enough cash on hand to fund my growth? Are there any periods when external financing could help my business?
After completing the Excel template and getting a clearer picture of your projected cash flow for the year ahead, now you need to make important decisions to unblock any cash constraints, improve your cash flow management and maximise the chances of success for your business
NOTE: This is intended to be a living document. You can run a scenario analysis to see how different forecasts will impact your business. It can be difficult to make accurate cash flow projections months in advance, but you should keep updating your estimates throughout the year as more information becomes available.
BONUS: Assess whether revenue financing would be good for your business
You should always maintain a cash buffer for the business to operate. When small business owners face a financial obstacle, 62% of them dip into their own personal funds to help them overcome it. But risking personal assets for a business venture is rarely the best option. That leaves one alternative: funding.
Outside financing is often a sound option to help build up a cash buffer. Deciding what type of funding is the best for your business is a big decision. One option that many DTC eCommerce businesses may consider is equity financing, which sees a business sell stock in the business to get capital. Another option is a traditional business loan, but for businesses with fewer assets to borrow against, traditional bank loans may not be an option.
Increasingly, however, eCommerce is turning to revenue-based funding, a type of financing that gives businesses access to working capital without giving up equity. This type of financing strategy raises non-dilutive capital by partnering with a financier like Wayflyer, which receives remittances as a percentage of sales and gives credit based on predictions for future sales.
You can use this cash flow planning template to see if Wayflyer can help unblock cash constraints for your Amazon business
Navigate to the bonus tab in the template and complete the highlighted section. You can enter how much funding you need and at what time period - for example, heading into Amazon Prime Day. Enter various scenarios and assess how your cash position changes with Wayflyer’s funding, compared to your existing cash flow situation. As a next step, complete the form below and our experts will get in touch about the options available to you.