Synopsis: Sound money management is the cornerstone of every successful small business. Below, we spotlight six easy ways to effectively manage your finances as a platform seller.

The Indian eCommerce sector is booming and is forecasted to eclipse the US market by 2034. With online retail participation expected to exceed 250 million by 2025, platform sellers are set to experience massive growth in their fortunes.

But to truly capitalize on this growing segment, platform merchants must follow prudent fiscal management. After all, over the years, 38% of small businesses have had to shut down due to cash mismanagement—a problem that became even more acute during the COVID-19 lockdown. 

So, how can platform sellers manage their finances judiciously and become a part of India’s growth story? Let’s delve into it.

Managing finances prudently — 6 ways to know

Undoubtedly, small businesses participating on digital platforms are often constrained by razor-thin margins. Add in delayed payments, order cancellations, or economic exigencies, and the chances of a business recovery become bleaker. So, here’s what can platform sellers can do to avoid this fate:

1. Monitor their spending

Managing finances sensibly demands proper tracking of all business expenses. To do this, platform sellers must separate their business and personal account. Additionally, they must keep a trail of various expenses made from the current account, credit card, savings account, and lines of credit – even small amounts as they add up to a significant sum.

Furthermore, they need to keep on top of all the uncashed cheques paid to suppliers. eCommerce sellers must also account for the shipping costs and the amount lost on canceled and returned orders, and whether any commiserate price increase is in order for healthy financials. 

Monitoring spending becomes all the more imperative for those with seasonal businesses, as they need to generate sufficient resources to ride out the off-season.

2. Create a rainy-day fund

Generally, small enterprises face severe cash flow issues when starting their business, particularly bootstrapped ones. This is because they are yet to build a customer base but need to start spending on business operations, production, and marketing.

However, funding issues become even more acute in times of emergencies, as had become apparent during the COVID-19 outbreak. Hence, platform merchants must maintain a cash reserve to help them survive through financial emergencies. 

Furthermore, platform sellers can also experiment with a line of credit, bank overdraft, or bank guarantee to keep them going during times of a cash crunch when nothing else works out.

3. Speed up cash inflows

While it is tempting to offer cash-on-delivery (COD) options to customers to increase sales volume, it doesn’t exactly spell a boon for your finances. 

With digital payments taking off, especially post-2020, platform sellers can exploit this trend by offering prepayment discounts. This is a sure-shot way to ensure that cash is handy at the time of payments, while also leaving wiggle room to invest in further growth.

At the same time, platform sellers can improve their finances by negotiating more favorable terms with suppliers. Here, the aim is to ensure that the payables cycle is longer than the receivables cycle. Small businesses should also demand big discounts for placing bulk orders and making prompt payments for better cash flow management.

4. Raise average order value (AOV)

The easiest way to build up finances is to raise revenue. Platform merchants can employ several methods to raise their AOV, i.e., the amount received per order, such as bundling and upselling. Cross-selling, which is the practice of offering complementary products, can also help drive more sales and revenue.

Platform sellers can further boost their sales volume by expanding into other markets—be it pan India or global. Another effective way of boosting revenue is to offer free shipping on orders meeting a minimum threshold.

5. Invest in a budgeting and forecasting system

While it is a no-brainer that businesses should keep a budget, nearly 46% still don’t create formal budgets. Not only do budgets help one keep track of all the incomes, expenses, and overall cash flows, but they also serve as a handy forecasting tool.

By analyzing payments and receipts trends, platform sellers can better forecast their future cash needs when scaling up their operations. Likewise, they will be well placed to take proactive steps when massive payments are due in the form of a machinery purchase, payroll payments, or debt repayment.

Furthermore, by budgeting and forecasting, platform merchants can stay a cut above their peers during the sales season, by precisely planning inventory buildup, promotional discounts, and seasonal hiring.

6. Solid debt management

Debt management has a significant impact on a business’s finances, even more so for small firms that are generally sanctioned loans at higher interest rates. In such a scenario, platform sellers should consider refinancing their debt to avail of lower interest rates. This will go a long way in improving their cash flows.

Additionally, by making prompt payments, platform merchants can further improve their credit scores and apply for loans at a more manageable interest rate. Moreover, business owners must aim to consolidate their debt and prioritize paying off loans with the highest interest payments for superior financial management.

Manage finances well for a successful business

Prudent financial management lies at the core of every successful enterprise. While an innovative idea can help platform merchants to break through in the competitive landscape of online selling, surviving and thriving will largely depend on how judiciously they manage their resources. The ultimate goal should be to ensure that the business remains profitable, has sufficient cash reserves, and continues to remain on track to outgrowing cash inflows versus outflows.

Give your business a solid head start with a collateral-free business loan from Protium or streamline your operations with a working capital loan from us. We offer personalized loans with minimal documentation at affordable rates. Get in touch with us at 8828827800 to know more.