All You Need To Know About Ecommerce Cash Flow

Ecommerce Cash Flow

No matter what kind of business you own, whether it’s offline or online, cash flow is always a concern for your business.

It is important to learn how to manage your money effectively so that you can make the most informed decisions financially when it comes to investing in new products and services for your e-store.

E-Commerce CPA/Accounting

9 Most Crucial Ecommerce Tax deductions The IRS Doesn't Want You To Know

Use the SAME tax strategies companies like Amazon and Google use and take advantage today. (Even without accounting knowledge/degree)

A good way to get started is to read about some smart moves that can improve your ecommerce cash flow.

Given the rising costs of doing business, cash flow is more important than ever before. While it can seem like money comes and goes, there are ways to develop a sustainable model that allows you to focus less on working hard for sales and more on growing your store.

Ecommerce Cash Flow

What is cash flow for ecommerce?

Cash flow is the lifeblood of any ecommerce business. It’s an essential measure to determine if you have enough money coming in and going out, so it can be spent wisely on important things like payroll or inventory purchases.

The equation for evaluating ecommerce cash flow is as follows:

Cash flow = sales – (rent + payroll + inventory purchases + utilities) – marketing+ taxes-insurance-interest

Many small business owners that are starting up their own online stores do not realize the importance of managing their cash flow effectively.

This can lead to losing money unnecessarily or even facing bankruptcy if growth is too rapid and there’s not enough capital to sustain the business after expansion.

Consider it like personal finances. On payday, you get your check and pay your bills; but then your automobile breaks down and you need to pay for repairs.

But you don’t have any money right now. It doesn’t imply that you won’t be able to cover the expenses when you get your next check, but right now, because of delays, the bills are due and you’re short.

The same goes for ecommerce.


You can’t utilize your entire cash supply to acquire inventory if it’s all invested in a bank deposit. You’ve got money, but you don’t have enough cash on hand.

How Cash flow and Profitability differ

Cash flow is a lot more important than profitability because it determines how much cash your business has in the bank at any given time.

Profitability, on the other hand, refers to your net income after tax and expenses have been subtracted from revenue.

A profitable business may not be generating enough cash so it requires outside funding from an investor, which can be a dangerous move as it may put the future of your business in jeopardy.

Profitability is not as crucial as cash flow because nobody pays for net profits; they pay for items and services.

In fact, if you make huge profits but don’t have enough cash on hand to cover expenses, you will likely fail at some point.

Why it’s important to manage cash flow effectively?

Managing your cash flow will help you focus more on sales and less on worrying about how you’re going to cover costs.

When cash flow is out of balance, it takes away from the time that could be spent expanding the business or otherwise investing in future growth.

You can be both successful and cash-flow negative at times. When you make a significant equipment purchase or following payroll, this is often the case. It’s only a one-time picture.

The cash flow of VC-backed firms is rarely positive in the beginning, but this does not indicate their financial situation is dire. They may continue to operate for years with VC money, paying staff, materials, taxes, and other expenses without making a capital gain.

When they spend too much on items that don’t immediately produce more income – such as a new warehouse or a fleet of delivery trucks – they can get stuck with negative cash flow until business revenues increase to compensate for the new investments.

For further reading:

How to forecast your cash flow

A good cash flow requires a lot of forecasting. To avoid money flow difficulties, you must estimate when funds will arrive and when you must pay your costs.

Of course, projections may go wrong; but at the very least, you’ll have a better sense of how to handle your money and when and what you can afford.

It also aids in long-term financial planning by showing investors a solid financial position.

Here are some things to consider while predicting cash flow:


Look at monthly averages and seasonality to see if you’re over- or under-forecasting. Examine month-to-month variations and the seasonal trend.

Consider including days like BFCM, as well as campaigns that you intend to run. It’s essential to plan for growth, but be realistic: in order to gain new consumers.

Don’t forget about other sources of income or funds that can support you in case things do not go as planned. For example, if your business does not meet the revenue forecasted, are you backed up by investor funding?


Create a calendar of your planned payments and there’s usually no way to cancel them once they’ve been charged.

So make a list of all expenses and their due dates including:

  • Payroll.
  • Rent.
  • Google AdWords, Facebook Ads, any SaaS you use.
  • Your ecommerce platform fees, and so on.

