What You Must Know About Amazon Sellers Working Capital
Every business, whether a brick-and-mortar or an e-commerce store, needs to have working capital. Becoming a seller on online platforms, such as Amazon, may require lower investments, but you might realize that you need additional funding as you go along.
Apart from access to working capital, businesses should be able to manage their resources well. Improper working capital management could lead to issues including faulty inventory, poor online store performance, and employee and customer dissatisfaction.
For these reasons and many others, online business owners, including Amazon merchants, need to know more about working capital. If this resonates with you, read on to discover the basics of working capital.
What Is Working Capital?
Working capital refers to the money available to cover business expenses. It’s easy to calculate the working capital available for your Amazon business; subtract your current liabilities from your assets, and you get your net capital.
As such, your online store’s working capital plays a crucial role in the future of your business. If you’re struggling, analyze your processes and make the necessary improvements. Consider getting a working capital loan from Sellers Funding and similar financing institutions.
How Much Does An Amazon Seller Need As Working Capital?
Each Amazon merchant has different objectives. Some sellers want to start small and grow big, while others want to start big and grow bigger.
Below are some of the expenses you have to prepare for before launching your own Amazon store.
- Subscription fees: Merchants of this online selling platform must pay USD$39.99 per month for a professional seller account. This, in turn, allows you to sell more than 50 items, with no deductions on every product sold.
Conversely, a free Amazon seller account comes with restrictions such as a 40-product listing and a payment of USD$0.99 per item sold, in addition to other applicable selling fees.
- Inventory: If you believe in the products you’re selling and want to save on expenses in the long term, consider stocking up on your inventory. Bulk buying is a good strategy for proper working capital management.
- Branding: A merchant planning to sell products exclusively from their line will have to create their logo and website to be registered on Amazon.
- Packaging costs: To make your customers feel special, consider personalizing your packaging and making it unique. You’d have to tap your creativity and perhaps spend more cash to create bespoke packaging for your brand.
- FBA charges: For e-commerce merchants who don’t want to keep physical inventory, the best option is to sell through Fulfillment By Amazon (FBA). By doing so, you can still maintain your online store, but it’s the online store that packs and ships your sold product. With it, you’ll have to pay storage fees per month worth around USD$0.75 to USD$2.40 per cubic foot, depending on the time of the year.
The amount of capital you need will depend on the size of your business and the products you’re planning to sell. For conservative merchants, it’s safe to say that a USD$5,000 could be enough to launch an online store and tide you through the first few months.
How Can You Boost Your Working Capital As An Amazon Seller?
Now that you have a rough idea of your start-up business costs as an Amazon seller, the next essential step would be to find out where to get additional working capital. Unfortunately, traditional lending firms are not open to online merchants. Luckily, there are non-traditional financing solutions such as:
- Amazon Lending: This short-term funding is offered only to qualified sellers, who can borrow anywhere from USD$1,000 to USD$750,000. Other online options include Sellers Funding, which imposes less stringent rules on Amazon sellers looking to increase their working capital.
- Business Credit Cards: This offers your business the flexibility it needs. The only drawback of this option is the hefty interest rates.
- Lines of Credit: Similar to a credit card, a line of credit is a need-based loan that works by allowing your business to access the funds when you need them.
- Merchant Capital Advances: Convenient and fast, cash advances may be one of the best options for Amazon sellers. The amount you’re entitled to borrow depends on your revenues and sales performance.
- Personal Loans: Applying for additional funding As an Amazon seller is possible by getting a personal loan. Make sure that your store is performing favorably and that you’re not taking the loan to save your business. Choosing the latter option can have repercussions on your credit score.
Working capital is crucial in every business, including your Amazon store. Online merchants must significantly understand how to manage their working capital properly since their cash flow may be affected by delays in online payments. In cases where you may need an external funding boost, study the options mentioned above to choose the best solution for your business.