WooCommerce Wednesdays: Cash flow management for WooCommerce store owners

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Sound WooCommerce cash flow management is one of the most integral parts of running an ecommerce business on this popular platform. Profit may be the ultimate measure of business success, but cash flow is what will keep it alive and running.

Money is always flowing in and out of the business.

With an accurate and detailed insight into what you’re spending and what you have available, you can make the best choices to sustain successful business operations.

In this post, we will outline how to approach WooCommerce cash flow management and how you can quickly set up the platform to get the data that you need.


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Why is WooCommerce cash flow management important?

In simple terms, cash flow measures the money that moves in and out of the business. With positive cash flow, you have more money coming in than out. Negative cash flow means the business is bringing less than what is needed to cover ongoing business expenses.

Here are some of the most essential reasons you need to manage the cash flow for your ecommerce store:

More accurate insights

Cash flow statements give you a more accurate picture of the health of your business. Things like budgets are good for planning what you want to happen. However, they do give you insight into what is actually happening.

Cash flows tell you what is happening at any moment. This allows you to act on these insights even if they are not what you had planned with your initial budget.

Helps you be prepared

When you plan your cash flows effectively, you will know how much working capital you need ahead of time. You can use this to predict shortfalls well before they occur.

Growth

Cash flow forecasts help you plan and execute a growth strategy. When you know (or at least have an idea) where you will be at a particular time, you can plan more efficiently.

Improve your business processes

Actively managing cash flows can lead to improvements across your business operations. In your efforts to stay cash-flow positive you will find opportunities to lower costs and improve overall efficiency.

If you find a process to be slow or ineffective, you can replace it with one that is better for the longevity of your business.

Creating a cash flow projection

Your cash flow projection breaks down all the money that is expected to come in and out of your business. This spreadsheet is an effective way to visualize the granular details of your cash flows.

And it is highly customizable. You can format the models according to your needs.

A typical cash flow projection chart has the periods you are measuring laid out as columns. Each month lists out all the costs you need to pay over that time. There is usually a column on the left-hand side with a list of both payables and receivables.

This column normally starts with operating cash from the previous periods. For example, if your cash flow projection for June suggests a surplus of $10,000, your operating cash for July would be $10,000

To calculate cash flow, you take the cash available at the beginning and end of a specified period. Less cash at the end of the period shows a negative cash flow.

To start, you need to determine your forecasting period. There are several different forecasts periods that are worth creating:

  • Short-term forecasts — Short-term forecasts look at the next two to four weeks. They contain an outline of all the cash payments and receipts over that period. This type of forecast is helpful for near-term liquidity planning. You will need to ensure the business can cover its day-to-day financial responsibilities.Short-term forecasts can also look two to six months into the future. The most common medium-term forecast is the rolling 13-week cash flow forecast.
  • Intermediate forecasts — Intermediate forecasts look about six to 12 months into the future. These forecasts will go hand in hand with your annual budgeting planning.
  • Long-term forecasts — Long-term forecasts look three or more years into the future. These are important tools for assessing the cash required for long-term growth strategies and capital projects.

The longer the forecast duration, the less viable information you will have for making your assertions. This means longer forecasts tend to be less accurate. As such, selecting the appropriate period can have a big impact on the reliability of your forecast.

You will also need to choose your forecasting method. There are two primary ways in which this is done; direct and indirect.

Direct forecasting uses actual cash flow data while indirect forecasting uses projected income statements and balance sheets. Direct tends to provide greater accuracy.

The cash flow data you need for direct forecasting can typically be found via bank accounts, accounts payable, and accounts receivable. Below is some of the data you will need to gather:

  • Opening cash balance for the forecasting period — This is typically taken from the most recent and accurate reflection of current positions.
  • Cash inflows for the forecasting period — For most ecommerce stores, the primary source of cash inflows will be the anticipated sales receipts during the forecasting period.
  • Cash outflows for the forecasting period — You’ll want to list out all the expenses whether it’s software fees, salaries, rentals and leases, paid ads. You should also include the date of the expense. This will allow you to accurately know the specific timing of all your outflows.

