Many people go into eCommerce with the dream of making it big. They have an idea, start small, and pour their blood and sweat into it. However, there’s one essential element that many entrepreneurs overlook: finances.
Mishandling your business finances from the start can put you on the fast track to failure. And ignoring your financial situation will only worsen it, but it’s never too late to turn things around.
In this blog post, we’ll discuss some of the reasons why you may have been mishandling your finances and what you can do to correct the problem. We’ll also provide some helpful tips for getting your business back on track financially. So don’t despair—read on and take the initiative ASAP!
No Method of Tracking
A big reason your online business might be faltering is not knowing your business’s numbers. How can you when you don’t have the means to monitor your books? How can you track your business finances?
- Accounting software are financial tools you can use to keep track of not only your income and revenue but everything else in your business, including payroll and inventory.
- Accountants can understand where positive or negative numbers of your books may have come from and give you financial forecasts to make better decisions moving forward.
- If your budget doesn’t allow for a subscription to an accounting software, having a paper trail is much better than having no financial trail to follow.
Without ways to record and report every financial transaction, it’s difficult to know if your products are profitable. You might be surprised that your offers might be loss-leaders. Tracking your revenue and expenses gives you the right data to budget properly.
It’s also essential for eCommerce sales tax purposes. So, if you’re not already tracking your revenue and expenses, start ASAP.
Many businesses fail because they allow their expenses to get out of control. But when you know your spending, you can make necessary adjustments to keep your business profitable. There are many ways to cut expenses without sacrificing quality or productivity.
- Refocus marketing
- Reduce accounts receivable
- Review financial agreements
- Save electricity
- Double-check your staff’s quality of work
- Hire outsourced employees
- Lessen wastage
- Buy in bulk
- Renegotiate with your vendors
No More Cash on Hand
What’s the biggest reason some businesses, even conglomerates, file for bankruptcy? Cash. Even a profitable business can quickly become insolvent if it doesn’t have enough cash on hand to cover its expenses.
You can think of many factors behind businesses’ sudden closures, but it’s mostly due to mismanaging business finances. It can be from accounting process errors such as:
- Selling your products or services but not collecting payments for them.
- The cost of goods sold is not aligned with your pricing.
- Overstock products increasing storage expenses and tying up your working capital.
Whatever the cause, a lack of cash is a red flag for your online store. Thus, check your fund balance and recalibrate your business accordingly.
Delisted From Banks and Creditors
Before investors and banks consider loaning to your online business, they will require financial statements and a good payment standing with vendors and bills. If your business incurs too many payables and bad debts, expect these financial institutions to throw out your loan application.
Accurate financial statements with a healthy cash flow are essential to obtain your business’s cash infusion. So if you’re looking for a loan, make sure your bookkeeping is up-to-date, and your short and long-term liabilities are low. Getting the funding you need will make all the difference.
Emotional Business Decisions
You might make decisions based on gut instinct instead of data or underestimate the importance of successful financial planning. Emotions play a role in all aspects of our lives and can also have a powerful impact on business decisions. Unfortunately, in some cases, emotions can lead to impulsive decisions that aren’t well thought out.
When you’re too attached to your business, you often mix your personal bias with your business’s finances. In what circumstances do we make business decisions based on emotions instead of logic?
- Mental accounting. You might decide to buy new equipment because it’s on sale, even though you can’t afford it yet. Or you take your clients out for fine dining because you want to impress, even though it’s much cheaper to eat out in another restaurant.
- Loss aversion. You would rather not lose something than gain something of equal value. For example, you might be reluctant to upgrade your warehouse or equipment because you don’t want to pay the upfront costs. However, if the new equipment saves money in the long run, the loss aversion bias would prevent you from making the best decision for your business.
- Overconfidence. You may overestimate the chances of your business’s success or underestimate the amount of risk involved in establishing one. You may also be less likely to seek out essential information or advice.
It’s not too late to start fresh with your business finances. You may have stumbled a couple of times, but it’s not the time to hang over your closed sign. If you take a proactive approach to financial management and implement effective tracking methods, you can avoid many of these problems going forward.