At the very least, most of the expenses will be recurring, so they should be easy to predict.

If you depend on outside funding or loans – for example, you’ve taken a loan from an investor and need to pay them back next month – include that as well.  

The process of developing your cash flow plan is now underway. If it wasn’t apparent before, you’ll notice when you require money. You’ll be able to tell if you have a bad cash flow situation or not.

Benefits Of Managing Cash Flow

You may now start a program to protect the health of your e-Commerce business with more sustainable e-commerce revenue flow starting today. Cash flow management has several advantages.

Good cash flow enables you to have more control over your store and personal financial futures.

I’m sure you’ve heard stories about famous athletes who lost a lot of money after making a lot of money in their field and retiring.

Behind such instances, you’ll frequently find an athlete who was unaware of his or her cash flow or what it meant for the long term.

I’m also sure you do not want to be responsible for this happening with your business!

With the help of a good cash flow manager, you’ll have more money on hand to fund growth and save some for taxes.  

A healthy ecommerce cash flow position is the key to success for any business. This means that you can grow your company and pay employees on time, without overspending or dipping into other sources of income like receivables which would leave a sour taste in their mouth when it came down to them getting paid at all!

How to Boost Your Operating Cash Flow

The best technique to boost operational cash flow varies from business to business.

We at Free Cash Flow are glad to assist you in evaluating and identifying the finest path to enhance your ecommerce cash flow.

Not every approach is appropriate for everyone. Some procedures to consider include inventory planning on the basis of previous sales. This helps you avoid over-stocking or running out of stock, as well as the problem of having too much inventory and losing sales.

How does ecommerce businesses manage cash flow effectively?

  • It’s critical to keep adequate records.
  • In one accounting platform, integrate all of your payment processors.
  • Automate recurring payments from clients.
  • Keep track of your finances using software like Quickbooks.
  • Check to see whether your customers pay on time.
  • Prepare financial reports on a regular basis.
  • Organize your business expenses ahead of time.
  • Match expenses to the revenue pattern.
  • Forecast Your Cash Flow.
  • Clear out your Inventory.

Ecommerce Cash Flow Statements

Cash flow statements in accounting differ into two categories:

  • Direct Method: This technique compares the money brought in by sales with the money spent on expenses.
  • Indirect Method: This technique includes both an overall company impact and the financial impact of all operational activities (such as depreciation, accounts receivable, inventory, supplies, wages, taxes, etc.).

While the Direct Method is more straightforward to grasp, it may be more difficult to implement in certain situations since it depends on how complex your accounting systems are. As a result, we recommend using the Indirect Approach over the Direct Technique because:

  • This is the default structure used in QuickBooks.
  • It displays all of the components needed to assess your net income, which is another important data point in making good business judgments.

Why we use an ecommerce Cash flow Statements?

Your Cash Flow Statement is an important tool for ecommerce store owners to know when it’s time to purchase new goods.

You don’t want too much or too little stock, just the right amount. To save money and maximize revenue, you must strike a balance. Timing is also crucial.

For example, seeing the statement may help you decide when to purchase more inventory or not.

Why Ecommerce Startups Fail At Cash Flow

There’s a couple of reasons why startups fail at cash flow management:

Innovation is being stifled by CEOs and their teams

It’s typical for an eCommerce shop to start out as a solo project: someone experimenting with sales in their spare time discovers a fascinating niche or a hot product, and uses their first earnings to expand.

In the field of online sales, which is both complex and rich with promotional possibilities, business deals, and changing consumer demand, going alone doesn’t work.

When one person is in charge of everything, it soon becomes a business-wide jam, delaying innovation and missing out on new revenue streams.

ecommerce requires adaptability, whether it’s bringing in hot items (like fidget spinners) or adopting new marketing channels. Money is lost when progress stalls, and failure is imminent.

The ones that last for any length of time are the ones with modest goals, such as selling inexpensive goods in small niches or marketing specialized items at low costs.

You don’t fit into either of those categories if you want someone to handle everything from client service to product development — not to mention long-term store design, functionality.

They Don’t Plan for Emergencies

You won’t be able to sell your products if you run out of inventory, and you’ll certainly lose sales if your shipping takes too long.

