It's all about cash: when you spend it, when you collect it, how much you get to keep, and what's at risk along the way.
SMB eCommerce business owners know inventory funding is essential. After all, without inventory, you have no product to sell. However, did you know that financing for stock, or lack thereof, is one of the main reasons good businesses struggle to grow or potentially fail? That's right; if you're not careful, the cash in your inventory can quickly become a liability instead of an asset.
Here are four reasons why inventory funding is so vital for small eCommerce businesses:
1. Cash flow problems are one of the main reasons why growth for an SMB can stagnate.
2. Owners often underestimate the inventory cost and the mismatch in receiving customer cash from sales.
3. Inventory absorbs a lot of working capital that could be deployed in other growth areas.
4. Existing inventory funding options often only ease the cashflow burden of stock marginally and don't cater specially for modern eCommerce business cash cycles.
Cash flow is one of, if not the number one, reason SMBs find growth so hard and leave customer demand on the table. No one wins when good businesses must make tradeoffs on whether to spend money or growth, operation or stock. The lack of modern working capital solutions to support companies in the growth window leaves thousands of underserved SMBs with solvable headaches.
Another reason inventory funding is so essential for SMBS is that many business owners underestimate the holding cost of inventory or the holding cost of holding enough stock to meet total customer demand. Add-on expenses associated with the inventory, such as storage, shipping, and Returns & Refund processing, must be factored into the unit economics of ordering stock. These costs can add up quickly and put further pressure on the cash flow timing, putting your business at risk.
Finally, inventory funding is vital for small businesses as working capital in inventory can tie up cash that can be better deployed in the company. For example, if you have $10,000 in stock sitting in your warehouse, that's $10,000 that you can't use to invest in marketing or hiring new employees. As a result, it's essential to carefully manage your inventory levels and ensure that you have adequate funding to cover your needs.
Many inventory funding solutions may offer temporary relief for eCommerce businesses but often fail to address the complexities of their actual cash cycles. Business owners should look for a flexible financing model that gives them complete control over purchasing inventory & variable costs. Maintaining manageable growth on your terms will enable faster customer acquisition with fair pricing tailored to suit every business's unique cash flow situation!
Inventory funding is an integral part of running a successful SMB eCommerce business. By understanding the risks and being prepared with adequate funding, you can avoid some common pitfalls that lead to unmet customer demand, stagnated growth and possible failure from cashflow issues. Do you have any questions about inventory funding? Let us know in the comments below!
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