A lot of business owners don’t care much for accounting. They read the numbers and are done with it. You have to understand it. When the pandemic started, businesses weren’t prepared. They didn’t understand their numbers. They didn’t know how to manage their inventory, and they closed. This is why accounting is important. Join your host Elliot Begoun and his guest Brad Ebenhoeh on all things accounting. Brad is a Managing Partner at Accountfully, which is an outsource accounting department for small businesses. Brad helps fix your systems and accounting workflow, infrastructure systems, processes, and more. Join in today for a discussion on why the numbers do matter. Learn it and understand it.

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The Power Of Numbers: The Importance Of Accounting In Business With Brad Ebenhoeh

I’m going to start with something we’re going to start doing each and every episode. I’m going to call it The Founder Shout Out. These are to the founders in our community who blow me away on a regular basis. I’m going to take this time to totally embarrass Kelly Perkins of Spinster Sisters. Kelly has been bootstrapping her amazing business, Spinster Sisters. It’s a micro-soapery based in Golden, Colorado. She refers to it as a bad-ass brand, woman-owned. It’s a public benefits corp, cruelty-free. Just named Supplier of The Year in the Rocky Mountain Region for Whole Foods. They’re doing something that I can actually share on the show.

They’re raising a line around of capital on Republic. For those reading, when you raise money in equity, crowdfunding regulations C, I can talk about it. This is an industry where, as we claw and reach one hand up to grab the next rung in the ladder, we should be simultaneously reaching the other hand down to pull the other person up behind us. This is a great opportunity to do it. Kelly, way to go. Spinster Sisters, check them out. We’ll start doing these little call-outs and shout-outs on each episode.

I’m going to introduce my guest and we’ll let Brad introduce himself. We’re going to talk about the hot and sexy topic of accounting. All bullshit aside, instilling rigor around and discipline around the financials of your business, I will tell you quite bluntly, is often the difference between a successful business and something you reflect back as a failure or a ride that went wrong. It’s not the aspect of the business that the vast majority of entrepreneurs get in it for. Nobody says, “I really want to do this just because I want to spend a whole lot of time in QuickBooks or Xero.”

I love dealing with reconciling my checking account every month. I think balance sheets are the coolest thing in the world. To do it and not it to keep score and not just do it to be able to have financials you can show investors. Do it to become more predictive in your business to be more aware of what’s going on, to be better managers, better executives, that’s the real important thing. Long segue to you, Brad. Thanks for joining me. Introduce yourself. Tell everyone about Accountfully and we’ll dig in.

Thanks so much, Elliot. I appreciate the shout out and looking forward to this chat. My name’s Brad Ebenhoeh, Managing Partner of Accountfully. Accountfully is an outsource accounting department for small businesses. We’ve been able to specialize the last handful of years within the CPG space, which is why I’ve been connected to Elliot and his team at TIG. Accountfully, we’re headquartered here in Charleston, South Carolina. I have a second office in Nashville, Tennessee. We’re physically located in the Southeast, but I have clients all across the US. When you work with us, basically, you get a bookkeeper controller and CFO in your account. We work with the majority of zero to $5 million annual revenue of clients.

The goal of Accountfully is to implement that. That system and accounting workflow, infrastructure systems, processes, etc., so that we can support your weekly bookkeeping needs, provide you monthly information, monthly financials, monthly margins, etc. You can understand your business and your margins, and then you can help make better decisions moving forward. We try to make accounting as fun as possible by connecting and working with very cool, creative entrepreneurs and very cool brands. That’s how we keep things exciting.

You use two adjectives, which are rarely attached to accounting. Let’s be real here. Fun and exciting. That shows what an accounting nerd you are. I talk about this a lot. Andy Whitman is the originator of the term. He preaches it from anywhere he can that cash is king. I talk a lot about capital efficiency. Your ability as an entrepreneur to make your cash do as much as it possibly can for you is so critical. Let’s talk about some best practices for early-stage brands. What are some of the things that you wish more early-stage brands were doing around their financial rigor, around their financial planning, reporting, etc.