It’s unwise to rely solely on stock purchases since it may take weeks or even months before the items arrive, depending on where the vendor is located and how fast they ship.

When you sell goods online, your customers have a wide selection of options to choose from – so if yours takes too long to arrive, they’ll go elsewhere.

Some sellers do understand cash flow well and spend time tracking it sensibly, yet they still fail because they don’t consider allowing safeguarding margins into their calculations. Even though things are going well now and have been for weeks or even months, they may go wrong tomorrow.

Unearned optimism in your figures might lead to a chain reaction that destroys your firm.

They Focus too Heavily on Being Profitable

Despite the fact that cash flow is such an essential aspect of business, one of the most prevalent reasons why ecommerce companies fail to manage it is because they don’t understand they need to.

They think profit is everything and nothing else matters when you start a company.

This isn’t correct, though. While being profitable is certainly an advantage, it’s conceivable to be successful while yet failing owing to a lack of liquidity.

This is frequently due to a failure to consider the time span between investing in something and receiving the benefit: if you need money in your account to cover daily expenses, emptying that account on a regular basis instead of letting it build up will have an influence on your cash flow.

Staying Liquid is Crucial to Your Ecommerce Business’ Continuation.

Overstocking is a common scenario. Your findings reveal that a product is selling well and earning you money, so you take all of your profits and fill your warehouse with products — but sales decrease slightly, forcing you to convert that investment into income before your next storage invoice arrives. Even with smart inventory management software, getting exactly the right quantity of goods.

How to Maintain a Healthy Finances

After you’ve defined what cash flow is and why so many ecommerce companies make mistakes, the next step is to figure out how to do it correctly.

It’s impossible to know which of your customers will purchase what you’re selling before they buy it. If you want your ecommerce store to grow, you must avoid taking any unnecessary risks. Here’s what you should do:

  • Make a list of everything you have to do: Forget about attempting to accomplish everything on your own.

It’s your duty to make effective use of the staff under your direction, so get everyone involved in different ways. One person might look for new goods, another collect social media comments, and another negotiate supply agreements.

  • Run special offers at the optimum times to increase sales: Timed sales and incentives are an essential part of the ecommerce strategy, allowing you to temporarily reverse your fortune.
  • Arrange your payments in chronological sequence as much as possible: When you have supplier costs spread out over several time frames, it might be difficult to keep track of them all.

Keeping track of your cash flow (if possible, try to arrange each obligation as far ahead as feasible without jeopardizing the relationship with your vendor.

  • Don’t go for quantity over quality: It’s important to focus on your bottom line, which means you should offer great product at an affordable price instead of catering towards customers who are willing to spend.
  • Make the most of all the resources at your advantage: There are also other useful resources, like Accounting tools, comprehensive guides, free business courses, helpful communities, and more.

Here’s a community that might assist you. Make the best of everything since doing otherwise is equivalent to passing up wealth.

  • Always consider the most severe case: Expect the best, but plan for the worst. ecommerce is consumer-driven, and consumer interest may shift in a moment’s notice.


Managing cash flow effectively is important for any business, but it’s especially crucial in the ecommerce world.

Even the most careful businessperson can unexpectedly find themselves out of money, without enough liquid assets to pay for expenses

How can you make sure your company has enough money in its coffers to meet upcoming expenses?

The answer lies with forecasting and managing operating cash flow. Forecasting will help you predict when your revenues are coming in so that you know when to expect certain expenditures like payroll or inventory purchases.

Operating cash flow is a measure of how much money actually comes into and goes out of your bank account each month after all other expenses have been paid, such as taxes and marketing costs.

Download our free E-book 9 Most Crucial eCOM Tax deductions The IRS Doesn’t Want You To Know

Share on twitter
Share on linkedin
Share on email

Free E-book for E-Commerce Entrepreneurs

9 Most Crucial eCOM Tax Deducations The IRS Doesn’t Want You to Know
Share on facebook
Share on twitter
Share on linkedin

Explore More

Boost Your E-Commerce Business Now

drop us a line and keep in touch

Take Less Than 60 Seconds To Share What You Love

Share on facebook
Share on twitter
Share on reddit
Share on linkedin

Let's have a call

Things Getting Confused? Book A Free Consultation Call With Alan Chen, CEO of Free Cash Flow