So you are sourcing product, and you hit that last store before the five o’clock whistle rings. You find the clearance aisle, and there is an entire endcap of that 2600 ranked HBA item you have heard about. It would cost about $700 to get them, but you only have 2 bills left till the next payout. Who’s fault is it that you are in this mess?
T Zoril calls you up. It’s past 2 a.m., and he is wide awake sourcing because he never stops. He has this killer wholesale deal, but he needs two people to come in on it with him. But you got 3 more days till you have money to spend. Who’s fault is that?
One of the lesser talked about barometers of successful sellers in this business is cash flow.
Cash flow management is not quite as simple as waiting on a payout from Amazon and then spending it, although it can be, depending on your goals and level of sales.
But as you grow beyond scanning clearance and become a larger scale business (keep in mind nothing is wrong with scanning clearance, I am simply making a statement that to scale you most likely need to move beyond solely scanning), the amount of capital you have to spend at any given moment becomes far more important.
How can you improve your cash flow?
Fast turn inventory
This is the easiest to explain. If something has a slow moving rank, don’t buy it! If you are trying to build a level of cash to spend, it can be very important to purchase items that turn over in the same or at worst the next pay period. It effectively means you can have your money in and out in less than 30 days, with profit.
How else can you build mountains of cash?
I have been doing this for almost two years, but it wasn’t a conscious decision to improve my cash flow, it was simply a common sense choice. We constantly hear people state how the inventory in our garage is not making us money.
So how can it make us money? SHIP IT IN!
Because of the way that Amazon splits up shipments, or sends to one warehouse (here’s looking at you, MDW3) and then splits to a dozen, it removes our control over how fast an item becomes live once shipped in. To circumvent this problem, ship constantly and daily. By doing this, it becomes less important when most of the individual products become live, but it also creates a constant flow of products into Amazon.
But most importantly? It helps to prevent a backlog of unsold merchandise sitting in your garage.
This is not to say I ship everything same day, most days I buy far too much for that. But I do ship out between 2 and 20 boxes every single day.
This becomes even more powerful when you ship daily combined with fast turning RA merchandise, because then you have quick selling items hitting the Amazon listing within days of sourcing, and the money can be back in your account by the next pay period.
Rinse and repeat. Agus Purwanto talks about the importance of daily shipping in this podcast here, on the site Ecommercemomentum.com. I listen to a ton of podcasts, and I rarely recommend them to anyone, because everyone has different tastes. However, if you are either an RA or OA seller, and you think you have it down pat, listen to this one because you will hear how someone who becomes a Mega Seller in a year, because of his attention to detail and work ethic. Definitely worth a listen, I learned a ton from Agus in this one.
Use credit cards
This can be a risky endeavor, if you are not disciplined enough to purchase smartly and use correctly. It is the same as giving Anakin a glimpse of the dark side, then assuming he can control himself.
What happened? Anakin became evil and made poor decisions, because he wasn’t equipped to handle the new found power, and he fought with and blamed his teacher.
So do not blame me if you use credit cards and get yourself in trouble.
Used properly, there is a built in system of rewards that many of use capitalize on a daily basis. You can get cash back, or travel miles, or various other rewards. This book was written about Churning, using credit cards to accumulate miles for travel, by Matt Glick, and it is fantastic (This is not an affiliate link, fyi, its just a good book). Since closing on my house on January 16th, I’ve gotten 2 credit cards and have over 70,000 points from Chase, enough to get me and my family free plan tickets. And I just started.
If you use credit cards, you must weigh in many obvious factors, such as rank and roi, because if they are not paid off in full in the first month, you can pay up to 30% interest, which will decimate your ROI. So use your credit cards accordingly, and with great skill and trepidation.
Buy wholesale and use terms to the fullest
Once you grow and establish some business credit, wholesale is the next step for those on the arbitrage path.
If you purchase from a wholesaler or distributor they are likely giving you terms, whether it be 30 days or 60 days or 10 days.
Whatever the terms, pay in full on or the day before the due date in order to keep the relationship smooth. It is easier than ever because you can schedule and ACH deposit for the day or two before it is due, and always remain in terms. This allows you to use your cash for your own needs for as long as possible.
Additionally, many of these companies will offer (or if they do not offer it, once you are comfortable ask) slight discounts for paying sooner, known as NET terms.
Sometimes it makes more sense to pay in the total number of days, and sometimes it makes sense to take advantage of the NET terms.
It is explained perfectly here, by Chris Potter, halfway down under the heading “How to use net terms to your advantage.”
Cash flow matters.
Unless you have an unlimited amount of capital from which to source, cash flow is vital to your success as a small business owner.
If you do have unlimited capital, I would be willing to give you half of a percent interest on a six figure loan, just let me know and I will send over my account number.
If you are like the rest of us, being mindful of the ins and outs of your money and expenditures can be the difference between being a long term success and being a short term “no money in this business” quitter.
The most important part of cash flow management is always being in a position to pounce on an opportunity.
In this world of abundance, deals come often and when they do, it is usually fast and furious. With proper bankroll management, you do not have to worry about whether you can afford to make a purchase, you will already know.
And knowing is half the battle.
Continued success to us all.