Your webshop is doing well. Revenue is growing, orders are coming in, and your accountant shows you’re making a profit. But when you look at your bank account, you wonder: where is all that money? This is one of the most common questions among e-commerce entrepreneurs, and the answer lies in the difference between profit and cash flow.
Profit and cash flow are not the same
Profit is what remains after you subtract all costs from your revenue. Cash flow is the actual money sitting in your account at any given moment. These two can differ significantly, and that has everything to do with the nature of e-commerce.
Suppose you sell products for €50,000 and your purchase price was €30,000. Your profit is €20,000. But if you’ve already bought new stock for next month and Amazon or Bol is holding the payout for another fourteen days, your account might show just €3,000. The profit exists, but you just can’t access it yet.
Where does the money go? Three causes
Money tied up in inventory is the biggest culprit for most sellers. Every euro you invest in new products is temporarily unavailable. The faster you grow, the more stock you need, and the greater this effect becomes.
Delayed payouts also play a major role. Amazon typically pays out every two weeks, meaning recently earned revenue isn’t in your account yet. During peak seasons or with high chargebacks, this can take even longer.
VAT is money that isn’t really yours. You remit VAT to the tax authority, but until the moment of filing it does sit in your account. This can give a distorted picture of your true financial position. At the same time, you’re entitled to VAT refunds on purchases, but that reimbursement comes later.
The three phases of cash flow in e-commerce
E-commerce businesses typically go through three recognizable phases:
- Growth phase: you invest heavily in inventory and marketing. Profit may be positive, but cash flow is under pressure.
- Loss phase: products aren’t selling fast enough. Capital is locked up in slow-moving inventory.
- Stable phase: revenue, purchasing, and payouts are better aligned. Cash flow and profit start to converge.
Knowing which phase you’re in helps you make the right decisions. Scaling up? A negative cash flow can sometimes be deliberate and temporary. But without insight, you can’t tell the difference.
How to keep your cash flow healthy
A few concrete steps that make a real difference:
- Maintain a cash flow forecast, ideally on a weekly basis. This way you’ll spot a potential shortfall early.
- Connect your sales channels to your bookkeeping so you have real-time insight into what’s coming in and going out.
- Actively manage inventory turnover. Slow-moving products tie up capital you need elsewhere.
- Request VAT refunds promptly. This can noticeably improve your working capital, especially if you purchase internationally.
- Automatically set aside a fixed percentage of your revenue in a separate account. A rule of thumb of 10 to 15% helps you build a cash reserve, so you’re never caught off guard by a slow month, a delayed payout, or an unexpected purchase.
Calculation example: how much working capital do you need?
You sell an average of €40,000 per month. Your purchase costs are 50%, so €20,000. Amazon pays out after 14 days, and your supplier lead time is 30 days. This means that at any given moment you can easily have €30,000 to €40,000 in working capital tied up, just to keep day-to-day operations running. Without this insight, making adjustments is nearly impossible.
Insight as a foundation
A healthy cash flow starts with insight. Do you know where your money currently sits, when payouts are expected, and what your VAT position looks like? Then you can course-correct in time. Do you have questions about this, or want to know how Staxxer can help? Feel free to get in touch. Joke and her team are happy to think along with you about your VAT and bookkeeping.
