The amount of money that comes in and out of your business is cash flow. It’s an aspect of running a business that’s frequently misunderstood or disregarded.
To scale an Amazon business and establish a long-term exit strategy, you’ll need sufficient cash flow. Many sellers, unfortunately, struggle to adequately mitigate cash flow issues, leaving their business and exit strategy in jeopardy.
Managing FBA cash flow is critical for Amazon sellers who want to make the most of their business on the e-commerce giant. If you’re an Amazon FBA seller, this article will show you how to manage your Amazon cash flows so you can maximize your Amazon seller profits.
Why Is Cash Flow Important for Amazon Sellers?
Amazon cash flows are critical in determining the health of your Amazon business. They also play an important role in determining how quickly you can expand and protect your business from unforeseen events Amazon experiences.
A cash crunch can prohibit you from taking advantage of lower prices from vendors and suppliers, as well as proactively investing in your firm — both of which are essential for maintaining your market position.
For example, retailers and wholesalers frequently transfer massive amounts of unsold inventory throughout the Fall to accommodate their seasonal offerings. Those who sell on Amazon are in for a huge sourcing opportunity. If you want to take advantage of low-cost inventory purchases, you’ll need cash on hand.
Another benefit of having sufficient Amazon flow and cash on hand is that you can lower the cost of the products you carry. Wholesalers and distributors who supply Amazon sellers might get reduced prices on products or receive additional advantages if they make larger purchases or pay faster.
For instance, by purchasing 200 goods instead of 100, your manufacturer may offer to pay the capital costs associated with this extra purchase. Finding and taking advantage of money-saving opportunities like this one will positively impact your overall cash flow.
Similarly, when you buy in bulk as a private label merchant, you can get a reduced price per item.
How to Manage Your FBA Cash Flow on Amazon
An Amazon cash crunch issue can harm the entire business, resulting in missed sales opportunities, higher inventory expenses due to stock-outs, and poor purchase decisions from traders you have to deal with outside of usual business hours. Follow the tips below to manage your Amazon cash flow effectively.
- Prepare for slow sales seasons in advance.
Planning for slow sales seasons is one method used by successful Amazon FBA business owners to manage their cash flow. Profitable Amazon FBA business owners prepare for weak sales seasons by stocking up on inventory several months ahead of time. If your products don’t sell as rapidly as expected during busier seasons, you’ll have extra inventory on hand as a safety net.
- Maintain a cash reserve.
Keeping a cash reserve on the sidelines is another approach Amazon FBA business owners use to manage their cash flow. Three months’ worth of spending should be included in your contingency reserve. The reserve is intended to cover unforeseen bills, sluggish sales seasons, or a disaster.
- Become familiar with Amazon’s inventory management policies.
Amazon has policies regarding the number of products you can store in your Amazon FBA business account before incurring additional storage fees. Furthermore, Amazon has policies that limit the number of products stored at any given time in its warehouses.These guidelines are in place to prevent stocks from going to waste by sitting on the shelves for too long. Understanding Amazon’s inventory management policy is critical since it affects the number of products you’ll need to acquire to make it through slow periods or unforeseen costs.
- Examine the sales figures of your competitors.
Checking your competitors’ Amazon listings is another smart way to manage your cash flow. You can check how many units of stock they’ve sold in a given time frame and at what price. This lets you determine whether prices should be lowered, things should be discounted, or more inventory should be ordered before your competitors sell out.
- Establish a financial target.
Setting goals and devising a plan to achieve them is another way successful Amazon FBA business owners manage their cash flow. As an Amazon FBA seller, your ultimate financial goal is to enhance profit while lowering product costs.You can accomplish this by keeping track of all costs associated with each source so you can figure out who provides the best value.
- Wait for the best products.
Waiting for the greatest merchandise is a tactic successful Amazon FBA business owners use to manage their cash flow better. They understand that ordering in bulk while prices are at their lowest would optimize their inventory return. They understand that the average cost strategy does not work with Amazon FBA and can increase their profit margin by placing orders at the right moment.
Cash flow is critical for any Amazon business, particularly one that wants to expand, develop, and scale. A cash flow management approach for Amazon FBA business owners will assist you in growing your business without going bankrupt.
While you may have a bad month now and then, with a good cash flow plan in place, you can control your finances — rather than having them manage you. Don’t be afraid to borrow money and start seeking finance when you need it to avoid a cash crunch. PIRS Capital provides Amazon funding to merchants and assists you in running a successful business. To get started, give us a call today and schedule a consultation.