Q4 is many Amazon sellers’ busiest and highest revenue-generating period of the year.
But with larger-than-normal inventory orders, increased competition, and rising ad prices to juggle, Q4 can also put a strain on your cash flow.
We’ve put together this guide to help you manage your Q4 finances effectively and maximize the shopping season’s opportunities for Amazon sellers. Keep reading to learn about the financing options available to help your business scale without causing cash flow problems.
The eCommerce Cash Flow Challenge
For Amazon sellers of all sizes, cash flow is a huge constraint, and you almost always need more cash than you have on hand.
Let’s say you’ve placed an inventory order of $10,000. It might take 60-90 days for that inventory to be ready to sell. So you’re down $10,000 for 2-3 months before you can start to recoup that outlay.
Then once your inventory arrives, you need to invest $2,000 in Amazon Ads and other marketing channels to sell that stock.
But here’s the good news: You make a $2,500 profit from your $12,000 investment in inventory and marketing.
Not bad, right?
Now, you want to place a bigger inventory order to ensure you keep growing your business. Here’s the catch: You need $15,000 to buy more inventory, and that $2,500 profit you made on your last batch of products doesn’t cover it.
So to keep growing, you’ll often need more cash than you have to hand. It’s a problem Amazon sellers of all sizes run into.
Pro tips: At Wayflyer, we work with thousands of eCommerce brands and Amazon sellers and recommend that you should always aim to have 12-16 weeks of inventory on hand and at least ten weeks of operating cash.
If you want to build a cash buffer in your business, here’s a breakdown of the funding options available to you…
6 Funding Options for Amazon Sellers to Solve Cash Flow Problems
One solution to cash flow problems is to explore external funding options. Here’s a whistlestop tour of the different ways to fund an eCommerce business:
1. Personal Savings
Many Amazon sellers get their businesses off the ground with personal capital — this helps avoid going into debt and paying high-interest rates. But once your business is scaling, it can limit your growth.
2. Venture Capital
eCommerce investments make up a very small percentage of VC investments. But for some larger sellers, and more frequently, DTC brands, VC investments can help growth.
With VC investment, you’re selling a stake in your business in return for an injection of capital into the business to help you grow. Long-term, investors will want to see your company grow so the value of their shares increases and they’ll be expecting an exit at some point.
This form of finance usually isn’t the best option for Amazon sellers — especially if you’re looking to use the cash to invest in short-term expenses like inventory or marketing.
3. Credit Cards
Credit cards give you a quick way to access capital, especially if you’re already pre-approved. Interest rates are often high though, so be careful.
Business credit cards are a good way to cover small business costs as long as you know you can pay your balance in full each month and avoid paying interest.
4. Debt Financing or Bank Loans
When it comes to funding a business, a bank loan is usually one of the first options entrepreneurs consider. But for Amazon sellers, there’s often a lacking of eCommerce knowledge with traditional banks and commercial lenders, so you’re not likely to get the best or friendliest terms for your business.
5. Inventory finance
Inventory finance is a short-term loan or line of credit to help eCommerce businesses to buy inventory. In most cases, eCommerce businesses have to pay their suppliers for stock orders months before receiving the stock and selling it to customers. The inventory loan is then repaid once you’ve sold the inventory.
Inventory finance loans tend to be secured, with current or future inventory used as collateral — meaning if a business fails to repay the finance, the lender essentially owns the inventory.
6. Revenue-based finance
Revenue-based financing is a flexible and fast way to access working capital and efficiently pay for inventory and marketing.
The process is simple, too: You apply for funding by sharing your revenue and sales data and can get approval for funding within 48 to 72 hours, based on your revenue projections. Once approved, you’ll have access to the funding immediately.
Why eCommerce Founders Choose Revenue-Based Finance
Revenue-based finance providers assess your business using analytics and send you cash to make inventory purchases or investments in your company, so you’re ready to maximize the opportunities presented by Q4.
Remittances are then based on a percentage of your daily sales. If sales aren’t very high, the amount collected will be lower, so there’s less impact on your cash flow. It’s called revenue-based financing as you use your revenue to get financing.
- Revenue-based financing solutions are tailored to the working capital cycle, which means your repayments are based on a percentage of daily sales.
- They automatically scale as sales increase or decrease, which reduces monthly cash flow bottlenecks.
- So, if sales aren’t very high, the remittance will be lower.
Using revenue-based finance to support your working capital needs means you won’t be in the red when you place large purchase orders to gear up for Amazon’s peak sales season or increase your ad spend to stand out and generate more sales.
In Q4, 2021, eco-friendly deodorant brand Wild used funding from Wayflyer to increase its marketing budgets and scale up its inventory ahead of Q4, ready for increased consumer demand. “The capital from Wayflyer allowed Wild to acquire 10,000 to 15,000 new customers,” the brand’s co-founder Freddy Ward explains.
So whether you’re looking to increase your inventory orders ahead of the Q4 rush or seeking ways to increase your budgets for Amazon Ads or Sponsored Products to maximize your returns as consumer demand ramps up, revenue-based finance could be a perfect solution for you.
If you would like to learn more about Wayflyer could help grow your business, click here
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