Depending upon the budget and the resources they have access to whether, let’s say, they’re doing it themselves. I think at a minimum, as an entrepreneur, if you’re going to try to do these types of work, getting in a consistent workflow. Getting in a consistent, “Every Tuesday and Friday, I’m going to be sending invoices. I’m going to be updating my books. I’m going to be looking at my bank account. I’m going to be paying bills.” Getting that consistency in place, then you can properly execute your job. Very similar to every day.

You’d go on your desk and you check email every day. We’re getting in that rigor of what you’re doing. Even if you’re outsourcing your accounting or finance desk, still having at least a weekly check-in of reviewing reports, understanding your AR, reviewing your Shopify sales, understanding your inventory. Getting that consistency is what changes or moves us being from is this passion and something that you want to dive into headfirst and you’re not going to give up and you’re not going to fail or is this purely a hobby and we’ll see how it goes?

Consistency and focus are number one. Number two is partnering with people that can help you. With the internet and these communities like you’re building Elliott and anywhere that exists, you can find people who have done the same thing you have asked questions of, “Who did you partner with? Did you use an outsource firm?” Sometimes they’re going to tell me, “I’m a shoestring budget. What are the things I should focus on? What KPI should I focus on?” Those types of things are the biggest thing from my perspective when I talk to a prospective client.

Let’s say they’re pre-revenue and brand new and they’re like, “I’m trying to get this in place. I’m thinking about these four things.” I’m like, “This person has a chance,” because they’re thinking about that in advance versus the person that’s like, “I’ve been in business for two years. I don’t know my numbers. I don’t have my books up to date, but I need a five-year bottle because I’m going to raise money.” I’m like, “What are we doing here? What is this model for? It’s a waste of money. Is this just something to raise money or are you going to use this as a tool to help you execute your business?” Those are some concepts that I like focusing on.

I’m curious to get your input. I’ll give mine. I will ask this question, but I will add the caveat first, but I don’t think you can get the option of picking and choosing. I think all of these should be done. Let’s say theoretically, if you were to rank in importance the reports that make sure you’re doing and looking at routinely. Would it be A, P&L, B, balance sheet, or C, cashflow?

If you’re looking at them on a weekly perspective, I probably would look at cashflow, balance sheet and P&L because it’s on a weekly basis and from a short-term small business aspect, cash is king, as we discussed. Understanding where’s my cash, where’s it going each week, what is my AR, what money, what is my AP, what are my liabilities, where my money’s going, what’s my bank account? I think on a monthly basis then it goes to P&L, balance sheet, cashflow statement, I would say. It depends upon the frequency of those things. Even as you move forward in your business, segmenting your P&L is even more important. If you’re selling on Shopify, Amazon, through KE and unified distribution, service, etc. having within your P&L but proper segments so you can see the actual results within your operating profit margin within each segment. It helps you with forecasting, moving forward and making decisions of, “I have this much inventory you want to target this sales channel or that sales channel.” It gets more important with that aspect.

The way I would describe it as that cashflow is the tactical and P&L is more of the strategic. Cashflow is the activity-based. P&L has given you the visibility of how your business is performing overall. I would encourage anyone not to look at a cashflow, but actually become a participant in it. Here’s something that I would say is that, if you look at it weekly cashflow, then in the next column over, throw it in an Excel spreadsheet. In the next column over, forecast what you think is going to be at the next week’s end. The reason I say that is, one, I guarantee you’re going to be, as Gary Hertzberg says, “You’re going to be pathologically optimistic.”

You’re going to think way more cash is going to come in and way less is going to go out and you’re going to be wrong. If you get into the habit of doing that every week, make it a Friday happy hour activity, you’re going to become a lot more aware of the natural cadence and rhythm of your business. You’ll be able to see where your capital is being consumed and where it’s being restored. It’s not going to remove any of the cliffs. It’s not going to take away any of the walls. It may give you a little bit of downfield vision so that you can see them coming and be a little bit more proactive instead of reactive. It’s the reactive deals. It’s the reactive things that wind up really costing you. It’s where bad terms, bad deals, bad happen.

