By Cyndi Thomason, bookskeep
Your margins are good. You found a product that is selling well and now you just need to buy more inventory and keep pumping money into advertising. Based on the demand and the fact that you’re a new business, you may turn to some of the nontraditional lenders thinking you can afford them based on your margins. But there is another side to this coin—cash flow.
However, many of the non-traditional lenders, those that don’t mind that you’re a young business or an ecommerce business, have nontraditional payback structures, too. Some that I’ve seen require the full payment in 60 days, or they require a fee upfront and take a percentage of your sales directly from your platform. They are better able to take a chance on you because they get their money before you do.
When these lenders collect their funds off the top, oftentimes as much as 20%, you lose the ability to juggle your own payments. While your margins may be strong enough to handle this, it puts you at a disadvantage for setting aside funds for your next inventory buy. My clients describe this as always being on the hamster wheel. Many times, the only option for the next inventory buy is to borrow funds from the same lender; repeating the cycle.
If you are in this situation, take a little time to plan on how to get off that proverbial hamster wheel. Start by researching other credit opportunities. Perhaps your bank will provide a line of credit or you may be able to find a traditional loan that has payment terms that are more palatable. Even credit cards that offer 6 months with no interest can work in this situation. Basically, you need to get back in the driver’s seat.
Then, plan for how fast you want to grow. Forecast how much you can set aside for inventory going forward. Talk with your suppliers and see what kind of minimum order quantity or terms you might be able to adjust. Look at how much you’re spending on advertising and how to use that spend as a lever, to speed up or even slow down sales.
Don’t forget to factor in paying yourself. If your growth plan doesn’t take care of your pay, your profit, and your taxes, you’re setting up a business that you and your family will resent later. As I’ve said many times in this forum, Profit is a Habit. The speed of growth is something you control based on what you can afford and your tolerance for debt. If borrowing money to grow fast takes a mental toll, then the price of that capital is too high.
Author of the bestselling book, Profit First for Ecommerce Sellers, a Mastery Level Certified Profit First Professional, and the founder and president of bookskeep. Her company consists of a virtual team located across the United States, providing bookkeeping and Profit First consulting services to ecommerce clients all over the world. Cyndi devotes much of her time speaking at various events such as ASD Market Week, SellerCon, ProfitCon, and other industry events. She also participates in numerous webinars, teaching ecommerce businesses how to implement the Profit First method. bookskeep.com