Sales are Growing, but I’m Running Out of Cash


As a small business owner making a profit is important, but having cash on hand is critical. However, profitability is not the same as having a positive cash balance. Cash flow management is even more complicated as an eCommerce owner because gathering information from various sources can be a time consuming and error prone process. 

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Reasons You Might be Low on Cash:

Inventory: 

Deciding how much inventory to have on hand can be a tricky process. If you have too much inventory, then you can burn too much cash on buying/producing and storing that inventory. On the other hand, if you have too little inventory then you could run out of cash and lose potential sales. Once you do find the perfect balance of inventory to sales, keep it constant for most optimal results.

Accounts Receivable and Accounts Payable Gap:

Most of the times your accounts receivable date (the day you get paid) and your account payables date (the day you pay) are different. It might not seem like a big deal, but a significant gap between the day you have to pay your suppliers and the day your customers pay you means that your business most likely won’t have enough cash to pay your accounts payable, since your customers have not paid you yet. 

Growth:

In order to generate higher sales, most likely you are going to have to invest more in marketing. Also, an increase in sales means there must be an increase in operations/inventory to keep up with the increased demand. It takes money to purchase more inventory or to invest in more machinery. Your company’s business strategy can’t be independent from your company’s financial plan. In order to grow your business, you have to have a financial plan outlining how you are going to fund that growth.

Cash Outflow > Cash Inflow:

We all have heard the phrase, “It takes money to make money,” while this phrase has a lot of truth to it, it can also lead the rookie entrepreneur astray. In order for your company to make money, consider the cost-benefit of every expense because every dollar you spend is one less for your profit margin. Whenever you make a purchase find the breakeven point. Your company should also create and stick to a realistic budget as soon as possible.

Ways to Maintain a Positive Cash Balance:

Track Your Day-to-Day Cash Flow: 

While tracking your cash flow, some things to keep in mind are your: current liquidity ratio, account payables, accounts receivables, gross profit margin, cash flow margin, and debt service coverage ratio. This might seem like a daunting task, but Brightflow AI makes it easy with its easy to read cash flow analysis dashboard shown in real time.

Apply for Financing Before you Need It:

For many business owners, it’s hard to to predict when is the most optimal time to apply for financing. The best way to find this period is to develop a good forecast, and the easiest way for you to do this is to use Brightflow AI. Brightflow AI’s machine learning algorithms can tell you the periods that would be most beneficial for your business to acquire more financing.

Shorten Cash Cycle as Much as Possible:

If the time between your accounts payable and your receivable is vast, you should look into securing some more favorable payment terms with vendors. Also as a business owner, you should try to collect progress payments against your contracts when possible.

Brightflow AI

Growing a business is not an easy feat. What makes it even harder is when your company’s sales might be growing, but your cash flow isn’t. With Brightflow AI, you don’t have to worry about being blindsided by your financials at the end of the business cycle. Its machine learning algorithms easily forecast your sales and provide a dashboard with your cash flow analysis updated in real time.

Click here to get a free assessment with our team of financial professionals from Berkeley Haas, a globally distinguished business school