Our guest on the sellerboard show, was Cyndi Thomason, the writer and the owner of the Bookskeep accounting and consulting firm for e-commerce companies.
We talked about:
- Explanation of the “Profit First” notion.
- How often an e-commerce seller should reconcile in the books.
- Benefits of hiring a bookkeeping and accounting outsourcing company.
- Main things sellers should know before the international expansion of their businesses.
- What are the common cash flow challenges in the e-commerce business.
Watch the full video here: https://www.youtube.com/watch?v=a2hobAOjdng
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Today on the sellerboard show, we’re going to talk about how gross revenue is great, but you should really be looking at your profit first. Let’s get started.
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Welcome to the sellerboard Show. Today we have Cindy Thomason, who owns bookkeeping, and accounting, and consulting firm for e-commerce companies. She’s an advocate of profit first a cash management framework to help merchants attain and retain profitability. Her book profit first for e-commerce sellers sets the standard for accounting in our niche. And it’s a pleasure to have her on our show today. Welcome, Cindy. Hi, Chris. Thanks for having me. Oh, we’re really excited about this. And I was talking to you about some things beforehand. And so many people, I’d say a dozen people in my groups have told me to read profit first. So this is a subject where I’m gonna be really learning a lot today. So I’m really genuinely excited about it. So tell the listeners and the viewers, what is profit first. Okay, well, profit first is the name of a book, but it’s also a cash management system. It was developed by Mike McCalla. The book, The first book came out like in 2014. And it since come out been re-released by Penguin house probably three or four years ago.
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It goes into just a very simple system that works with our behavior so that we can manage our cash in a way that takes care of us as owners. And when we do that, it really puts the impetus on us to operate our business, more innovatively more efficiently, more frugally, so that we can, you know, pay attention to the right things in our business. It’s based on a couple of principles that are pretty important. One of them is called Parkinson’s Law. Parkinson’s Law is was developed in the 1950s by a British naval historian. And what he figured out was that you use what you got the British Navy, was getting all of these new resources and hiring more people. And they just got busy and busy. And they were there, their new people were constantly just being used into more work. And so he started studying this. And he figured out that this, the simple philosophy is you use what you got. So if you’ve got a lot of something, you figure out a way to use it, if you have a little bit of something you make do with less. And so that’s the that’s kind of the underpinning
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the foundation of profit first. And what where, where it comes into play from an operational standpoint, is with the bank accounts. And if you mentioned profit, versus somebody or your friends telling you about the book, probably. So it’s all about how to use these bank accounts. And that’s true, that’s a big part of it. Basically, we take bank accounts, and we give them a purpose. So when you have one operating checking account, which is how most businesses operate, you can’t really look at that and figure out how much of that money is for your inventory. And how much of that do you need to keep aside for payroll or taxes that are coming up. And what profit first does is it says, Okay, these are all important things that we need to take care of. So we’re going to separate them into separate bank accounts, so we can monitor them and keep up with the cash flow. And then the other piece of it, that’s super important, and that we forget as entrepreneurs is that we have to reward ourselves, we have to take our profit first. If you design a business from the beginning, to plow all the money back into it and never pay yourself, what happens is people get burned out, you get a lot of pressure from your family about Okay, when is this thing gonna start to pay off, and you turn your business into a, a cash eating monster is what we call it in the book because it’s constantly taking cash out, never rewarding you for the business owner. So as you get money into your bank account, we take the profit out first. And we allocate the money into certain buckets. So it’s available for specific purposes. And what that does is it limits the money in that operating checking account. So our op x expenses don’t just get out of hand, we have to work and live within our means. Excellent. Wow. I’m excited about diving deeper to this and even after the show. So that’s a great explanation. I love it. Because I’ve been an entrepreneur my whole life. And definitely, there’s a difference when you have a large bank account to start a business versus you’re bootstrapping you’re looking at things completely differently. Especially
