Profit & margins
Cash flow forecasting for online stores
A cash flow forecast predicts how much cash will come into and go out of your business over the coming weeks or months, so you can see shortfalls before they happen. Cash flow forecasting has advantages and disadvantages, but for online stores it matters even when the business is profitable, because inventory is paid for long before it sells.
The cash flow formula
Net cash flow = Cash inflows − Cash outflows Closing cash = Opening cash + Net cash flow
- Cash inflows
- payouts from sales, loans received, owner investment
- Cash outflows
- inventory purchases, ad spend, shipping, salaries, apps, loan repayments, taxes
Each period's closing cash is the next period's opening cash.
A three-month example
Worked example: profitable every month, cash still dropsExample numbers
| Month 1 | Month 2 | Month 3 | |
|---|---|---|---|
| Opening cash | $40,000 | $34,100 | $41,100 |
| Cash in: sales payouts | $47,000 | $43,700 | $54,400 |
| Cash out: inventory purchases | $30,000 | $15,000 | $45,000 |
| Cash out: operating expenses | $21,400 | $20,400 | $24,250 |
| Cash out: interest and taxes | $1,500 | $1,300 | $1,800 |
| Net cash flow | −$5,900 | +$7,000 | −$16,650 |
| Closing cash | $34,100 | $41,100 | $24,450 |
The store makes a profit every month, but cash falls by $15,550 over the quarter. In month 3 it pre-buys stock for peak season, and $45,000 leaves the bank before a single unit of that stock sells.
Inventory: the biggest cash drain
For most online stores, inventory is where cash goes to wait:
- You pay before you sell. Suppliers want payment on order or shortly after; customers pay when they buy, weeks or months later.
- Growth needs more stock. Each step up in sales means buying more inventory ahead of it.
- Slow movers trap cash. Stock that doesn't sell keeps cash locked up and adds carrying costs.
The cash tied up in inventory calculator shows how many days of cash your stock represents.
Cash Tied Up in Inventory CalculatorHow many days your cash sits as inventory before it becomes cash again.Advantages and disadvantages of cash flow forecasting
| Advantages | Disadvantages |
|---|---|
| Shows cash shortfalls weeks or months ahead | Only as good as your sales assumptions |
| Helps time inventory orders and supplier payments | Takes regular updating to stay useful |
| Supports conversations with lenders and suppliers | Can give false confidence if built on optimistic numbers |
| Shows the real cost of growth and peak-season stock | Harder for new stores with little sales history |
| Highlights when you can afford to invest | Unexpected events (stockouts, platform changes) can throw it off |
The disadvantages are reasons to keep a forecast simple and update it often, not reasons to skip it.
Want this handled automatically?Forecast demand and know exactly when to reorder, before you stock out or tie cash up in overstock.Try Verve AIHow to build a simple cash flow forecast
- List expected cash in by week or month, using recent sales and a realistic growth assumption. Allow for the timing of payouts from your payment provider.
- List cash out: inventory orders (on the date you pay, not the date stock arrives), ad spend, shipping, salaries, apps, loan repayments and tax payments.
- Calculate net cash flow and closing cash for each period.
- Flag any period where closing cash falls below a safety buffer, such as one month of operating expenses.
- Update it weekly or monthly with actual figures.
Ways to improve cash flow
- Order inventory in smaller, more frequent batches where supplier minimums allow it. See what MOQ means.
- Negotiate supplier payment terms, so you pay after stock starts selling.
- Clear dead stock to release trapped cash. See the guide to dead stock.
- Plan peak-season buying early, so the cash dip is expected, not a surprise.
For how inventory moves between the balance sheet and the P&L, see P&L vs balance sheet.
FAQ
What is the cash flow formula?
Net cash flow = cash inflows − cash outflows for the period. Closing cash = opening cash + net cash flow. Each month's closing cash becomes the next month's opening cash.
How far ahead should I forecast cash?
At least three months, and further ahead of big inventory purchases or peak season. Many stores keep a rolling 13-week forecast and update it weekly.
Why is my store profitable but always short of cash?
Usually because cash goes into inventory before it comes back as sales. Profit only counts stock when it sells, but you pay suppliers when you order. Growth makes this worse, because you buy more stock ahead of each sale.
What's the difference between a cash flow forecast and a budget?
A budget plans revenue, costs and profit. A cash flow forecast plans when money actually moves in and out of your bank account, including inventory purchases, loan repayments and taxes that don't appear as expenses on the P&L.