How You Can Build Financial Resilience for Your Ecommerce Small Business

How You Can Build Financial Resilience for Your Ecommerce Small Business

When it comes to operating an ecommerce business, one of the best things you can do is to create safety nets and plans for a more financially resilient business. To practice financial resilience, you need:

  • Agility
  • Diversification
  • Optimization

Building a financially resilient ecommerce business means that your business is agile enough to pivot when changes are needed, you have diverse streams of income so your revenue doesn’t all dry up at once and you can optimize your processes to reduce wasted spending. 

A study by Intuit and Quickbooks found that 61 percent of small businesses around the world struggle with cash flow, with 32 percent unable to pay back loans, pay off vendors or pay employee and owner salaries due to cash flow problems.

Don’t be part of that 61 percent. Instead, use these expert tips to help build a more financially resilient ecommerce business that can withstand and rebound from any financial shock.

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Strengthen the Foundations of Your Business

The first step towards building a more financially resilient ecommerce business is to do a business review. Just like a house, you want your business to be built upon a strong foundation. Your business review should look at the structure of your business to see if you can make it more efficient and operate more cost-effectively. 

What you’re looking for is how to do more with less. Often, the necessary tasks to strengthen the foundations of your business are tasks you already know you need to do, but you just haven’t had time to get them on your to-do list. 

To strengthen your ecommerce business foundation, you might look for ways to:

  • Grow your core business.
  • Diversify your target market and offer your product to new customers.
  • Negotiate new terms with your vendors.
  • Scale back on staff to improve cash flow.

Building financial business resilience starts today. It starts before there’s a financial crisis. Building a strong foundation and fixing any cracks that have appeared before the foundation fails is key to being a financially resilient ecommerce business.

Create a Network of Support

When business owners think about how they’d react when facing a crisis, many default to putting their nose to the grindstone and working harder and longer hours to get through it. But, according to expert Justin Nabity, founder of Physicians Thrive and an experienced financial expert certified in CFP®, CLU® and ChFC®, going it alone isn’t the right trajectory. 

“You don’t have to face this difficult situation alone; hence, you can always look to seek professional advice,” says Nabity. Most small business owners think they’re on their own, but there are many professional organizations and mentor groups that can offer support to ecommerce businesses. 

Look for local groups of ecommerce business owners or entrepreneurs where you can seek out advice and network with others who may face similar problems.

As the ecommerce market grows, so does the number of ecommerce businesses. With more than 27 percent of the global population shopping online, there’s likely to be a group of ecommerce business owners you can network with locally or virtually.

how many people shop online

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Build Up Savings

One of the more obvious but still very important ways to build financial resiliency is to build up your savings account. But, you want to make sure you’re saving with a specific target in mind.

According to Courtney Barbee, owner and COO at The Bookkeeper, you should “analyze and determine your fixed expenses (those costs you would have even with zero in sales), and you save up enough money to cover at least six months of those. This provides a good buffer for any downturn in business, increases in costs, etc. Also, since ecommerce generally has low overhead, it's not an untenable goal.”

You can build up your on-hand cash savings over time by putting away a small percentage of income each month, or build it up quickly by raising working capital. Some ways you might increase your savings include:

  • Sell existing assets. 
  • Invest your own capital.
  • Refinance existing loans.
  • Take loans from investors.

To build up your savings, you can convert assets into cash or save up over time.

Plan Ahead

Chris Morgan, credit expert at Credit Help Info, says, “Aiming to have a good financial standing can be another way to build resilience by anticipating stressful events and being ready for them. There is nothing wrong with planning ahead of time.”

One of the biggest cash flow struggles faced by ecommerce businesses is the delay in getting money from your sales marketplace and into your bank account. This delay can cause cash flow problems by restricting how much money you have in your account at any time. By planning ahead, you can build up or start your ecommerce business with a cash reserve that can be the buffer while funds are being transferred from one account to another.

When you plan ahead and have a cash buffer, it means no lost business. A 2019 study by Intuit found that small business owners lose over $43,000 each year by not taking on projects due to cash flow problems. When you plan ahead, you don’t have to worry about cash flow when evaluating whether or not you want to take on a project.

Diversify Supply Chain, Sales Channel and Fulfillment

One of the most important signs of a financially resilient ecommerce business is diversification. Through diversification, you build up multiple ways of doing business so that you’re not relying on just one shipper or warehouse. So, when there is a problem, you already have relationships with other vendors, shippers and warehouses and can pivot more quickly than other businesses. 

Diversification minimizes the risk that your business takes on. Strategic diversification means that if there’s a disruption to any part of your ecommerce business’s supply chain, you have a backup plan and redundancies in place so that you can quickly and easily pivot.

You need to create diversification and redundancies into your:

  • Shippers
  • Warehouse
  • Sales channels
  • Product and service offerings
  • Fulfillment operators

Diversification makes your business resilient overall. No matter what happens to the world outside of your ecommerce business, you have a plan in place to solve it and pivot.

Track Income and Expenses

While much of increasing financial resiliency for your ecommerce business is about planning ahead and creating redundancies in your business, there’s also the quotidian, routine tasks. Tracking your income and expenses is the day-to-day management of financial business resilience. But, you can’t just track income and expenses blindly. You need to know your numbers and understand what they mean to your business. 

According to Nabity, “Once you plan out for the maximum number of losses you can minimize, coupled with planning out the minimum turnover you shall require, you may come to the realization that things are not as bad as you might have once perceived them to be.”

Tracking your numbers and knowing what your income and expenses should be at different times of the month gives you more room to maneuver if you see a crisis coming. No longer will you be surprised by a problem — you’ll see it coming. Daily management of your business finances and a deep understanding of what your numbers should look like are critical parts of financial resilience.

Make Low-Risk Investments

If you’re looking to grow your on-hand liquid capital for your ecommerce business, one way you can do that is to take on low-risk investments. Morgan suggests that “companies can consider saving and investing funds to assets that are easily convertible to cash and have this as an emergency fund or reserve to be used in this kind of situation.”

Low-risk investments include high-yield savings accounts and bonds. The benefit of low-risk investments is that your emergency cash reserve isn’t just sitting idle in your bank account. Instead, it’s actively growing and benefitting your business while also still being easily accessible if you need it.

Have a Plan for Raising Prices

A topic that many business owners dread: raising prices. Unfortunately, it’s an uncomfortable necessity. Knowing when and how to strategically raise your prices is a forward-thinking way to keep your business financially resilient. If your prices stagnate for too long, you’ll be out of sync with the rest of the market and will harm your business. Be ready and be thinking about when you’ll raise your prices so you can continue to grow your ecommerce business and make it more financially resilient. 

Creating a financially resilient ecommerce business requires some strategic thinking, planning ahead and routine business maintenance, but it can help to make your business more resilient overall so that you can weather anything that happens inside and outside your business. Financial resiliency makes your ecommerce business more adaptable and efficient so that you can pivot at a moment’s notice. Make sure that Incfile’s accounting and bookkeeping service is part of your support team for creating and monitoring your ecommerce business’s financial resilience.

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