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See when you’re in those scenarios for the first time, I remember before I sold my restoration company eight years ago before I got into the Amazon space, another company wanted to sell and they came to me. And they told me all these things about their business, and we’re just having a brief conversation we hadn’t got into their p&l or anything like that. And I just said, well, approximately, you know, how is your profitability because this wasn’t a tech business. This was a traditional brick-and-mortar service-based business. And he told me all the things he had bought for his business and all the employees that they had, and all the bands that they had, and he hadn’t taken a paycheck in three years. And I was just shocked. And I said, I really appreciate the meeting, but this isn’t, this isn’t a sellable business. And I and I probably recommend that you go back into the finance space that you were before this, and it’s just really, it’s really surprising to me when you talk to people that have had these businesses that seem to have been operating and doing something out there for multiple years, and they haven’t even paid themselves yet. Yeah, and you know, in your story, your the guy was from a finance background. So it’s just like what to you should, you should have some idea of how you’ve got to be able to take money out of the business. And when in like you and investor in that situation, you don’t like this is not gonna work, I got to get a return out of it. So I get a lot of pushback people go, I just want to plow my money back in because I’ve got a day job. I’m like, you’re creating a model that’s just not going to be sustainable. It’s gonna, it’s setting you up for a problem down the road, you know, and there was a lot of situations that came about with COVID. But there were situations where people couldn’t work. And if they weren’t paying themselves, how are they going to pay somebody to come in and do the work for them? Because they weren’t in a physical capacity to do the work. But they hadn’t created enough financial room to pay themselves. So how could they pay somebody to come in and keep that business going? So there’s a lot of reasons to pay yourself and take profit out of the business? Absolutely. No, I love it. I love it. So there have been many successful selling business owners, including myself at times in the history, I’m 37. But I’ve been doing business since I was 14. And I’ve exited to businesses, where the end of the year, the first time that we’re really getting a grasp on our books, and really understanding how much money we made, especially in the traditional business space. Now, of course, the seller board, we can see things in real-time. And with an awesome outsourced bookkeeper like yourself, you really get those reports on a regular basis, which really helps you make these decisions in your business. But how often do you recommend the e-commerce or the online marketplace seller is reconciling their books? what’s healthy, Cindy, it’s monthly, you know, in and I’m going to talk from the position of from an e-commerce accountant. But then I want to talk from a profit first perspective a little bit. But you know, all financial statements, cut once a month. So I’m talking about bank statements from your bank, credit card statements, those kinds of independent financial statements come out once a month, and you need to be comparing what’s what you’re recording in your financial activity back to those outside sources, where when you don’t do that, and this is something that happens repeatedly over time, people come to me, and they say, Oh, my gross margin is, you know, 42%, and I’m like, whoo, you’re a unicorn, you know, and I can’t wait to see what you’re doing. And then I realized they haven’t reconciled, they’re missing a lot of expenses, because they, they’re not captured somehow, or they, they put them in one time, and then they never went back and looked at it and prices change. So to stay on top of it, to be sure you have numbers to make good decisions with, you need to reconcile back to those five independent financial statements on a monthly basis. And if you do it on a monthly basis, it’s not a big deal. But if you wait till tax time, and you have to do 12 months, then it seems like it’s just an impossible task. And, and what you missed back in February is carried forward now for you know, 11 more months, and it does get to be a problem. But if you’ll just make yourself a day, once a month to do your accounting, and you probably only need an hour. If you do it that way, then you’ll stay on top of it. And the big benefit is that you’ll have numbers that you can look at and have confidence in and make better decisions with. I want to talk about it from a profit first perspective because it’s a little bit different. I talked about the bank accounts before. And the reason I love profit first for my, my entrepreneur clients is because we all now do our online banking. And when we’re in the
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times when we could be in a room together and have I’d be speaking I would ask people to tell me how often do they look at their online banking, and most of the people say they’re on there at least daily or weekly.