Building reports in WooCommerce

To create a cash flow projection, you will need accurate sales data. WooCommerce comes with a comprehensive Analytics dashboard. You can use this to view reports for your store, a key aspect of WooCommerce cash flow management.

The Revenue report will break down your gross sales, returns, net sales, taxes, and shipping costs. The dashboard also lets you customize the table to focus on the most important numbers.

Go to Analytics. Select the report that you want to view. Adjust the columns as needed and then export the file to a CSV.

You can then open this in Excel and use the data for your cash flow reports. This will provide your inflows. For your outflows, you will need to connect your accounting system.

How to connect accounting software to WooCommerce

There are a few simple WooCommerce accounting plugins that you can use to manage your expenses. However, these don’t offer the same robust capability as a standalone bookkeeping system.

The most popular online accounting platforms tend to have WordPress plugins that you can use to sync your site data with your accounting system. These come with extensive features that can help streamline your accounting. You can use these to ensure that every transaction is tracked and added to your accounting system.

Let’s take a look at how to set up Xero, for seamless reporting.

Integrating Xero for WooCommerce cash flow management

The Xero for WooCommerce extension lets you track your sales data and sends all your records to your accounting system. This includes data on items, shipping, discounts, tax, and everything else needed to keep your books in balance.

For the plugin to work correctly, you will need to have cURL and curlSSL installed on your server. The Xero API uses OAuth 2.0 to validate connections.

After you download the extension, you will need to create a new application in your Xero portal. You will then need to connect the application to Woocommerce to enable the syncing of data.

To create the application log in to the Xero developer portal and go to My Apps.

Select New App. You will then need to enter a name for the app and choose the OAuth 2.0 grant type. For this, you will want to select Web App. After you have made all the changes, click Create App.

Upon creating the app, you will be taken to a page with details for the app. Copy your Client ID, return to the WooCommerce Xero settings page, and then paste the ID into the corresponding field.

Go back to your Xero account and click Generate a secret. Copy the value, return to WooCommerce, and then paste it into the Client Secret field.

The secret is only visible at the time of creation. If you lose it, you will need to generate another.

Once you are done, save the changes in both Xero and WooCommerce. This should generate a button to Sign in with Xero. Click it and you will be directed to login.xero.com where you can authorize the connection.

After you complete the connection, you will be taken back to WooCommerce where you can confirm the status.

Pushing existing orders to Xero

If you want to push the details from your existing orders, the plugin allows you to do so manually. Go to WooCommerce > Orders and select the order you want to sync to Xero.

Go to Actions and select choose to Send Invoice to Xero and then click the > located to the right.

By automating the connection between WooCommerce and your accounting system, you reduce the risk of errors and save time.

How a good payment processor helps improve cash flow

Your payment processor can be an equally effective tool for systemizing your ecommerce accounting. To make the most of this ability, it is often best to use one solid payment processor.

Specifically, one that can handle multiple payment methods.

Multiple payment methods extend your reach and increase the chances customers find one that matches their preference. With a single processor, you can offer this while enjoying the same transaction fees with every order.

This may seem like a small benefit. However, the time it takes to keep track of varying transaction fees can quickly add up. It also complicates your cash flow projections. Instead of forecasting your transaction fees simply off your projected sales volume, you would also need to forecast the distribution of your orders across payment methods.

This gets even more complex if you sell through other marketplaces.

Amazon, Etsy and other online shopping hubs all have their own fees you will need to plan around. Consolidating your payment methods to a single processor can help you alleviate these problems to plan with greater ease.

In addition to keeping things simple, It is equally critical that you receive fast payouts from your processor. Many merchants point to slow payment processing times as the main reason for poor cash flows. It can be frustrating to make sales just to have the proceeds held up. You’ll need to source more materials to make more products or to get more goods from your supplier.

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