I think two things on that is number one, one of the biggest misses or improvement points I see for entrepreneurs are, they’re running their business out of their bank account. Looking at purely, like, “What is it in my bank account today?” Versus the understanding, “This is your bank today, but what’s coming out in the near term, what’s coming in near term?” Getting out of that. One of our big deliverables for our clients is a four-week looking forward short-term cash management tool that we send to them every week. It’s very similar to what you’re saying, “What’s in the bank account? What’s coming out the next four weeks? What are the bills to be paid in the next four weeks? What’s the open AR the next four weeks?”

You can then understand what do I expect coming in, what’s coming out. You can make the short-term decisions of, “We’re now my cash go? While I have $500,000 in AR. We better reach out to these folks and try to get paid. I need to earmark $100,000 for raw materials to purchases in three weeks. Let’s make sure we have that on the schedule and let’s make sure that we move forward with the decisions to be able to pay that in three weeks.” It’s understanding that. I couldn’t agree more with you. It can be like a weekly thing as a startup looking for the next 1, 2 or 3 weeks and getting in that weekly cadence. It helps out.

What’s one of the biggest mistake founders make when they engage with you in terms of, either not maximizing the benefit or support that you can give or not understanding how to optimize the relationship?

I would say being an active participant. Some folks are very passive or not responsive and not focused on it. It’s one of those things of, once we get rolling, our account got handled, I’ll deal with it, they’re fine. It’s like, “No, this is your business. We’re executing tasks. We’re providing the information. You need to make the decisions. You need to understand what this means. We can help you interpret what it means. You’re the one that needs to understand that.” Number one, being an active participant. Number two, for a lot of our clients, we have monthly meetings after we send our financials to them. The best clients are the most engaged are the ones that are like, “I reviewed the financials. Here are my four questions that I want to talk about.” The major piece, a very elemental question, but at a minimum, it’s like you’re looking at this. What does this mean? You can see it, that they’re trying to learn and understand what’s going on.

The last thing I would say is each month understand and have those conversations of, “Accountfully, this is what’s on my plan in the next nine days. I’m looking to hire an employee. I’m looking to expand and do a new distributor. I’m looking to launch my Amazon.” Those types of things. Sometimes we have no idea what’s going on because they’re executing on the scenes we’re executing over here and we’re not proactively communicating of what are the short-term or long-term things you’re looking for. “I’m looking to raise money in nine months.” “Let’s get a plan or maybe can we help you or somebody else? Can we help you put together a cashflow model or support you in those needs? What do you need?” It’s like one of those things. It’s helping us in mapping out visually on what’s going on in your head and telling us and then we can help advise and consult from our experience or what we see.

Here’s a question. “I’m being asked by one of my investors to move to GAAP Accounting. Can you share with me what some of those challenges might be of doing so, and when’s the right time to do it?” First of all, I never liked using acronyms without explaining to the readers what it is. It’s Generally Accepted Accounting Principles.

What GAAP is, it is the reporting mechanism that you’re required to, if you’re a public publicly-traded company, if you go get an IPO. We start our clients on an accrual basis. Generally Accepted Accounting Principles are based upon accrual accounting. Not cash basis accounting. All of our reporting we do for our clients is on an accrual basis. What basically that means is you’re matching revenue, COGS, expenses that happen or incurred in the same period in a similar period. You can have a comparative February versus March or March versus April. On a cash basis, that basically says when things are coming in or coming out, which means that, if you get paid $0 this month in AR and you’re 100% wholesale business, that means your revenue is $0, which typically isn’t the case. Next month to $250,000. You can’t manage your business, but you can’t see month-over-month comparisons and understand where you’re strategically moving forward.