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What I typically hear. And so as entrepreneurs, we’re looking at our bank accounts and on a real regular basis, and that data now is so cool because it’s real-time. So if you set these bank accounts up with a purpose, and I recommend people start with an inventory, bank account, and a profit account, and then keep your off x, so we want to start slow build up to the system that I talked about in my book. But if you start slow, just by separating out inventory, profit, and your operating expenses, you can log into your bank account, and they’ve done all the work for you by, you know, putting the transactions through your accounts, you can see where you stand. And you don’t have to do a whole lot of accounting for that. Not that the accounting isn’t important, but it has a different, a different purpose and a different cycle. But you can get a daily good report of how things are going just by looking at your bank account, if you’ve implemented profit first. That’s how I run my business. I mean, we still do the accounting, but I every day, it’s logging into the bank and see how things happen. Look.
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Yeah, that’s, I mean, that’s wonderful. I love this, I love this, I’m going to be thinking about things differently myself, after this podcast interview. So I really appreciate the value ads that you’re given our listeners. So you know, let’s say that somebody
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started an e-commerce business or started off an Amazon, they’re, they’re like a solopreneur. At this point, there may be hidden like, you know, $250,000, gross revenue, they’re thinking about hiring the first part-time employee or maybe a virtual assistant, they’re starting to see, you know, massive growth, it’s going into quarter four, they’re still doing the bookkeeping themselves, they’re still doing the accounting themselves, or they delegated it to this new person, that maybe it’s not their proficiency. Maybe you can give us some examples on why there is a benefit to outsourcing bookkeeping and accounting and not trying to be the person wearing 3000 hats in your own business? Well, that’s the answer right there.
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You can’t wear 3000 hats all at one time and do them justice write
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it, and if you’re not proficient with accounting, then you don’t want to hire somebody as an assistant that then you have to train because you don’t know what you’re training them on. And so the best solution really is, if it’s not your thing, but like, so many other things may not be your thing, you know, they’re everybody has their zone of genius, and figure out what that is. And as soon as you can afford it, then then
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outsource those other things. So you can focus on the thing that turns into the moneymaker for you. Now, not everybody can afford it. And honestly, there’s a lot that we do with new entrepreneurs, to train them on how to do their books in the most efficient way possible. So that when they’re learning, and when things are starting up, we want them to understand it at a fundamental level. So that when they are at the point of getting financial reports, and they’re outsourcing, outsourcing it to someone else, they have the financial literacy, to understand what they’re looking at, and what it means for their business. So I do think it’s a useful exercise for somebody new to to get their hands dirty with it a little bit. But then as you sort things out, focus on what you are best at making money with and then sort then hand off the other things, but don’t hand it off to somebody that you’re going to have to train if it’s not the thing you know about because then you’re training somebody, and in not in ways that are not creating efficiency for your business that you got to clean up later. Right. And then at that point, you know, you have Frankenstein that’s being built. And then 12 months later, you realize you got to outsource it, maybe anyways, and then there’s a lot of catch-up to be done. And then that’s a whole nother situation when you start outsourcing. So yeah, you know, right now we’re we’re having clients that we’ve had for a long time, decided that they’re maybe going to exit the space, and they’re asking us to help configure their books for a sale. Well, the nice thing is we can do that very easily. But we’re also getting new clients who are saying you don’t want to try to sell in six months. So I need to get this all cleaned up and we look at their books and we’re like, okay, we know those brokers are going to want to go back two to three years. And what we’re seeing is two to three years’ worth of cleanup mess. And so it’s, you know, like most things of quality. If you do them right the first time. It’s typically cheaper than going back in the long run and having to clean up a mess. It’s easier to do.
