Amazon Money Management: Tips for Weathering COVID-19

I’ve heard it said that we are not all experiencing the same pandemic. I know that is true for my clients. Some of them have non-essential items and sales on Amazon fell to nothing. Others have seen sales that are 30 to 40% greater than this same time last year.

Some clients had to get busy and determine how to survive in the new world order. How about you? Too much or not enough? How do you manage cash in this uncertain environment?

Yes, even with increased sales, the environment is uncertain as we don’t really know the long-term impacts to our economy. Here are some tips for weathering COVID-19 changes.

Parkinson's Law: Use What You Have

In the early 1950’s, a British naval officer and economist developed an economic law that bears his name. Simply put, the law says, “you use what you got.”

So, if today you have a pandemic sales slump, then you must be looking for ways to get by with less. If you’re in the pandemic sales surge, then you need to monitor your cash use so that you don’t fall victim to Parkinson’s Law and spend your money foolishly. Let’s look at each scenario and how you can win either way.

Amazon Money Management Strategies

First, if you’re seeing a cash shortfall, let Parkinson’s Law work for you. While the government grants and loans can be a help during this time, you should continue to operate from the mindset that you need to make your cash last as long as possible.

If your business has not generated good gross margins, take the time to understand the issue. Forgiven loans and grants from the government will not solve your underlying problem. Study the profitability of your products that make up the top 20% of sales in terms of both volume and sales income. If they aren’t achieving a 30% gross margin, then they are not contributing enough to help you grow your business.

Next, look at your operating expenses. Now is the time to reduce, suspend and delay any expenses you can. Be ruthless here because many businesses leak money through operating expenses.

For example, if most of your current expenses are paid with a credit card, and you have expenses such as software or other subscriptions, one strategy is to cancel that card and work with your bank to obtain a new one. Then, as you receive notices of failed payment from those subscription companies, you should be judicious and re-subscribe to ones that add value to your business. The same holds true of any other costs you have.

How to Manage Cash Flow on the Surge Side

If you’re on the surge side of the pandemic, now is the time to be equally careful with the extra cash from your sales. If you are a Profit First veteran, you may be familiar with our “Squirrel Fund” strategy that we bring into play during the busy season.

During these times, we make sure that we maintain our operating expense bank account at the level that we need during normal operations. Things like rent and insurance don’t really fluctuate based on our business seasonality. So, look at the typical month’s expenses and maintain your balance at that level. All excess cash should be moved to a savings account. If you’re using Profit First, then I suggest adding it to your Profit Account. The idea is, out of sight and out of mind, so you don’t “use what you got.”

When things are busy and extra cash is on hand, we don’t make our best decisions. Parkinson’s Law takes over and we spend money on things needlessly. As a result, our need to be innovative goes down. By simply making the money less available, we can stay on the right course and operate our business wisely. Once the “busy-ness” has slowed down, we can evaluate the best use of the funds. Perhaps at that time there will be less uncertainty around the economy and possibly you will know more about what products are performing well in the economic recovery.

While it may seem counter-intuitive, Profit First and Parkinson’s Law help with Amazon money management for both cash shortages and cash surpluses. It puts the spotlight on cash to manage it for its best use.

Interested in Profit First?

If your Amazon business isn’t where you’d like it to be in terms of profitability, check out my book, Profit First for Ecommerce Sellers. It answers important questions about how to implement Profit First in an eCommerce business. Take control of your money and your business and put Profit First to work for you!