7 Proven Financial Strategies to Scale Your E Commerce Business Sustainably

• March 06, 2024

Setting up e commerce businesses feels like a nonstop race. You’ve learnt making sales and built a stable revenue stream, and things are looking up. But as you eye the next big milestone, scaling to 8 figures, you will soon face new challenges. Growth isn’t just about selling more but rather preparing your business to manage more with scalable e commerce business ideas.

Is your team armed to handle a flow of orders?

Can your systems handle increased demand without breaking down?

And most significantly, are your finances ready to reinforce this growth sustainably?

Without the appropriate financial policies, expanding can feel like building a skyscraper on a shaky foundation.

This blog plunges deep into the financial strategies you want to grow your e commerce businesses strategically. Whether you’re aiming to maximize profit or planning for a future exit, we will assist you shift your focus from chasing revenue to building a profitable, scalable, and robust business.

Let’s get started!

1. Profit is Your No. 1 Goal

While every business desires to make a profit, only a small fraction make it to a degree of success. So many companies are connected to their top-line figure (revenue) and obsessed with expanding that without considering what is the most significant number – which is their revenue also known as the bottom line. Revenue growth without profit is a business predestined to crash.

Profit is the amount investors and creditors pay attention to and is the correct degree of success. Business objectives and verdicts should be concentrated on gauging profit levels and approaches to grow profit. Your growth tactic must, always comprise goals that intensify incomes and reduce prices. The profit made by such approaches should then be used to invest back into your business.

Read More Here: Breakdown of E-commerce Platforms

2. Reduce Cost of Goods Sold

The next most important number to think about as e commerce businesses is the cost of goods sold – COGS. What is comprised in your COGS are the finished products, raw materials, and the work that is needed to make the products if you are creating them yourself as well as the shipping costs.

If you have decent surpluses on your COGS, you have scope to manage the business lucratively, however, if your margins are thin, your overall financial margin to run the business will be strict and your procedures will finally be unfeasible to operate. It is essential to present a check on your company to evaluate what your COGS percentage is.

Then figure out several methods to lessen that percentage i.e. talk with recent dealers, buy in bulk and greater amounts to get concessions, and maybe find a more economical seller that doesn’t negotiate on quality.

3. Manage Your Cash Flow

The most important fraction of handling cash flow for your e commerce businesses is to avoid big cash deficiencies between cash inflows and outflows. Without appropriate management of your cash flow, there will be more possibilities your company will not endure. For handling cash flow, estimating is a significant move.

Suppose thinking you are creating a lot of sales and supposing the company is good only to obtain at the end of the year you are sternly in the red. You might have to borrow money or make radical alterations just to maintain your business operative. Contrarywise, envision not purchasing enough of a product only to understand that it’s flying off the shelves triggering you to miss out on sales opportunities.

On the other side, you wouldn’t want to purchase too much stock based on weak data and be unable to get clear of it causing money wastage. If you have not made a cash flow projection, we recommend taking guidance from your auditor.

4. Ensure Accurate Inventory Levels

The next thing that lots of e commerce businesses strive for is handling their inventory. Errors in inventory evaluation will carry forward from one accounting episode to the following and will influence your balance sheet, profit & loss, and cash flow forecasting. This means company assets and the price of sales might be considerably erroneous.

An inspection of your stock constantly is important to make sure the count you have in your accounting system corresponds to the actual inventory levels you have on hand. Bookkeeper accounting software such as Xero accounting and QuickBooks, can also help accurately track your inventory levels regularly. Managing your inventory will assist you with your cash flow prediction and aid you control when you want to place another order as well as ensure that you can cater to the demand for the next months.

Learn More About Xero Accounting – Here

5. Have a Good Business Financial Plan

A budget for your e commerce businesses is a comprehensive strategy of how you will employ your business’s funds over a particular period-monthly and yearly.

Budgeting will aid you in taking control of your business expenditures and assist estimate your anticipated income. When done right, an e-commerce business budget plan can help grow your business exponentially. Below are the steps to generate an e-commerce business financial plan:

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

An effective budget must be rationalized and gauged consistently over time so that it stays appropriate and precise.

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 or outsourcing bookkeeping solutions.

• 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 outsourcing bookkeeping services and other services, rather than hiring internally.

7. Review your Financial Reporting

Setting aside time to review financial reporting and outsourced bookkeeping solutions 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 profit and loss statements, 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 of 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 very useful in helping your e commerce businesses become more profitable.

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Scaling any e commerce businesses 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 unprofessional Accountants!

Hiring an expert bookkeeper in your industry gives you peace of mind and keeps your books clean as well as 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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