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Do it right the first time. So it’s worth a little bit of investment early on to learn it yourself in and create that system that’s efficient. And then when you grow, outgrow that handed off to somebody that can keep that going. So you get good data and position yourself for a good sale later on. Yeah, that’s, that’s great advice. Because you really want to have a foundational understanding of every aspect of your business, even if you’re not proficient at it, because you still need to be able to understand the conversations you’re having with Cindy or with whoever you’re outsourcing your accountant and your bookkeeping to you don’t want to be like standing there with the big question mark over your head. as your business grows, you need to have that understanding. And to your point it whether it’s Empire Flippers, or whether it’s quiet like brokerage, or if you’re selling directly to one of these larger companies, like lucid commerce, for example, you’re going to want to have a set of books going into that conversation, ideally, that they’re going to be able to comprehend. And most buyers now are also hiring an additional auditor, that’s going to go through everything. And it’s just going to be a nightmare for somebody on both ends of the fence if you don’t have everything in order, right. And the reality is, you’re not going to remember what happened three years ago, because you’re putting so many fires.
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Right? And but that’s the kind of question that they ask. And so I’ve got two clients right now that are listed with private equity firms that are being
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that are in this process. And it was so neat talking to them last week. And they said, I can’t tell you how great it feels to be on the call. And these potential buyers asked me a question about well, what percentage of your revenue do you spend on advertising? And they say, well, it’s this percent. And they know it, because well, what was it last year? Well, it’s this percent, you know, you come across confident in your presentation with these potential buyers. And that just improves your ability to get the multiple you’re looking for. Absolutely. And along the way, I mean, when you have accountability from an outsourced bookkeeper or accounting firm, you’re also probably going to be talking about some of these ongoing expenses that maybe aren’t giving you an ROI. So really, during the whole process of let’s say, three years leading up to an exit, your multiplier could be completely different if you eliminate $500 worth of fixed costs that aren’t getting you anything, and maybe they don’t allow that as an add back. So I mean, for example, when I found out about seller boards, I realized I could have been saving three or $400 a month in my own business, you know, and see in having an accounting firm, or a bookkeeper that’s looking at ecommerce and Amazon Marketplace, sellers day in and day out without giving any personal information can tell you look, this is obtuse, we need to take a look at this and having that accountability is extremely important. And it’ll pay off at the ROI later on. Yeah, you know, I think about a client that
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this is a couple of years ago, we kept watching his profit first accounts. And he was just running out of money to cover his topics. And I’m like, What is going on here? So I dug into it. And every month I could see his advertising dollars going up and up. So by I mean, I kept telling him, okay, this is what’s happening here. Are you getting the ROI on that ad spin that you need? Oh, yeah, I’ve got a buddy of mine doing that. And you know, this is what we’re getting in there. I get these great Reports. I’m like, Okay,
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this money is going somewhere. I think it’s advertising What’s going on? So after six months, he called me He says, You know, I don’t have the money in optics to cover my Amex bill. And something’s going on. On my Yeah, let’s go. Bunny is going into advertising. And I said, let me tell you what’s going on here. And I’ve tried to point paint the picture before but you got to be in a mindset to hear it. Right. He had spent $250,000 on advertising in the first half of the year, his sales had gone up $90,000. So if I’m spending $250,000 on advertising, my sales ought to go up like six times that in my opinion, and instead it was it was just sucking the money out of the business. And so he got got on it got it figured out and you know, recovered from it. But it’s the kind of thing you really want somebody else helping you look at those numbers to make sure they’re making some sense in the grand scheme of things. Definitely. It’s like the movie The Matrix. I mean, you’re seeing all these numbers, and immediately, you’re able to see through the matrix and it tells a story because you’ve already seen hundreds of these different similar situation before with other clients. And so having somebody that specializes in e-commerce, and not just a typical, you know, could be a wonderful
