How can I improve cash flow for my startup?


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Elaine Pofeldt is a journalist whose articles on entrepreneurship and careers have appeared in Fortune, Working Mother, Money and many other publications. She is a former senior editor at Fortune Small Business magazine and an entrepreneur herself, as co-founder of Her book, “The Million-Dollar, One-Person Business,” was released in 2018. She writes “Your Business Credit,” a weekly column about small business and credit, for

Ask Elaine a question, or see if your question has already been answered in the Your Business Credit answer archive.

Dear Your Business

Help! I just started a small e-commerce site earlier this year and am
having some problems with cash flow. If I buy as much inventory as I really
need, it ties up money I need to spend on other things in my business. What
should I do? – Jason 

Dear Jason,

That can be scary,
but there are a few things you can do to turn the situation
around right away.

When you have a
problem with cash flow, it means money is going out faster than it’s coming in.
The key is to bring in money more quickly and spend it more slowly.

To generate
revenue more quickly, running a sale of your merchandise – a tried-and-true
approach in retail – can be a smart short-term solution. If you have
merchandise that isn’t moving quickly, try offering a small discount to clear
your inventory so you can invest in items that will sell faster. This will cut
into your profits, so you’ll have to do the math to figure out how much you
need to discount to move the merchandise without losing money.

Raising your
visibility can help, too. If you are selling consumer products, amping up your
presence on a visually oriented site like Instagram or Facebook can keep your
brand top-of-mind and inspire more people to buy. You don’t have to be overly
sales-y to pull this off. For instance, if you sell coffee mugs, you could
invite followers to submit photos of themselves drinking coffee in their
favorite mug from your collection.  

Equally important
is to slow down your outflow of cash. Given that your inventory purchases are
tying up a lot of your money, you may want to look at drop shipping. With drop shipping, you don’t have to keep inventory in stock. You
can order inventory from a wholesaler once you’ve made the sale. The drop shipper also
packs and ships your orders. There’s a cost to using drop shipping, but it will allow you
to stretch your cash flow and free up more time to focus on growing your e-commerce business. Asking around among other e-commerce merchants in your industry can be
a good way to find a reliable drop shipper.

If you don’t want
to use a drop shipper, credit card financing can allow you to stretch your cash
on hand. Assuming you pay the balance in full, you’ll have a month to come up
with the money to pay the bill.

And if you have good
or excellent credit, you may be able to qualify for a credit card with a long introductory 0 percent APR. That can give you some breathing room if you need
to hold off on paying the credit card bill or spread your payments over several months.
Just be sure to pay the balance in full before the 0 percent introductory
period ends, or you’ll be charged interest on your unpaid balance.

Also, keep an eye
on other costs in your business. Costs like online software that you pay for
monthly can add up, and it’s easy to forget you’re paying for services you
don’t frequently use. Take stock each quarter to make sure it’s still
worthwhile to use these services. The better your grip on cash flow, the stronger your
business will be.

See related: Should I max out my credit card to finance my startup?, Headed to a convention or conference? Don’t forget rewards credit cards

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