2023 is more than halfway over now, which means it won’t be long until were back to the busy selling season. While July may seem too early to even think about Q4 and busy holiday sales, the start of Q3 is the time to make your plan for an ecommerce reserve cushion.
This means the dreaded cycle of borrowing to get ready for Q4, selling as much as possible, even if it’s at low margins, paying off all the debt, then repeating when it’s time to prepare for the next Q4, is about to kick off once more. It’s a cycle you don’t want to get caught up in, so let’s talk about how a reserve cushion can keep you out of it.
Your Cash Works for You
It’s best to start with understanding your product profitability. You can then create a strategy that works with both your inventory levels and ad costs to keep those margins at the highest level possible. Then analyze your product mix and see where you can best use your cash.
It’s possible that you’re buying inventory that uses cash but gives little of it back in return. You want to make sure your cash is working for you. If a product moves too slow or makes too low a margin, it’s time to make changes to your product mix.
Fluff the Reserve Cushion
Now you’re ready to work on your strategy for paying off debts and growing your cash reserve cushion. You want those reserves to grow so you have them in case of emergency, and with talk of recession and an unsteady economy, that emergency seems more possible than ever.
The best way to build your cash reserve cushion is to build up cash while paying debts at the same time. Ideally, you’ll want to add up enough to cover 3-6 months’ worth of expenses in your reserve. Working on this will make you more frugal, but you’ll be more efficient and creative with your spending.
Effectively monitoring and managing all your expenses is just an added bonus to this strategy. Add in your profitable products and your new effect product mix, and you’re also increasing sales. This means you’re now bringing in more and sending out less, putting more cash into your pocket. You’re ready to reduce those debts and grow that reserve cushion!
Break the Bad Habit
Now as you start thinking about ramping up for Q4, take a look at what you have in the reserve. Is there enough to pay for the extra inventory without needing to borrow, or at least borrow less than before?
It’s possible that you’ll need 3 or 4 selling seasons before you have enough cash in the reserve cushion, however, as you build the reserve you get all the perks of a debt-free business. Think now about how you can take care of the debt and still build up your reserve cushion. Maybe you can make minimum payments while you fully flesh out your strategy.
No matter what strategy works out best for you, building those reserves and buying time will always bring you more peace of mind than living in the Q4 borrowing cycle. Not only will you be prepared for your Q4, but you’ll also be ready for any emergency life, or the economy, might throw at you!
If you’re ready to start building that cash reserve cushion, but don’t know where to start, we can help! Talk with the bookskeep Team today!