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A local accountant that doesn’t have any experience hasn’t seen anything is also a differentiator, when you’re outsourcing your bookkeeping and your accounting, you want someone that knows you want someone that’s on the pulse. Same thing. When I was going to sell my business, I wanted a lawyer that specialized in Amazon. I wanted a broker that specializes in Amazon. And we have software like Celeborn that specialized in Amazon. So why are you not thinking about your bookkeeping and your accounting the same way? Of course, you’re friends with Tom down the street. And Tom’s a great guy, and Tom goes to church with you. But Tom doesn’t understand eBay. Tom doesn’t understand Amazon, and Tom doesn’t really get Shopify and WooCommerce. So let’s go ahead and be friends with Tom. But when you’re making a serious decision, you need serious experts at your disposal. Yeah, I got an account from a colleague of mine. And
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she told me, she said, I just can’t. It’s too different of an animal I need to I he needs to be he’s any commerce, he needs to go over to you. I’m like, okay, so we worked with him for six months, and we kept trying to get access to his different Amazon stores. I don’t know why he was reluctant. He was just hard to get ahold of because he was busy, honestly. But we finally got the access. And my bookkeeper texted me at 11 o’clock at night. She said, You’re not going to believe this. I said, What’s going on? She said, when I got into his account, he’s got an Amazon pay account, that he never entered a bank
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account. And there was a warning in there. But he didn’t evidently didn’t know how to set it up. This, this accounts been active for three years, and it’s got $97,000 sitting pet and now we can use this for everybody. But you know, it’s my friend that handed us the work while I went back and told her that she said, See, I knew I couldn’t help him the way you could. And, you know, it was really she couldn’t wait to call him at 11 o’clock at night. But thankfully, she called me but definitely don’t be me. So why don’t you call me But yeah, finding $100,000 is pretty sweet. Yeah, that’s, that’s spectacular. And, and it sounds, it might sound crazy the listeners or viewers of this podcast, but the exact same thing happened to us. We got acquired, and we had a wonderful company that acquired us. And they contacted us three months later, we had beer, we had a very set, tight set of books, you know, our pnls were beautiful. But because Amazon pay was only attached to like our own ecommerce sites, for some reason, you know, that one number got put in the wrong place. And we just didn’t catch it. And their bookkeepers. It was much, much, much smaller number but sales, it was money. They said, Look, we can’t figure out how to reconcile this guy. So it looks like we need to send you an extra X amount of money. And I was like, wow, like, thanks for being so honest. But like, That’s crazy. And 97,000. Like that makes a huge difference in that person’s quarter. Yeah, yeah. And it happened with one other client too. And, you know, when when the bookkeeper called and told this client, she started crying. She goes, gosh, I’m so sorry. She said, No, you just don’t know. But my husband just lost his job. Oh, wow, will cover us for about six months. And, you know, the timing worked out. But still, you know, it was money that they didn’t even know they had. That’s awesome. And that’s the matrix. It’s the numbers that’s just use doing the repetitions and just seeing the same sort of things each time. So again, listeners, audience, people that are viewing this right now, go with an expert, go with somebody that knows what they’re doing, they can see through the matrix and spend time on growing that business pushing that gigantic boulder up the hill is synthesis. Don’t be trying to be 100 handed man or 100 handed woman doing everything. Excellent. So I’m sure every seller can can relate to this. Amazon loves to send us these emails, because they see that we’re being successful on their platform. We’re opening Amazon, UK A long time ago, we’re opposite. We’re opening Amazon, Sweden, Norway, Australia, Japan. I mean, there’s so many different options. And they and they just welcome us and they say go ahead and let’s start selling because they want us to be successful on their platforms. They want to grow their platforms, they want to make more money. Of course, when we’re looking at international expansion, though, from an accounting perspective, what are some of the things that people that are listening to this podcast watching this podcast should be thinking about Cindy? Well, the first one I want to caution people about is is not a financial thing, but I mean time is money. So maybe it is
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what I see happening when people start branching out into other marketplaces, is it takes them a certain amount of their attention of how to handle the VAT tax, how to do I have to incorporate in that country? What does that legal structure has to look like? You know, housing, how am I going to get my inventory there and what are the customs etc. And so it is a huge drain on your
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ability to focus on what’s important to just immediately say, Well, this is great. Let me just go do it, it takes you down a rabbit hole to start doing that. So that’s my first caution. Understand that if you’re selling in the US, that is not I see it over and over in my clients books, that’s where the money is. That is where people make the most money. And I have not seen that.
