Many online merchants turn to working capital financing to take advantage of expansion opportunities and expand operations without draining the company's cash reserves.
And there are many ways merchants can use those funds, regardless of the type of financing option that an online seller secures.
Continue reading as we discuss the 5 ways to use working capital financing that can help you accelerate growth of your ecommerce store.
Working capital refers to the amount of money a company has to fund its day-to-day operations.
It's the difference between a company's current assets (cash, accounts receivable, inventory, and short-term investments) and current liabilities (accounts payable, short-term loans, and other debts within one year).
As a result, working capital is essential because it gives a company enough cash to cover its immediate expenses, such as salaries, rent, and other bills.
If a company lacks sufficient working capital, it may struggle to meet financial obligations on time, which can harm its reputation and cause financial difficulties.
A healthy working capital level is crucial to establish growth and upcoming investment opportunities.
Here are some of the common advantages of using working capital:
✔️ Paying short-term expenses — Working capital lets a company pay rent, salaries, and utilities on time. This prevents late payments and business reputation damage.
✔️ Maximizing business opportunities — A company with enough working capital can buy inventory at a discount, expand into a new market, or invest in new technology.
✔️ Managing cash flow — Working capital protects a business from unexpected expenses and customer payment delays.
✔️ Increasing reliability — Working capital can boost a company's credit ratings, making it easier to get financing and negotiate better supplier terms.
✔️ Supporting growth — With enough working capital, a business can invest in new products, expand operations, or acquire other companies, increasing profits and long-term success.
Let's take a closer look at these 5 uses of working capital financing for your company.
As your store gains popularity and new customers, you will see an increase in orders.
To meet the increasing demand, your first step will be to purchase more inventory to avoid running out of stock.
Very often, however, sellers do not have enough cash for the initial payment on a bigger order—this is where the working capital loans come into play.
Instead of taking the money from your cash flow, you can get funding from external sources to invest in inventory purchases.
Depending on your provider, they can give working capital to you as a business owner or pay for the order directly to your supplier or manufacturer.
This way, you don’t have to put a strain on your business funds and still grow your store and keep your stock full.
Suppose a retail store sells clothing and accessories and has been experiencing an increase in demand for its products.
With the help of working capital the store can:
👍 Make an advance purchase from its suppliers to stock up on inventory.
👍 Take advantage of quantity discounts and always ensure enough stock.
👍 Increase its sales and profits.
👍 Enhance its customer service by making it easier for them to purchase the items they need.
Of course, the store needs to monitor its inventory levels and cash flow to ensure that it doesn't tie up too much cash in inventory or run out of working capital to cover other expenses.
But in this example, using working capital to order more inventory can help the store to grow and remain competitive in the marketplace.
Product innovation is a great way for ecommerce businesses to grow their companies.
However, performing the research and development in-house or acquiring adjacent businesses to expand product lines requires a lot of capital.
With external financing, online sellers can take the time to do the proper market research, testing, and development of a product that holds real potential.
Then, once the new products hit the market, the merchant can quickly repay the financing over time with a portion of the increased sales.
Moreover, ecommerce stores that offer a more comprehensive range of products are well-prepared to handle market fluctuations, changes in consumer demand, and challenges in the supply chain.
Suppose a company produces and sells organic food products like fruits, vegetables, and dairy products.
The company has been successful in its current market but wants to expand its product lines and enter new markets to generate more revenue.
It has recognized a potential market in the frozen food industry and has chosen to introduce a new range of organic frozen food products.
To fund this new product line and enter the frozen food market, the company needs to:
The company can use its working capital to invest the necessary resources to launch the new product line and enter the new market.
Expanding can help the company generate more revenue, attract new customers, and establish a larger market share.
Another way that ecommerce stores can use working capital financing to grow their business is by ramping up hiring efforts.
Without external financing, it is very challenging for early-stage businesses to bring on qualified personnel that will add value to operations.
However, this is a crucial part of business expansion as the owner has increasing delegation needs and can no longer accomplish all tasks effectively on their own.
Thus, working capital financing can help ecommerce stores cover payroll needs and attract talent with adequate compensation.
The goal of hiring more people is to give the company the extra muscle it needs to grow and reach the next level of success.
A company may prefer to hire consultants or outside experts on a specific business issue rather than fill a full-time position internally.
Either way, working capital financing allows ecommerce stores to leverage professionals’ expertise to propel their business forward.
Let's say a successful tech startup is experiencing rapid growth and needs to hire new employees to keep up with demand.
The company can cover advertising expenses for new employees, conduct recruitment and background checks, and facilitate their onboarding using working capital.
By doing so, it can also establish:
👍 A solid foundation for future growth and success.
👍 Rise in productivity
👍 The introduction of novel products or services
👍 Higher customer satisfaction
👍 Strengthened competitive position
Businesses can invest in their marketing as a way to continue growing their business and acquire new customers.
During the earlier stages when cash flow is tight, ecommerce stores may lack the resources needed to fund marketing efforts.
With a cash injection from working capital financing, online sellers can become more aggressive with their marketing efforts, including social media ads, podcast promotions, influencer marketing, and more.
Plus, working capital financing gives them the space to test out different channels, and really refine their brand voice.
The more you get your business name and products out there, you can stay top of mind with potential customers and earn future sales.
As they say, “it takes money to make money”.
A retail business wants to introduce a new marketing initiative to increase brand recognition and sales.
This company can invest its working capital in a fresh marketing initiative and effectively communicate with its target market.
By doing this, the business can:
👍 Raise consumer awareness of its brand
👍 Draw in new clients
👍 Spur sales growth
👍 Strengthen its market position
👍 Set itself apart from competitors
👍 Increase customer loyalty
A key to identifying growth opportunities and taking advantage of favorable market conditions is by monitoring key business data and market insights with dedicated software programs.
The availability of such data can make a significant difference between the growth rates of different online retailers.
There are many ways that investing in better software and technology can help online sellers grow their stores.
For instance, it can help them better track inventory levels and identify when they need to re-order in time to avoid a customer favorite being out of stock.
Plus, some programs can monitor market trends and help sellers identify markets or products that have growth potential.
All in all, having updated technology and software systems will help businesses over the long-term and allow them to make informed business decisions.
A manufacturing company wants to implement new software and technology to increase productivity and streamline operations.
The company can use its working capital to invest in other technology upgrades like hardware, software licenses, training, and the ERP system to:
👍 Increase productivity
👍 Lower expenses
👍 Improve operational efficiency
👍 Improve customer service
👍 Stay competitive in its industry
👍 Adapt to shifting market conditions
No matter what your small business needs cash for, a quick and low-risk way to access funds is through asset-based financing.
Therefore, alternative funding sources like asset-based financing are growing in popularity as the global ecommerce industry continues to expand and show a demand for funding.
Plus, when working with a provider like Myos, merchants don’t have to take on the personal guarantee — they rather share the risk with the borrower.
Let’s discover why Myos financing is the easy and efficient answer to your business's short-term cash flow problems.
Myos also does not require personal guarantees for funding because they evaluate your business based on the potential of the products you sell rather than your credit history.
They have established relationships with reliable warehouses all over Europe and the United Kingdom, giving you a wide range of fulfillment choices.
🎯 Money available: €10,000-€2,500,000
🎯 No personal guarantees are required.
🎯 We only use your goods as collateral.
🎯 You can change the scheduled payments without any extra charges.
🎯 Transactions are based on the current market price of your goods.
🎯 Quick and easy application process.
🎯 Fast response time.
🎯 Reliable financial and growing companion.
Get your non-binding offer right to start growing your business today.