The environment in which e-commerce businesses operate is consistently changing, making e-commerce uniquely challenging for business owners. It’s easy to be left behind by competitors who are in a better position to deal with the uncertainties of the sector.

There’s one thing that is certain in the world of e-commerce, though, and that’s cash is king. Good cash availability provides the fuel that propels a business forward, allows it to meet revenue and profit targets and reach its full potential when the time comes to exit.

E-commerce success relies on smoothing out the sometimes severe variations in demand – not just seasonally, but for the days and weeks that are now an established part of the online trading calendar.

Planning your cash needs well in advance is crucial to providing the best customer service, delivering goods as promised, and extracting the maximum profits possible from these much-anticipated shopping days.

Cash flow forecasting uses known information from the past to help control the present whilst also providing vital insights that guide future strategy. It can help you in so many ways, from seeing what drives your cash flow and where you can make improvements, to encouraging investors and reducing lender risk.

Good stock control is another key feature of running a successful e-commerce business, which means making sure sufficient cash is available to purchase stock at the right times. The intricacies of e-commerce clearly make cash forecasting a necessity.

Including all your projected income and expenditure over a specified timeframe allows you to see where cash shortfalls will occur and seek additional funding where necessary. Cash forecasting is also fluid, so you can amend the figures if they become more certain with time.

Using the right technology, you can incorporate all business elements that affect your cash position and get a full picture of how cash flows in and out of your company. The information you’ll need includes but isn’t limited to sales and other expected income, as well as operational expenses, taxes and loan repayments.

Once your cash flow forecasting is more established you can test out different scenarios, such as what would happen if sales rose or fell significantly, you lost a key customer, or operational expenses increased.

As well as highlighting when you might need more funding, accurate cash flow forecasting supports your applications for borrowing by showing the lender how the business can afford to repay.

Cash forecasting smooths out the ups and downs in demand that are experienced in e-commerce businesses and helps you manage your inventory so you’re not over-purchasing or running out of stock at a vital time.

Noel Guilford

PS If you include e-commerce in your business model, or are thinking of doing so, and would like a copy of my recent e-book ‘Clicks to Customers – a  guide for small business owners to building a thriving e-commerce business’ you can purchase a  copy by clicking here.