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I’ve not seen that disproven in all of our clients books, the US is always the biggest. So go into it with
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with some consideration, is it the right time for you? Do you have the resources to figure out all of those issues I’ve just mentioned, then if you do, then you do need to understand what you’re going to do about getting product there, how you’re going to handle the particular tax situation in those countries.
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At the top of the hour, I’ve got a meeting I told you about earlier. And that is with a seller that’s in
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South America, that is selling in the US that is wanting to expand into the UK. And they immediately contacted someone in the UK to create a
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to create a company based in the UK. And that person was somebody I told them to talk to because we’re I work with them a lot with cross border issues.
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I expected them to talk with them about the VAT tax, but they just assumed that they wanted to go forward with and that they had to create business entities in these other countries. So in conversation with my colleague, I’m like, is this the best thing for them, because they can sell in the UK, they got to get compliance figured out with that. But I can do it. You know, as long as the financials, the dollars come back in to their us business, I can do all the accounting for them, they won’t be stuck with worrying about income tax reporting for the UK. So there’s a lot of ramification. So you want to talk with somebody who has navigated that?
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Who can help you with? Is it the best thing to set up another business entity? Or can you get by with just dealing with the VAT? compliance? Or what is the best structure for you? There’s a lot that can be done without creating business entities in other countries in most countries. And that’s why Amazon can easily just put it out there as Hey, this is an opportunity. And I don’t mean to say that it’s not it just is one that does take your attention. Definitely, yeah. So the people that are listening right now need to think about the time that they’re going to the fixed time that they’re going to sink into this potential international expansion, they also should think about the product compliance depending on the different categories that they may be in, you might have not any type of issue at all. But I would say most of the time, you do have to think about different considerations for Europe, especially, they have very strict compliance laws and those product categories. And sometimes they have different so sometimes ingredients in one country might be completely fine as an over the counter. And then over in Europe, it might be a prescription and vice versa. And then also to your point that we’re setting up your own entity there, I feel like that’s an individual solution. It’s not a one size fits all, it really depends on what country you’re coming from, where you’re selling, and you have different thresholds to think about. Different countries have different bat thresholds. And sometimes you can piggyback off of one country until you hit a certain threshold, you don’t even have to register for that any other countries. And then you have to think about Amazon’s own little micro rules that they have within the law. So it can be a big opportunity for some product categories. But if you just go into it thinking you’re just going to throw some products on a boat and take them over the sea. And you’re just going to see the money start stacking up in your account, you’re probably going to get one of those little red flags in your account. And you’re going to be seeing real quick that, you know, it could be shut down. So it’s a big opportunity for some not for all but really take it seriously and think about all those layers of expenses. Yeah. And be sure that I mean my advice is, I think entrepreneurs and I’m willing to we get distracted and we focus on a lot of different things. Make sure you’re focusing on what’s really important in your business and if that’s it, then go for it. But if you’re leaving money on the table in the US because you haven’t dialed in your advertising or you haven’t dialed in your
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you know the profitability per product, have your gross margin. Pay attention to those things first because you
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As marketplaces, typically the biggest and so if you can get that figured out, those incremental gains will be huge compared to what you might get in some of the smaller countries.