On an accrual basis, what we’re doing is we’re getting you the exact information you need to make good decisions, both short-term and long-term with your business. I would say stay on an accrual basis with a firm like a calculator, whether it’s internal or whoever else you use. On a GAAP basis, there’s more work involved. It’s more expensive. There are more checkmarks. For example, one of the things are monthly depreciation postings on the capital equipment you bought. That literally does nothing for you to make any good short-term or long-term decisions. Those are the things that do you really need to pay for them or not? What I would say is get into an accrual basis, move forward with that, and then literally have bank. If an investor, somebody wants GAAP, you can go ahead and move into that direction. Accountfully, we can do GAAP. Additionally, one thing to think about is you don’t need to always do GAAP on a monthly basis. You can do GAAP reporting on a quarterly basis or an annual basis. Understanding that aspect.

You mentioned Republic earlier about the crowdfunding campaign. I know a lot of these crowdfunding sites now are requiring GAAP financials. A lot of banks do. I don’t know if they even understand what that means, to be frank. I would say if you’re in a position where you have a good process and practice of monthly reporting on an accrual basis, it’s relatively easy to move forward with GAAP even when you’re ready. Understand that if and when you’re ready, just give it 1 or 2 months because people need to do it properly.

I would add to that. A lot of times, that’s a request. It’s a request that basically is cloaked in that form of GAAP. It’s code for, “I want to make sure you have your financial shit together and that you have around it.” A lot of times, what you could do is go back to the investor and say, “Let me walk you through it.” How often do you at Accountfully connect with a brand and their investor during that conversation and run through financials or explain things to an investor?

It depends ends upon their needs. There are certain clients where we take part in their quarterly board calls. We lead them from a financial standpoint. I don’t think a lot of our clients would get with our investors too much. It may be like, “My investor’s joining this quarter.” I would agree 100% with what you say, Elliot. In terms of, a lot of times, if you show them, you have a great like accounting partner and you’re getting your monthly financials, you’re getting your weekly kind of bookkeeping support and they can see that they’re like, “You got that squared away. Let’s go ahead and move forward.” I think it’s more of having that process and backend in order and a good partner to work with or I’ll get an employer, whoever’s doing it.

It does take more time and it takes more expense with GAAP. I think eventually you will need to do it. Don’t be afraid of it. I agree with Brad 100%. Accrual-based is going to give you a much more realistic picture on your own P&L. It’s going to be less bumpy. You’re going to report the activity in the month that the activity took place instead of seeing it later. It takes a little bit more work. It takes a little bit more forecasting. It takes a little bit of accruing up. If I’m an entrepreneur and I am one, I used to be of the ilk of that man sticking my head in the sand and not knowing some of these things was bliss. Ignorance is bliss but it’s not. It’s actually terrifying. It is what creeps up in the middle of the night.

When you start using accounting for what it can be, not score-keeping, not preparing taxes, not appeasing investors, but strategically running your business better by being able to foresee challenges and opportunities. Being able to identify which customers, channels, or pieces of your business drive more contribution margin in which drive less. It’s empowering. It actually makes you so much more effective and gives you the ability to make far more fact-based decisions. I was joking these saying at the onset that exciting and fun aren’t the normal adjectives attached to accounting. I think empowering and game-changing could be. If you use it right, if you have the right rigor and the right reporting, you can do it. Let’s jump into that. How can an entrepreneur leverage the data that’s being recorded through a good process of running monthly and weekly financials?

If you look at the weekly sample, the weekly check-ins and reports should be really focused on tactical things like cash in the bank. What’s coming out, what’s coming in, we’ll run my weekly sales on Shopify, we’re going with the sales on Amazon, those things that you look at. Some quick metrics and understand where you’re at. On a monthly basis, again, reviewing the P&L, as I stated before and segmenting your P&L, especially as you grow with having multiple customers and multiple class sales channels so you can see those aspects. When you look at the P&L how you’re typically breaking them out or how we break them out, what’s top-line revenue? What’s net revenue? It’s backing out discounts, straight spend deductions, etc. What is your gross margin factoring in your product cost, your landed costs in a warehouse before you sell it? Contribution margin. We look at the costs after the fact, from getting into the warehouse to your customer credit card fees, fulfillment fees, freight out.

