In this article, we consider how having an accurate and up-to-date cash flow forecast in place for your eCommerce business can positively impact the financial success of your business.

What is Cash Flow Forecasting? How does it differ for an eCommerce business?

A cash flow forecast is a summary of the estimated future cash flows of a business. The forecast would typically cover a period of at least the next few months in order to be useful, but more typically 1 – 2 years. Whilst it is possible to prepare a cash flow forecast for longer periods, the accuracy of longer-term forecasts is likely to be lower because there is more opportunity for variables to impact the end result. A cash flow forecast can therefore be very useful to business owners as it enables them to make decisions based on the predicted future cash flows of the business.

The key difference between a cash flow forecast for an eCommerce company and a typical company is that an eCommerce business is unlikely to have significant debtors. This is because their customers typically pay for their goods at the point of placing an order. Therefore at any point in time, the funds owed to an eCommerce business would typically only be the funds that have been collected by the merchant gateway in place on their website which hasn’t yet been paid out to the company or the funds that a marketplace such as Amazon has collected but not yet paid out to the company. It’s also quite likely that an e-commerce business, unless dropshipping, will have a significant amount of cash tied up in stock, whether that be in stock held or deposits paid in advance to suppliers. Managing stock levels carefully is therefore a very important aspect of cash flow management for an e-commerce business.

What Should be Included in Cash Flow Forecasting?

A good cashflow forecast should include all projected income and expenditure. Your forecast should also consider the timing of all payments, particularly significant ones like large stock orders, tax payments, and planned investments.

4 Key Advantages of Cash Flow Forecast

Below we look at some of the key advantages of cash flow forecasting for your eCommerce business:

1. Plan better for investment

If you’re planning to make any investments in the business, whether that be in a new warehouse, computer equipment, or any other significant one-off costs, cash flow planning becomes really important. It’s very easy to make the mistake of looking at what’s in the bank now and deciding on that basis that the business can afford a purchase, without considering how cash flow might look in 3 or 6 months’ time as a result of the investment.

2. Scenario planning

Once you’ve got an established cash flow forecasting process in place, you can then start to look at different scenarios and consider how multiple factors may impact future cash flow. A common example of how scenario planning can be useful is to have a best case, worst case, and probably cash flow forecast.

3. Avoid running out of cash

Running out of cash is the most common reason for a small business to fail. It is often the case that even profitable businesses will fail, as whilst their profitability would lead to positive cash flow, in the long run, they have too much cash tied up in stock in order to be able to continue trading.

4. Better lending opportunities

If your business is going to need additional funding, whether that be from a bank or investors, cash flow forecasting is going to be of benefit to your business. Firstly, having a cash flow forecast in place means that you know when you will need funding, you can therefore plan for this and have time to arrange to fund. Planning in advance rather than leaving it until you need the funding almost always means that you will get a better deal. This is in part because you’ve got more time to consider different lenders but mostly because a business that doesn’t need the funding ASAP represents a much more favorable lending opportunity to the lender, meaning that you’re more likely to be approved for a loan and on more favourable terms. The second benefit that cash flow forecasting has for your business when trying to get funding is that it enables the lender to see how you expect their loan to be repaid. They can therefore assess how likely you are to be able to meet repayments.

How To Prepare A Cash Flow Forecast?

For an established e-commerce business, we’d recommend first getting to the point where your bookkeeping is maintained regularly in cloud accounting software like Xero. You then have good data to use as a starting point for your cash flow forecast. We’d then recommend integrating a cash flow forecasting app to Xero to enable you to build cash flow analysis in an efficient manner. Our personal favourite forecasting app is Spotlight Reporting.

How An eCommerce Accountant Can Help with Forecasting? 

An e-commerce accountant can help you achieve all of the above and more. They will be able to build cash flow forecasts that are tailored to your projections.

Final Thoughts


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