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Absolutely, and we haven’t even talked about the foreign language, foreign language aspect of this countries speak English as their first language, but then others are speaking a different language as their first language. And we definitely don’t want to rely on Amazon’s generated translations for our listings, you have to hire an expert for that unless you’re a native speaker or it says your second language. So there is a lot of things to consider And to your point dial in on us First, make sure that everything is humming in the US because you’re not going to have to add these layers of psychology behind every move that you make internationally in the US. So just make sure you’re dialed in talk to your accountant or your bookkeeper. See what’s going on in the industry. See where you’re at? Like, should you really be at X amount percentage going towards advertising? Or should you really be at x percentage going towards your you know, cogs, you know, for this particular type of inventory, if you’re in supplements, or if you’re in cosmetics, or if you’re in, you know, seasonal goods, you know, consult those people that are your team and make sure that it’s a good move before you start going international. Stay here in the US and make sure you’re dialed and I’m talking about just accounting and bookkeeping profit. First, the next logical term, we’re going to talk about cash flow. So you see these companies that are burst with maybe $1,000 seed capital, it’s not really seed capital, it’s just money that you got back from the government. Or maybe it’s just money, you set aside that you got permission from your wife to go ahead and start this crazy idea. And you also see people starting probably with six figures, you know, ready to get going at home? And what are the common cashflow challenges you see with e-commerce businesses? Cindy?
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Well, we talked about profit first. And I think this is where profit first, from the very beginning can work for people is figure out what your inventory costs need to be. So if you’ve got that $1,000, or maybe it’s $20,000, when you go to make that very first order. You know, depending on where you’re sourcing, let’s just say it’s overseas, that you’re in the US and you’re expecting this product to come in from China on a boat, what I see most typically happening is people make a 30% down payment, then that at the time they place the order, then somewhere in 45 to 60 days, they have to pay for the rest of the balance of what they’ve ordered. And then that product is going to be on a boat for 60 days till it gets here, then it’s got to get to Amazon, we got to do whatever inspections and packaging that we might want to do here in the US, then it gets to Amazon, then it sells, maybe it’s wildly successful. And you’ve put your $10,000 into buying that product and getting it here. And it’s wildly successful and sales out right away. And Amazon’s gonna keep your money for a little while, because, first of all, most of the time they don’t pay out but every two weeks anyway. And then secondly, now for most new accounts, they’re holding back some type of reserves, so that they’re, they’re wanting to be sure there’s not a bunch of returns going to come in for this product. And they’re going to release that maybe a month from now. So you’ve seen you know, your $10,000 is gone, and you’re needing to reorder and your $10,000 is gone. So what are you going to do the money is not going to get to Amazon for a while. So the biggest problem I see is that people come in they place they put all their money in inventory right away. They don’t plan for the second and the third reorder, because the money is not going to get to you typically in time for you to make that second order, sometimes even the third-order depending on how quickly things turn over. So that’s the biggest mistake I see. I think people are they’re not planning for the time it takes for the machine to work in the cache to come out on the other end. Definitely. No, that’s great advice. And, you know, there are so many wonderful courses out there for Amazon and people that have been successful in our teaching. And the things that you see on YouTube that advertisements talking about their courses, we don’t typically talk about cash flow management, the end even in the courses, sometimes they go through I’m not really talking about cash flow management, because it’s not really an exciting topic. It’s not something that’s going to draw eyeballs, it’s not going to be something that people are going to be gravitating to because they might be more cautious after really going through it which they should be. I remember a family member is a CPA and I remember doing that exact exercise with him and figuring out if our if our reorders were, you know, instead of 1000
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Is 5000 units. And we wanted to get to X amount of products within a certain amount of time, I was thinking we were going to be at maybe 25 products after we went through the exercise that the cash that we wanted to put aside for the business, we were at about 15 to 20. And that’s a big difference. If you really spend all that money on inventory, and then your competitors start to out advertise you, you don’t have money to pay yourself profit first, and you’re unable to scale up maybe a virtual team, you’re going to be at a disadvantage. And guess what, if you’re two years into a brand that’s just started, and you have five products that have come out after your initial three, let’s say, you don’t have that much brand, brand cloud, if you will, and that’s a big risk, that’s a huge risk. So I love the fact that if you’re starting off with $10,000, let’s say maybe five would be inventory. But don’t put all that much don’t put all your money into inventory. That is it is a real great way to be successful and fail. Exactly. And in, you know, I don’t understand why people, people tell me they don’t like numbers, or they don’t understand numbers, I’m like, okay, but you get the sales numbers, you pay attention to those numbers, you know, you got to pay attention to the right number. And you know, the right number is how much you get to keep not how much you know, you actually sold and just I wish, if I could wave a magic wand and, and change the industry, somehow it would be pay attention to gross margin. And, and really, because if you can get gross margin dialed in, in your financials, then then then you can focus on the right thing. If that number is not where it needs to be, then you’ve got either a pricing problem or sourcing cost problem, it’s very straightforward, the math is not hard. And then you know, if you’ve got a net margin problem, then your optics is too hot. If you can get that dialed in before you start throwing gas on the fire, so to speak, and you’re trying to grow and accelerate. If you get if you can do it that way, then you avoid the situation where I see over and over, where people get themselves in this bind with needing to reorder inventory, not having the cash to do it, then they have to get alone. And typically there are lots of people out there that will give you one, but typically the cost is so high. And if you don’t have that gross margin dialed into where you’re getting enough money out, you know, a 18% or 25% loan. That’s enough, any chance you had have taken the profit out of the business cause you people don’t have margins to support.
