It is needless to say that ecommerce has been the most active space for startups in India. According to a report by nextbigwhat.com, Fifty Two ecommerce companies have raised $700 million over the past 3 years alone. It is, however, a tough space to survive in. The same article goes on to mention that only 30% of them could raise the next round of funding. The competition to get both investors and customers is getting tougher with each passing year. Needless to say, only a few of these firms are expected to survive in the next five-ten years.
How do successful ecommerce firm handle their Finance
We bring you some of the useful tips as provided by Ryan Sedgwik in The Whole sale Forums, to get an idea of the right steps to manage Finance in an ecommerce firm.
1) Learn to Bootstrap: Unnecessary spending is a habit that every venture picks up really easy and it is more so on business purchases such as stock and inventory. As the article mentions : “If you have a portion of money available that’s great, but try to spend as little as possible upfront.Once your business has been running for a couple of weeks you will have a better idea of what you really need and you can spend your money where it has the best return.”
2) Test your margins: The toughest part for any business is to decide on the margins and the price at which they would be selling their products. The article provides a few tips to test your margins:
- Try re-running your numbers with costs 20% higher
- Or with your sales are lower than expected
- Or if some of your stock is unsalable
- If everything goes against you, can you still make a profit?
3) Factor in small costs: It is easy to neglect the small costs that are involved in running any business. The small costs can add up significantly and become a pain point at a later stage. It bodes well to keep an eye on these costs and remove any expense that is unnecessary for the business
4) Factor in returns: This is something that every ecommerce venture should be vary of. To survive in this space, it is necessary to provide the customer an option to return the item they purchased. A lot of businesses lose money because they either fail to factor returns or underestimate them considerably.
5) Use Finance Software: At the early stage the complete operations can perhaps be managed on an excel sheet but we have observed that startups in ecommerce scale up considerably in a short period of time. After reaching a certain scale, it is important for a venture to invest in good information systems and they should ensure that they invest in a good accounting software to manage their accounts. They can also possibly outsource their Finance to a service provider who has invested in the software and is able to provide them as a part of their service.
6) Save for tax time: As a business owner, one should familiarize themselves with tax and the ways to manage it. Again outsourcing it to a professional service can help to get advice regarding tax and timely payment to avoid penalties.
You can read the entire article here : http://www.thewholesaleforums.co.uk/blog/accounting-tips-for-ecommerce-start-ups/