When ecommerce brands evaluate working with Clearco, there is a lot to carefully consider. Part of what we do is help founders  determine the amount of funding their business needs and the type of capital which makes the most sense for their business. All too often, business owners take on secured loans with  personal guarantees, which do not grow with the business’ revenue / cash flow profile, putting a  strain on founders who have to look elsewhere for incremental funding. Part of our role but also our value to brands is ensuring our working capital solution, Invoice Funding, makes the most sense for our customers’ needs.

Growing companies take on outside funding for everything from equipment to inventory to payroll. We want to help businesses understand what type of capital they need and why they need it. This means diving into their cash flow to understand the financial health of their business and how we can support it to truly drive growth.

Why is cash flow important?

82% of SMBs in the United States fail due to cash flow problems. It’s important not to mix cash flow and profit. It’s entirely possible to be profitable and to run out of cash, or vice versa. Having negative cash flow for some period of time doesn’t necessarily mean that you’re making a loss, since cash flow only refers to liquid assets. 

However, you need to make sure that you don’t run out of cash because you can’t use tied up assets to pay your staff, suppliers, energy bills or taxes.

What is cash flow?

Cash flow refers to the flow of money in and out of a business, in Clearco’s case, a direct-to-consumer ecommerce business. Ecommerce businesses generate cash from sales of their product and reinvest those proceeds to (i) purchase new inventory, (ii) make investments in marketing and (iii) pay ongoing G&A to keep their businesses running. Some investments can take time to turn back into cash inflows, putting a periodic strain on a business’ liquidity.  It is imperative that ecommerce businesses constantly assess cash flow in order to evaluate their brand’s liquidity, flexibility, and financial health.

How to calculate cash flow?

Calculating net cash flow requires your business to understand the total inflows versus the total outflows. Once you have these numbers, you can subtract the total cash outflow by the total cash inflow using this formula below:

Net Cash Flow = Total Cash Inflows – Total Cash Outflows  

What is a 13 week cash flow model?

Now that you understand what net cash flow means generally, let’s explore the horizons over which we measure it.  Many businesses prepare annual and quarterly financial statements that include a Statement of Consolidated Cash Flow (“SCF”), in addition to an Income Statement and Balance Sheet.  The SCF is a summary presentation of how a business has generated and disbursed cash over some historical period.  The SCF typically includes three sections, reflecting cash flows from Operations, Investment, and Financing. SCFs are a great way to understand – at a high level – how a company produces or uses cash in its operations (i.e., from their core, everyday business), in its investments (i.e., capital expenditures or divestments of assets), in its financing activities (i.e., debt borrowings and repayments, equity raises, etc.)

A more detailed and pure “cash-in, cash-out” model that some companies use to forecast near-term cash flows is the 13 week cash flow model. A 13 week cash flow model provides highly detailed weekly liquidity visibility that is accurate and precise enough for leadership to identify medium-term liquidity risks. Per WallStreetPrep, “Thirteen weeks also offer ample time to take action and resolve those issues.”

In our experience, 13 week cash flow models are often used by companies that are experiencing financial stress or running out of cash.  We often see distressed borrowers use them as they conserve cash or prepare to possibly restructure their financial obligations. In short, the tool is often used by mature companies that are in decline and whose revenues and profits are contracting.  At Clearco, we think the 13 week cash flow model is also an incredibly powerful tool for rapidly growing businesses that are intent on prudent and disciplined financial management as their revenues expand rapidly and as they contemplate additional ways to grow and finance their business.

Download the free 13-Week Cash Flow Model Excel template from WallStreetPrep.

What financial information does your business need to build detailed cash projections?

When signing up to Clearco, you will notice that we request that our customers first connect their  revenue accounts as part of the funding journey. The revenue account connections we accept are:

• Shopify
• Amazon
• BigCommerce
• PayPal
• Square
• Stripe

Connecting these revenue accounts to Clearco allows us to better understand your business. These revenue accounts that you have can also give you great data to build out your cash flow statement. Manually collecting financial and company data is important to properly evaluate your cash flow. There are a wide range of data sources that feed into your cash flow forecast. Once you have your cash inflows lined up, it is important to include the following cash outflows to accurately measure your net cash flow:

• Accounts payable payments
• Future inventory purchases 
• Sales tax payments
• Merchant selling fees
• Ongoing payroll and business operating / administrative expenses
• Rent / lease expenses 
• Fulfillment / shipping expenses Credit Card payments
• Other Debt Obligation Payments

Do ecommerce brands need to report bank account data to Clearco?

The cash flow statement complements information reflected in a customer’s balance sheet and income statement. Clearco requires you to connect revenue accounts, as indicated above, as well as your bank accounts, through Plaid or by uploading bank statements. Through these connected accounts, Clearco is able to assess your cash flow and financial profile and thereby determine your funding capacity.

What funding will my ecommerce brand qualify for from Clearco?

Use our calculator below to see what approximate funding capacity your brand could qualify for and use to fund inventory, marketing, shipping, and more:

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