Lastly, operating profit margin. Factoring in sales, commissions to your brokers, advertising fees, or you’re spending an Amazon or Shopify direct expenses on those specific sales channels. What you’re able to do by that when you segment those reports and you’re actually engaging in those, you’re able to make good decisions of saying, “Why is my gross profit going down?” That’s a product cost issue. Is that a co-packer, tiller, raw material, freight in? Are those costs increasing? Is it then you look at, “My contribution margin slipping. My freight out or my pick, pack and ship are getting higher.” You can start looking at all that aspect and start making good, precise decisions.

Loosening this bulb, turning this screw, doing those things that can help you make better decisions within those aspects. A huge part of that on an accrual basis we were discussing, it’s understanding your inventory, understanding unit economics. That’s a big process of when we go through our clients. We go through a whole supply chain inventory walkthrough. We understand where you’re buying products, where you house products, etc. We can understand your business and report on an accurate basis. If you don’t know where your inventory is or you don’t know your margins are, you can’t make good decisions on those aspects.

I would say, looking at all that, understanding the key metrics you have within there, targeting where you are going to be within each sales channel from a sales forecasting standpoint. When you’re in there and you’re putting targets on your contribution margin by sales channel, and you’re forecasting your top-line sales, you can then forecast and trade spend within Unifier or Ke. What am I advertising fees I’m going to spend on with Amazon, Shopify? I see that my ROI is this or my cost to acquire customers is this. You can start making good decisions on the day. You basically make accounting and financial reporting a competitive advantage for yourself and your business, which then takes you above and beyond your competitor.

If you’re trying to get that space, or you’re trying a startup, they’re a dairy-free ice cream brand, which there’s a lot of them now, how are you going be better than the other person, if your brand looks as the same and your taste is the same? Maybe accounting, finance reporting take you over that top because you make good short-term decisions that keep your business last longer. You get better ROI on your cash and your capital. I think really understanding that and digging deep into those numbers constantly and in making good decisions or chasing, changing decisions or asking questions is where you can really move forward with that.

I want to further that competitive advantage point. I’ve been studying this for years. It’s been the nagging question that I’m always trying to understand and answer. Why do some entrepreneurs outperform others when all things are equal? In fact, why do some entrepreneurs whose products and brands maybe aren’t as cool as some of the others when while others don’t? There are a lot of elements. What I’ve learned, and we talk a lot about in the TIG community, is the threefold path that those founders tend to follow. The elements of it which is being passionately dispassionate about the business and always assessing that it’s having a cogent growth hypothesis. It’s growth hacking and testing that hypothesis in the market. It’s preparing to scale by building brand, strong brand activation. Being surrounded by the right team. It’s building the three types of community.

The important element along that threefold path, we call it accountability and rigor. It’s all about leveraging financials and financial data as a competitive advantage, as a point of differentiation, as a way to make sure that you’re making fewer mistakes and making better decisions. I can’t encourage that enough. Sadly, of those things that I was describing, along with the three-fold path, it’s probably the one that is put on the back burner the most. Even if it’s being done, what you were talking about before, Brad, it’s done often in a passive way. “I’ve got it covered. I meet with Accountfully once a month. I look at my numbers. I’m not worried about it,” instead of using the reporting the information to make better decisions.

There’s a client that brings in products from Italy. During COVID, guess who was it first? Italy before the US had all their issues. This guy is freaking out because they’re like, “All my products are stuck in Italy. How long is this going to last?” He has only so much product in the United States that he can then fulfill on sales. He’s already in. He’s selling direct to consumers on his website, Amazon distribution, direct wholesale, etc. If you only have so much limited supply and inventory, which way do you take your products? You have to understand that. If you understand those numbers, you can then make better decisions when crisis has come up or when those types of things. He had to reallocate inventory, do this, do that. After more information came out, he kept judging it. If he didn’t have any understanding of his numbers or what’s going on, it would have been a blind leading the blind situation and a gut-feel versus an actual fact-based feel or review of what’s going on. Or go ahead and execute in this manner.