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A lot of debt typically, now I’m not against debt, a lot of people read Mike’s book profit first and Mike is against debt.
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I think there’s a place for it. The places not when you’re new and trying to figure it out and don’t have it dialed in. When you’re still in that mode. If you start bringing debt into the business, what I see is a downward spiral. It’s like throwing gas on a fire and you’re just gonna die downward spiral quicker. And I hate that it’s that way. But that’s what I see over and over, take the time to get your model dialed in. Once you do that, then if that makes sense, evaluate it and put it to work for you. But don’t do it prematurely. Don’t do it to
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to be able to save your business so to speak, you’re better off letting that business fail and start over than getting yourself in a bind. And then your personal credit hurt is hurt. You can’t borrow money anywhere. Absolutely. Yeah, these are words of wisdom, everyone that’s listening. This is exactly what every business owner needs to hear if they’re not following these principles right now, especially if you’re in the space of building your own brand and your own products. And these aren’t products that are named brand products, you’re not doing wholesale, you’re not doing retail arbitrage. But if you’re building your own products, and you’re putting all this money upfront, it is a big risk. Even if you have been very successful it’s a big risk until that consumer if its consumables had been in the hands probably for three years of those customers, they’re really not going to be as brand loyal as you think they are. So I really love the advice I think it’s really great. And think outside the box everyone listening. If you’re sourcing from China, you’re sourcing from India, there might be a manufacturer in the US that has a slightly higher cost per unit but because of the amount of time it takes to produce that unit and actually getting into the Amazon warehouses those Give me the right term, this cost the floating costs, what is the right term Cindy is much lower. Um, I’m not sure what the cost you’re talking about, okay. Basically, the cost to the cost, the sunk costs of the inventory, if it’s going to be a one month turnaround time and it costs you
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A little bit more per unit, but it’s going to be a four-month turnaround time to get it from China. A lot of times that one month turnaround time at a higher rate and I’m sure somebody more advanced than me can give an algorithm and kind of figure that out, it’s going to be much better to source from the US versus sourcing from China, because you’re going to get that product into the warehouse, you’re going to get it sold faster, and you get paid faster. So much faster return happens so much faster so there’s a lot of ways, go ahead you mentioned just to get creative and i was talking to one of my clients the other night and um we had several times said he had one supplier and the supplier was constantly keeping him at you know never giving him as much supply dragging out the time and I’m like you’re you’ve got to diversify here you need somebody else you can call on this is too many this one egg in this basket is is pretty fragile here h no no well he’s in one of our mastermind groups and he um the other people in the group convinced him to do it and he told me he said you know i don’t know why i drug my feet on this for six months i have now found another both of these suppliers were in the us but i found another supplier in us I’m going to cut my costs 30 percent they promised me that they can turn my product around in five to six days and they’re and it was like three other things i can’t even remember them all.
