4 Cash Flows Every eCommerce Business Needs To Know
- Operating Cash Flow:
Think about the cash coming in from your sales and going out to pay for things like stock, shipping, and ads. This shows if your business can stay afloat after covering day-to-day costs. If you don’t have more money coming in than going out for these essentials, you could hit a snag and put your business at risk.
- Investing Cash Flow:
This is all about the cash you put into long-term investments, like buying equipment, revamping your website, and purchasing or selling assets like stock equity. While these investments are key for growth, they might not pay off right away. Just make sure you don’t spend too much and leave yourself short on cash for everyday needs.
- Financing Cash Flow:
If you’ve taken a loan to stock up for your next big drop or to manage seasonal peaks, this is where financing cash flow comes in. It tracks how you’re raising money or paying off debts, including loans and investments. This helps ensure you have the funds for major moves without getting into too much debt. For example, invoice financing can be handy for handling big orders from retailers.
- Free Cash Flow:
Free Cash Flow is the cash left after paying for operational costs and any big investments, like new equipment. It’s not the same as operating, investing, or financing cash flows. Instead, it shows how well your business is doing overall. This cash is what you can use to reinvest in your business, pay yourself, or distribute dividends. You can expand, handle surprises, or reward yourself if you have a healthy Free Cash Flow. If it’s low, you might struggle to grow or take profits out.
CloudFO is your AI finance team member who helps you stay on top of all these cash flows, so you can focus on growing your business.
Check out this related article to learn more about cash
Subscribe below to access a downloadable summary of the article!