If there is one lesson learned from failed e-commerce business analyses, it is the need to start paying attention to e-commerce cash flow. It is undoubtedly one of the metrics of this type of business that will make or break its success.
When faced with poor management, the question arises: “where does the money go?” Understanding the inputs and outputs is a common challenge for all companies , and those in digital commerce are no exception.
So, read this content to the end and learn more about e-commerce cash flow , its importance, bulgaria phone number list how to measure it, and good practices for managing it.
Don't let finances complicate things for you!
Operational e-commerce cash flow: what is it?
E-commerce cash flow is the foundation of an online sales business . Not understanding what it is and how it works limits the growth of your online store .
Thus, the term “cash flow” means the available liquidity generated by the company during an operating business period. It usually needs to be measured on a monthly basis to understand the financial health of the organization.
Now, an even more specific measure than this concept used to evaluate the financial performance of e-commerce is “operating cash flow.”
In this business model, the normal and primary medium is to sell products online.
We can use the following formula to calculate operating e-commerce cash flow :
Net cash from operations = cash receipts from operations – cash outflows for operations
Let's analyze this equation a little:
Cash outflows for operations : These are the typical operating expenses for e-commerce stores, such as payments to suppliers, salaries, interest, income taxes.
Cash receipts from operations : Cash from the main business activity.
To fully understand this, let's draw an example:
Suppose the store had $2 million in annual sales, all in cash.
Product expenses were USD$1 million, in addition, USD$100,000 was paid in salaries, along with USD$50,000 in interest charges to the bank and USD$200,000 in income tax.
So:
Net cash from operations = (USD$ 2 million) – (USD$ 1 million + USD$ 100,000 + USD$ 50,000 + 200,000) = USD$ 650,000.