We’re all in this together! 

The COVID-19 situation is still upon us and there is no denying it. The eCommerce industry is no exception to its effects. We have been experiencing different buying patterns, different emotions driving purchases, different needs and different interests. The psychological patterns and triggers in the customers’ decision-making processes are no longer the same.

Apart from the changed consumer behavior, we have to look at the financial status, as well, right? Wayne Richard has been our guide through an eCommerce recession impact study, where he presented some of the best ideas to take into account during this period and beyond to keep your business going with head held high.

Spoiler alert: a cloud-based accounting software like Bean Ninjas’ Xero is a must these days!

Who is Wayne Richard?

Wayne Richard is the COO of Bean Ninjas, the management accountant who forged a 15-year career with tech heavyweight Hewlett Packard before starting his own cloud accounting firm in Tucson, Arizona.

Fate (and the Internet) brought him to discover Bean Ninjas via a blog post. Two years later and Wayne’s involvement with Bean Ninjas had grown from a blog comment to a contractor and eventually equity partner.

Wayne is Bean Ninjas’ resident e-commerce expert.

Key takeaways from this episode

The benefits of cash flow forecast

I shared our original hypothesis that we just truly believe that having these cloud-based systems will put you in a position to better support your business through those downtimes. And it’s like Christmas. Downtime is going to occur to every business and you need to be prepared. So having tools like cloud-based accounting software like Xero where you can produce real-time financial reporting, having supplemental tools like a cash flow forecast that move you beyond what most people do and that’s the tax compliant, traditional bookkeeping effort, but move you into more of what big companies do –  like HP – that’s financial reporting and analysis.

Having been through that startup phase, it’s more important when you’re first starting out because every dollar means more. So you need to tell those dollars where they need to go and where they should be spent within your business. And the best way to do that is to begin to lay out a plan that says “I understand what I have available.” So you lay out your beginning cash balance, you look at all the cash inflows, all the sales channels, the wholesale accounts that you might have that are drawing business into your operation and then you list out all of those cash outflows, those expenses your business will incur during a particular period.

So we suggest for most folks a good view is about 13 weeks into the future. It’s about the same as a quarter. I think when we look to forecast out beyond that… like COVID, no one could have expected this! If you said, “What did your cash flow forecast look like back in January?” I can almost with 100% certainty assure that it looks nothing like it does today. So we recommend [this] to all businesses – and in particular for e-commerce – because as you know, the most critical piece of spend that you have is on inventory and typically inventory spend occurs before you have an opportunity to sell it.

For most e-commerce operators, we recommend you managing your books on an accrual basis. It’s an accounting term, but what that simply means is rather than recognizing that expense in your accounts when the cash leaves your bank, you are going to tie the recognition of that spend to the sales and the timing of those sales that occur within your business. Because we are looking to shift and move when we’re recognizing those expenses within our financial reports, it’s then more critical than ever to have a cash flow forecast in line with your financial records. Everyone can open a bank statement and see the number that’s available, but most businesses have already made commitments against some of that money.

If you’re on 30-70 terms with the supplier or 50-50 terms, even though a balance may be sitting in your account, you might have already committed a big chunk of that cash to be spent on an executed P.O. [Purchased Order] or a contractor agreement or future salary to full-time team members that you have on board. So it’s not enough to just simply look at your bank balance and make decisions. You need to use these analytical tools like a cash flow forecast to just map out everything that’s coming in and going out to have certainty and confidence in what you really have available to make decisions on and spend.

The best KPIs an eCommerce should track

I was really motivated and inspired by a formula that was shared with me from a growth agency and it looked at e-commerce growth in a simple equation and it was:

Visitors x CR x AOV = Business Growth

*CR = Conversion Rate
*AOV = Average Order Value

Then it was further defined into average order value being a 60-day lifetime value. Some people say, “Wow, we’re really sold on the term “‘lifetime value’”. But as e-commerce operators, we can’t wait the lifetime to have net cash flow from that customer to make decisions.

What’s been unique is we’ve now said, “What’s a good frame of time that we can turn repeat orders from these same customers to generate increased cash flow?”

I love that formula in the view within three key metrics that you should be managing within your e-commerce and that’s the visitors to your site – you need more eyes on your product but those eyes you then need to convert. So what’s your conversion rate? Then also, what’s the average order value? Because if you can increase any of those factors, you’re going to then have an increase, multiple in sales. 

Making it easier for the eCommerce manager: the algorithm to justify all collected data

I’ll say that’s the biggest shift that we’re seeing now in the industry because the growth of e-commerce –  or not e-commerce, but cloud-based tools – to do a lot of what traditionally was very manual, processing by accountants is giving us more time and with that time we’re seeing a shift from accounting service providers moving from being transaction processors – bean counters – and more into coaches and having an ability to share insights and advisory.

We’re seeing it move from that historian perspective where we’re telling you the result in numbers of the decisions you’ve made in the past, more towards trying to be that that fortune teller, if you will, where we’re now saying, “Look, based on the best insights that we have available from that history, we can draw some conclusions that lead us to believe that these will be the outcomes for you and your business if you make similar or slightly different decisions based on the modeling.”

But I’d agree there’s really not an amazing business intelligence predictive tool that provides an opportunity for you to leverage the metrics chosen by the history and the customer experience metrics that can help you better predict the future. I think we’re on to something.

Next week promises to shine a light on how to get started on your direct-to-consumer journey with Rick Watson, the CEO of RMW Commerce Consulting.

Tune in on July 9 at 3 PM UK / 10 AM EDT!