Introduction

Cash flow is vital for any business. But for small ecommerce businesses, it can be a matter of life and death. A cash flow forecast can help you predict your future cash needs and plan accordingly. It's a way of looking ahead, so you can avoid running out of money. By creating a cash flow forecast, you can anticipate when you will have cash surpluses or shortfalls, and make adjustments accordingly. This will help you manage your cash flow more effectively, ensuring that you have enough money to pay your bills, invest in growth opportunities, and build a cushion for emergencies.

Defining the terms

Cash flow is the money coming in and going out of your business. It includes all financial transactions such as sales, expenses, and investments. Forecasting is the process of predicting future events. It involves analyzing past performance and using it to make informed predictions about future trends. Ecommerce is the buying and selling of goods and services online. It includes online marketplaces, social media platforms, and company-owned websites. Understanding these terms is crucial for creating an accurate cash flow forecast.

Setting up a cash flow forecast

To set up a cash flow forecast, you'll need financial data. This includes all of your income and expense statements, as well as any other financial records that you have. Once you have all the data, you can set up a spreadsheet or use a template. Inputting your data into a spreadsheet will allow you to track your cash flow over time. It's important to note that the more detailed your data is, the more accurate your forecast will be. So, take the time to gather all the information you need.

Most ecommerce operators like Amazon, Flipkart, Meesho, etc. provide sales and return reports. They help you understand how much money came in different time periods. While you are aware of your commission, delivery and other charges incidental at the time of sales, other expenses may have happened at a different time. For expenses, you can pull reports from your accounting tool or bank statement listing down the purchases, regular operating expenses, etc. You may have some fixed expenses and some variable expenses. Similarly, you may have direct and indirect expenses spread over different time period. Certain expenses like Advance Tax payments, insurance premiums, etc. may happen quarterly or annually. You need to have all of them added to your spreadsheet.

Once you have details, you can extrapolate your sales and expenses based on trends. You may also have to take into account seasonality and external levers like big marketing spend which may result in deviation from trends.

Analyzing the forecast

Once you have your forecast set up, it's time to analyze it. Look for trends and potential issues. Identify areas where you may have cash surpluses or shortfalls. Pay close attention to your income and expenses, and look for any discrepancies. If you see a problem brewing, take action before it's too late. Adjust your forecast as needed. It's important to note that forecasting is an ongoing process, so you should update your forecast regularly.

Using the forecast

The forecast is a tool, not an end in itself. Use it to make financial decisions like setting prices, managing inventory, and planning for expansion. By forecasting your cash flow, you can anticipate when you will have cash surpluses or shortfalls and make adjustments accordingly.

This will help you manage your cash flow more effectively, ensuring that you have enough money to pay your bills, invest in growth opportunities, and build a cushion for emergencies.

If you expect significant shortfalls, you may look at working capital loans or business loans to manage your cash flows.

Tips for success

Keep it simple. Stay organized. And don't be afraid to ask for help. Remember, a cash flow forecast is a way of looking ahead and staying one step ahead of the game. It's important to use a method that works for you and your business. There are many different ways to forecast cash flow, so you should choose the method that works best for you. And always keep in mind that forecasting is an ongoing process, so you should update your forecast regularly.