This is more about the backend side of the business. The question is, there are products out there like QuickBooks and Xero, demand planning tools, inventory management, like Deere and others. Are there any comprehensive systems that you guys are aware of? Small business ERP, things that I can use to better manage my business.

I guess the small business ERP has always been around was like the QuickBooks, enterprise desktop version. That’s still there and you can use that. We don’t use that in Accountfully for multiple reasons. There’s a lot of people that still use that. The next big ERP phase, when you get up to let’s say $10 million or $15 million in your company, isn’t like NetSuite, or Intacct. Way too bulky, way too much expensive for people within the space that typically we’re chatting out. I think there are some startups like Accounting Suite or things like that I don’t know enough of.

We stay in the space of QuickBooks online. 99.9% of our clients were QuickBooks online. We leverage it because it’s a very efficient tool within what it does. It doesn’t do inventory very well. We either do an inventory on a manual process where we manage them in spreadsheets in Excel and work and coach our clients on that and have a process where we handle that. You can use a system like Deere Inventory. We probably have 40 clients on Deere. We’ve implemented an inventory team that helps with that. We have clients in SOS and Fishbowl.

We’ve been doing QuickBooks online since 2013, when it started and Bill.com events. We’ve always been focused on the SaaS cloud-based systems. Now that we have all these systems and they have open APIs, which are basically open interfaces to share data. Use the ones that are good at what they’re doing and piece them together. Bill.com for paying bills, QuickBooks for the GL reporting bank recs, Gusto for payroll, Deere for inventory management, inventory consult, Fathom for reporting. A ton of different systems that our clients use. That plug into different systems and then leverage them for what they are. That’s the ERP that exists for the zero to $10 million. Companies out there are leveraging, piecing these units together. Also finding people that can help you to make sure you understand how those systems piece together.

I think that’s got to be the hard part is it’s trying to. This is for all those entrepreneurs reading. I’m going to give you a homework assignment for the next episode. I want you to take a piece of paper. I want you to draw a line down the center of it. On one side, I want you to write high value and the other side, low value. Every time you’re doing something, I want you to ask yourself a question. Is this a high-value activity? Am I doing something here that is meaningfully moving my business forward or am I doing something that is transactional or rote? You write that down on both sides. There are going to be a lot more low-value activities than there is high value.

Just to be a total buzzkill, you’re not going to be able to get rid of most of the low-value activities right off the bat. You can begin to work towards that. One of the ways to work towards that is something that Brad was talking about. How often do we spend time trying to figure out how to use new technology or do things when we can leverage somebody who does the day in and day out to do it effectively and efficiently and get it done for us, then we can focus on those kinds of things. Maybe we don’t do it. You can get away with it for a while, but I’m telling you, inventory demand planning are things that bite more founders in the butt in terms of it coming back to leave a mark.

I think with inventory, our biggest coaching point to our clients or our biggest issues that we have with our clients literally on a monthly basis is inventory control, inventory management. Your biggest spend is inventory. The whole goal of selling a product is to have as much ROI on the product you’re selling, like our ROI inventory. A big part of that is controlling your inventory. Where is it at? Am I losing it? What’s going on? When we walk through the supply chain and inventory process with our clients, we’re understanding what you’re buying? What do you own? Do you own it or is it your actual co-manufacturer buying and you’re going to buy a finished good? Also, where do you sell it? Understanding that, where do you own it at? A lot of our clients don’t understand that like, “When you’re selling Amazon FBA, you still own that inventory. That’s consignment at their location that you own it.”

We need to account for it. Do you have inventory at your warehouse at your office and understanding and managing that? There are times we’re just, “I have no idea what $40,000 in inventory like.” That’s a lot of money. Your margins may be great while you’re selling, but you’re losing $50,000 a month or you don’t know where it’s at, or you don’t have control over your 3PL or whatever. Inventory should be a huge focus item. That’s on the high-value side. How do we figure out where inventory is, control it and then demand plan moving forward to support our clients? It’s getting a grasp on that.

