14 December, 2023

Propel Your e-commerce Business Forward

Authored by our partner SPRCHRGR

The e-commerce industry is poised for tremendous growth, with US sales projected to hit $1.1 trillion by 2024. Amidst the opportunities, challenges loom large. In addition to navigating the complexities of operating a business, e-commerce owners and leaders must stay agile and adapt to ever-evolving customer preferences. To position your business for success and achieve robust growth, we’ve gathered insights from our team of seasoned CFOs who have successfully led and scaled e-commerce enterprises. In this blog post, we’ll delve into three crucial areas that can significantly impact your business’ trajectory in 2024.

Setting ambitious yet realistic goals

Some of the best business leadership strategies are as effective in the boardroom as they are in achieving success in other areas of life.  One CFO we interviewed for this article had spent much of his small-town youth excelling in sports like baseball, basketball, football, and track. While certain physical limitations manifested in college that derailed his dreams of becoming a professional athlete, his knack with numbers inspired new ambitions to pursue a career in accounting instead. He studied hard and applied his competitive spirit to quickly earn a CPA license, then honed his professional skills working alongside and learning from a variety of strong business leaders. As successful as he had become professionally, a decade later he found himself out of shape and yearning for a new challenge – so he resolved to get himself back into peak physical shape in record time, aiming to outperform his younger self. Those overly ambitious fitness goals ignored his physical limitations, though, and resulted in more injuries than progress! 

After enough false starts, he decided to apply lessons from his career experiences to his new athletic pursuits. He established fitness baselines, set specific and realistic goals, and began tracking progress. He built fundamental training routines, a foundation for sustainability, and achieved a series of consistent, measurable gains. While less impressive to talk about among friends and colleagues, these smaller individual goals were far more attainable. The incremental progress steadily compounded, and soon enough he surpassed his own personal records and was in the best shape of his life – a testament to the power of setting realistic goals and building repeatable processes.

At SPRCHRGR, we work with CEO’s and business owners in a wide variety of industries. Some find themselves beating their head against the wall trying (unsuccessfully) to shortcut the fundamentals. They proclaim overly ambitious goals, fire up their team, and operate as though setting unrealistic timelines is enough for their enterprise to take off like a rocket ship to the moon. Instead, their would-be rocket ship performs more like a rudderless steam ship that takes on water while drifting downstream until the next planning cycle. 

The most successful leaders take a calculated approach to achieve proven results in incremental steps. They establish a baseline, create specific and achievable goals, monitor progress, and correct course when needed. These organizations develop repeatable processes, learn from their mistakes, and more frequently stand out from the competition and experience significant growth. 

Leverage data and analytics to drive growth and profitability

In a sea of metrics, focus on the important ones. Hint-that’s why they are called Key Performance Indicators (KPIs). E-commerce companies have a dizzying number of KPIs to manage across various business functions, from customer acquisition, pricing, and stock availability, to sourcing, warehousing and fulfilment, just to name a few. But C-level leaders can’t possibly remain focused on dozens of KPIs themselves to make confident leadership decisions. Instead, it is crucial for each functional area in the business to have its own set of KPIs that support the company’s overall goals. Each departmental KPI should have clearly defined targets and action plans to drive informed management decisions. Senior leadership can focus their attention on a smaller handful of KPIs that represent the most meaningful indicators to measure performance and inform macro-level strategic decision-making.

If your business isn’t achieving sustainable profit targets, for example, the use of real time management dashboards will lead you to the cause. Consider an e-commerce business that suddenly experiences a 5% decline in gross profit margin – a thoughtfully constructed dashboard can help your leadership team quickly pinpoint the root cause between fluctuations in price and COGS COGS across different products and sales channels, enabling them to make confident decisions. Rather than looking backwards through last month’s financial statements, this proactive approach puts your team in the driver’s seat to take action weeks sooner, saving your business meaningful gross profit dollars.

Optimize Your Working Capital

For any business, effective working capital management is crucial for sustained success. Working capital represents the funds needed to cover day-to-day operations and is a key indicator of a company’s financial health. Here are words of wisdom from our seasoned e-commerce CFOs to help you intelligently manage your working capital.

One way to maximize working capital is by optimizing payment terms with vendors. Negotiating favorable terms, such as extended payment periods, can provide your business with breathing room and enhance cash flow – this is usually easier to accomplish after a sustained period of steady or increasing order volume with your supplier, because that buying pattern will incentivize them to sweeten the terms of your partnership to retain your growing business. 

Paying invoices by credit card can also be advantageous to cash flow, especially if there’s no additional convenience fee. This approach allows you to defer payment until the credit card statement is due, providing flexibility and potential rewards or cash back through credit card programs. Some card programs offer as much as 2% cash back. It’s imperative to carefully evaluate the terms and fees associated with credit card payments, though. While it can be a convenient option and yield marginal savings, businesses should be mindful of interest rates and fees that could negate the benefits of delayed payment. Plus, it takes extra labor to account for credit card spending separately from the rest of your traditional accounts payable workflow – don’t let the cost of that extra labor sneak past you unnoticed.

Maintaining cash reserves is a fundamental aspect of working capital management. Rather than letting idle cash sit in a non-interest-bearing account, explore options that allow you to earn interest on your balances. Consider opening interest-bearing business accounts with same day liquidity and few restrictions to generate some return on your idle cash. Some of our clients earn 4% or even 5% on their idle cash.

Having a line of credit in place is like a financial safety net for your business. It provides flexibility during cash flow fluctuations or unexpected expenses. It is essential to establish a line of credit before you actually need it. This proactive approach ensures that the funds are readily available when required, avoiding potential delays in obtaining financing during urgent situations. A bank will charge higher rates and/or is less likely to offer financing to a business  in desperate need of operating capital. From their perspective a business in this situation carries higher risk and decreases their probability of pay back. 

When seeking a line of credit, carefully review the terms and interest rates to ensure they align with your business needs. Additionally, explore alternative lending relationships beyond your local bank. Our clients who expand their search nationally often find the most attractive financing terms. Remember you do not pay interest on undrawn amounts on a Line of Credit.

Think Twice Before Taking a Merchant Cash Advance. Annual percentage rates on this lending option often exceed stated rates. For example, the factor rate may be 10% but the APR might exceed 30 or even 40%. Additionally, a default on your Merchant Cash Advance can be more severe than defaulting on a traditional loan. It is common for terms to heavily favor the financing company as they are not subject to the same federal regulations as banks.  

As you navigate the e-commerce industry landscape in 2024, trust the strategic advice from experienced CFOs. Set realistic goals, leverage data intelligently to actively manage your business, and optimize your working capital to propel your business forward. By adopting a thoughtful and measured approach, you’ll position your e-commerce enterprise for sustainable growth and success in the years to come.

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