So you’re in business and are making money – or at least making revenue. Are you ready for the next challenge: Scale your business to 8 figures? While you may be making sales like crazy, you’ll soon have another problem. To scale to the next level is about capacity and capability. Is your business ready for growth? Will your business infrastructure, team, and systems be able to accommodate the growth? Growth is only a good thing if it doesn’t risk your business’s foundation from breaking down. In this guide, we’re sharing the financial strategies that are going to help you level up your e-commerce finance game and shift the focus from revenue to profit. Why profit? Whether you decide to keep your business for the years to come or want to sell one day – profit is the most critical number. This guide will help provide a clear strategic vision and plan to support your growth to 8 figures.

1. Profit is Your No. 1 Goal

While every business hopes in the end to make a profit, only a small percentage make it a measure of success. So many businesses are attached to their top-line number (revenue) and obsessed with growing that without really considering what is the most important number – which is their profit also known as the bottom line. Growth in revenue without profit is a business destined to fail.

Profit is the number investors and creditors pay attention to and is the true measure of success. Business goals and decisions should be focused on measuring profit levels and strategies to grow profit. Your growth strategy should, therefore, always include goals that increase revenues and decrease costs. The profit created by these strategies should then be used to reinvest back into your business.

2. Reduce Cost of Goods Sold

The next most important number to think about as an e-commerce business owner is the cost of goods sold – COGS. COGS will make or break an e-commerce business. COGS is the cost of the products that you are selling. What’s included in your COGS are the raw materials, finished goods, and the labor that is required to create the products if you are manufacturing yourself as well as the shipping costs. If you have good margins on your COGS, you have some room to operate the business profitably, however, if your margins are thin, your overall financial margin to run the business will be tight as well and your operations will ultimately be impossible to run. It’s critical to perform an audit on your business to assess what your COGS percentage is. Then figure out some ways to lower that percentage – i.e. negotiate with current suppliers, buy in bulk and larger quantities to get discounts, and possibly find a more cost-effective supplier that doesn’t compromise on quality.

3. Manage Your Cash Flow

The most important part of managing cash flow for your e-commerce business is to prevent extensive cash shortages between cash inflows and outflows. Without proper management of your cash flow, there will be more chances your business will not survive. For managing cash flow, forecasting is a critical step. Imagine thinking you are generating a lot of sales and assuming the business is good only to find out at the end of the year you are severely in the red. You may have to borrow money or make drastic changes just to keep your business operational. Conversely, imagine not buying enough of a product only to learn that it’s flying off the shelves causing you to lose out on sales opportunities. On the flip side, you wouldn’t want to buy too much inventory based on poor data and not be able to get rid of it resulting in money wasted. If you have never created a cash flow forecast or projection, we recommend getting advice from your accountant. Or better yet schedule a call with us.

4. Ensure Accurate Inventory Levels

Another thing that many e-commerce businesses struggle with is managing their inventory. Mistakes in inventory valuation will carry forward from one accounting period to the next and will affect your profit & loss, balance sheet, and cash flow forecasting. This means business assets and the cost of sales could be significantly inaccurate.

A physical check of your inventory consistently is critical to make sure the count you have in your accounting system matches the true inventory levels you have on hand. Accounting software and systems, like Xero and QuickBooks, can also help accurately track your inventory levels regularly. Understanding and managing your inventory levels will help you with your cash flow forecasting and help you determine when you need to place another order as well as ensure that you can meet the demand for the following months.

5. Have a Proper Budget Plan Examine

A budget for your business is a detailed plan of how you will spend your business’s funds over a certain period-monthly and yearly.

Budgeting will help you control your business expenses and help forecast your expected revenue. When done right, an e-commerce business budget plan can help grow your business exponentially. Here are the steps to create an e-commerce business budget:

• Examine Your Total Revenue
• Calculate & Deduct Your Fixed
• Costs Calculate Your Variable Costs
• Calculate your Profit/loss
• Create a  Fund for Unexpected Costs

A good budget should be updated and evaluated regularly over time so that it stays relevant and accurate.

6. Find Staff or Strategically Outsource

Last but not least, are the personnel and staff needed for the operation of your business. While you can leverage modern technology, at the end of the day, you still need people to operate effectively. Here are some questions when it comes to finding staff.

• Do you have enough people for your customer service?
• Do you know how many customers one service representative can be expected to handle?
• Do you know how many personnel are needed for your manufacturing, inventory, and delivery of products?
• How many are typically needed per customer?
• How will you find qualified staff quickly?

Processes for recruiting and hiring are important, as well as the benefits and payroll for your personnel.
And, don’t forget about management. The importance of having management will be greater as your business grows. You certainly won’t be able to oversee everyone and everything.

Sometimes the answer is to outsource, rather than to hire internally.

7. BONUS: Review your financial reporting

Setting aside time to review your reports and bookkeeping is critical. This should be done at least once a month or even weekly. Here are three financial reports that you should review regularly with your Accountant.

Profit and loss statements
Balance sheet
Cash flow forecast

Reviewing your P&L statement, for example, can help you answer critical questions for your business such as operational questions:

Is the money spent on advertising generating enough return?
In what areas in my business do I need to save on costs?
How much do I need to pay myself?
Who and when do I need to hire?
When do I need to buy more inventory?

Being able to receive these key insights at a glance is extremely useful in helping your e-commerce business become more profitable.

Partner With Us

Scaling any business requires that you make tough decisions. Whether an e-commerce business generates $500K or $5 Million a year, the reality is that most of them have little to no support in the financial side of their business, which puts them at high risk of losing money or even worse, failing.

We’ve seen e-commerce business owners pay between 5K-70K extra in taxes and fees because of having the wrong Accountants! Hiring an expert in your industry not only gives you peace of mind and keeps your books clean but also gives you key strategies that help you take your business to the next level. With the services we have provided to our clients, they have been able to experience peace of mind for the first time in a while, knowing their business is being handled with excellence.

 

 

 

 

 

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