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👩🏻‍💻 Cash Flow and Runway
Last Updated:  
December 2, 2022

👩🏻‍💻 Cash Flow and Runway

I often hear that revenue solves all problems… but you’ve been fed a lie your whole career.

Sales Don’t Solve Your Problem. CASH FLOW does

And when you run an eCommerce business, cash matters, and it matters a lot. So does its relationship with your ad spend, inventory, shipping costs, employees and contractors, software, and everything else under the sun.

I’m sure every single one of you reading this right now has asked yourself: “how much runway do I need for my business to continue growing?”

The honest answer is, it depends.

And the reason it depends is that your business operates with a unique set of strategies and goals — and they will often change — especially as you scale.

For Example:

Funded versus Bootstrapped businesses

New Businesses versus Seasoned businesses

Profitable versus Unprofitable businesses

Subscription Based versus One-Time Purchase businesses

10 Day Turnaround versus 60 Day Turnaround time for production

Regardless of the category, your business falls under, there are underlying principles you need to follow that’ll put you one step closer to mastering your cash flow needs.

But before we dive in, we have to define what cash flow is.

A photo of a stream flowing through a mountain meadow.

What is Cash Flow?

Cash flow refers to the net amount of cash and cash equivalents being transferred in and out of a company.

As a simple rule of thumb: Cash received represents inflows, while money spent represents outflows.

The more cash comes in and the less cash goes out, the more free cash flow (Operating Cash Flow - CapitalEx) your business owns to scale your business.

Oftentimes we refer to our net income as the golden standard of health for our business, but that doesn’t always paint the true picture of the business's health.

You can be profitable for three months, but if you owe more money than is coming in, you’ll always be in a deficit and burning cash.

That’s why it’s crucial to:

-Spend less than you earn

-Push for recurring revenue

-Stretch out your account payables (money that you owe)

-You OPM (other people’s money) to continue funding your business

I’ll teach you exactly how to do it.

Foundation

-Understand your fixed costs and operating costs (software, employees, rent, etc).

This will help determine what MUST be paid on a monthly cadence, versus what you can stretch out.

-Set a strict monthly/quarter budget for contractors & ad spend and don’t overspend unless your ROAS is positioned for profitable scale.

-Analyze all potential vendors (mostly inventory, 3PL, contractors, and shipping carriers) for what you can stretch out.

Now, we’re on to the magic.

Stretching Your Ad Spend

The most important action you can take is EXTENDING payment terms toward ad spend but traditional CC's aren't wonderful for this.

Using true Net-60 term cards like Parker opens your runway to collect sales and allocate that cash before you pay for your ads.

Wayflyer is also offering net terms and a cash advance on Tik Tok spend if you want to get even craftier.

My suggestion would be using a Parker card for Meta and Google spend, and Wayflyer for TikTok spend.

You’ll always be 30-60 days ahead, and if your ROAS isn’t negative, you’ll never be left behind.

A phograph of a neon sign at night that reads "MONEY TO LOAN"

Short-Term Loans

Short-term capital is paramount to fulfill inventory purchases without taking up your capital.

There are wonderful resources like Shopify Capital, Clear Co, Stripe Working Capital, PayPal Working Capital, and Wayflyer that will inject your business with cash up-front and collect a percentage of sales until the balance is complete.

And in a world of rising interest rates, most of the companies mentioned above only charge a simple interest rate of ~5% (depending on your sales and creditworthiness).

Please note: be responsible for this. Don't expect to take out tons of money and only use WHAT YOU NEED to fulfill the Q4 DEMAND.

Anything in excess (that you can't pay back), is pure risk.

Inventory Purchases & Net-Term Extension

Now that you have a loan to buy your inventory using OPM (other people’s money),  you need to determine WHAT inventory to buy.

Here’s My Simple Hack:

If 80% of your revenue comes from 20% of your products...

Triple down on the 20%, AKA your hero products!

Your business has a better chance of a customer buying multiple units of your hero product than buying a random, ancillary product.

Anything outside of that, you’re compromising your cash flow with inventory that is not highly leveraged in your favor.

Once you’ve nailed down what to order, it’s time to negotiate with your supplier to extend your runway.

Assuming you've been ordering from this supplier often, it's the perfect time to ask for extended terms.

Here's the structure I like:

30% Immediately

30% When Landed

20% Net 30

20% Net 60

Why?

A single P.O. is now broken up into four payments & you’ve given yourself a run-way of remittance that can last 90+ days.

On top of that, the money that you spent is from a loan.

You've effectively double-dipped your net terms and cash flow.

Quick Note:

Suppliers are especially forgiving during Q4 for two reasons.

They want you to place a larger order, and the suppliers themselves are producing at much higher volumes.

They can afford to give you better prices and better terms, and everyone wins because of the high volume. High five, economies of scale :)

A photo of a FedEx truck parked outside of a large building.

Shipping Carrier Negotiations

Shipping can be your best friend or your mortal enemy. For smaller, up-and-coming brands, the cycle is deadly.

Every day you ship your packages, you’re billed for them immediately. There’s no runway and it’s a direct expense you can’t get out of… until you make carriers EARN your business.

I’ll explain.

There are really only four large carriers (FedEx, UPS, USPS, and DHL) that are servicing eCommerce and they’re all begging for your business.

Since shipping is a large volume business, the big four rely heavily on customers with longevity and brand loyalty.

This gives you the perfect opportunity to create a bidding war between the four on two fronts: net terms, and shipping rates.

By simply calling all four carriers and asking for a rep, you can:

-Demand better prices

-Ask for net terms (at least 7 or 14 days)

-Volume discounts

-Free pick-ups

-Free supplies (tape, poly mailers, boxes, etc)

Since they all offer a similar service and honor similar insurance policies and transit, simply choose whoever gives you the best deal.

It’s an easy negotiation that works 80% of the time, and once it’s completed, you’ve slashed your shipping costs and extended your runway at the same time.

Conclusion

The more you focus on increasing your cash flow and extending your runway, the better your chances at surviving, scaling, and building enterprise value.

It’s incredibly subjective, but with these simple hacks that anyone can take advantage of, your business will be in a better place.

-Use Net-60 Terms for Ads

-Use OPM for Inventory

-Double-Dip Net Terms for Inventory

-Save on Shipping Costs & Net Terms

You've maxed out your outcome, minimized risk, and opened your runway.

Congrats!

About the Author

Rabah Rahil

Live in Austin. Ride a @BoostedBoards. CMO at @TryTripleWhale. Marketing, Tech, Outdoors, Photography, Webdev and Stoicism.

Rabah Rahil

Live in Austin. Ride a @BoostedBoards. CMO at @TryTripleWhale. Marketing, Tech, Outdoors, Photography, Webdev and Stoicism.

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