I’m going to take a host prerogative here and ask you a question. You’re an entrepreneur. What have you learned as an entrepreneur? If you could go back to yourself when you first started and give yourself some sage advice, what would that advice be?

It’s interesting because a lot of like what we initially said, one random thing, is when we launched Accountfully, we’re like, “We’re not going to work with inventory businesses. We’re never going to do income taxes,” and now look at us. Our biggest clientele is inventory-based businesses, specifically CPG, and we have an income tax team. I would say the biggest thing is, I do understand what you’re good at and focus on that and find other people to do the other things. That’s it. We wasted so much time. The first three years of our business, my wife and I own it. We named the company ourselves and launched it on a website and did exactly what you’re saying. No idea what’s going on. We’re cool accountants from that creative. I have no idea of branding. It’s like, “It’s time to bring somebody in.” They named it Acountfully, helped us with the brand. It’s been great ever since.

I think, doing that, understanding what you’re good at. When you’re ready to hire somebody, don’t cheap out on hiring. Even marketing partners or county partners, it’s like, “Don’t nickel and dime them if they’re going to be good.” $5,000 a year on your accounting spend isn’t going to make you go out of business. If you don’t know where your inventory at and you’re not growing top-line, it’s going to go out of business. Understand that hiring good people and hiring good employees and empowering them. I think one thing that’s helped us grow is we don’t babysit our employees. We hire talent and we say, “Go execute.” We give them tools and support. If they can’t execute and they don’t catch on, then it is what it is. Let’s move on. Don’t babysit. Let them execute.

If you could tell every founder reading something that you shake them and say, “I wish you would just do these things,” what would those things be?

Number one, I would say I think you need to have routine and consistency in every facet of the business that you’re in. Whether it’s every Friday for Finance Fridays or every Monday to do this, to do marketing, you need to have some schedule when you’re going to do all of these specific tasks, especially at the start of the business when you can’t afford people. You have to have consistency in everything you’re doing. You have to take it seriously. You have to understand that is your thing, it’s your baby. You’re the one that’s responsible for it. Having that kind of consistency and routine is number one. Number two is to understand you’re the decision-maker. Don’t hire an accountant and say, “What should I do?” It’s your business.

It’s like, “Elliot, you’re an investor. What should you do?” I’m going to say, “I’m investing in you. What is the decision or solution that you think you should make?” I’m not here to on a day to day and on the battleground fighting fires and making decisions. That’s on you. Routine, understanding the decision-maker, be prideful in your decisions, be prideful in your business. Those two things will allow you to then execute and make sure you are getting your financials. Making sure you’re properly reviewing your ROI marketing. Making sure you’re filing taxes, making sure you’re taking part listening to experts like Elliot here. Things like that get you an aspect of moving forward in a positive direction for your business.

Don’t listen to me or listen to me and do the exact opposite. I’ll add to that because I think it’s really important. This is something that I’ve learned too, and that is to manage your schedule with real strong barriers and walls. Make appointments for yourself because it’s hard. You wind up in business and two things happen. One is you get so sucked into working in the business that you don’t ever take the time to work on it, but working on the business is what moves it forward. In my calendar, I actually block off sometimes I call WOB, Work On Business. That’s the higher-level strategic thing. It’s like any other appointment in my calendar and I keep it and I don’t give it up like I wouldn’t any other. Doing things like that and actually building that routine and building that consistency and walling them off is super important.

The other thing is to have a cadence of report review, even if you’re a solopreneur at this time. One of the suggestions I make for a lot of the smaller brands is to find an accounting buddy. Have a financial review with each other, present each other your review and ask questions. Whatever way you can get some type of start to that discipline and routine is important. One last question. This is a great question. You see a lot of brands across a lot of different categories. The question that I’m always trying to figure out is, what gross margin do I need to have any chance of long-term survival in this business?

That depends. You have to, at a minimum, 30% or 40%. You can’t go below that. It’s interesting though because we try to have consistent reporting across our clients. It helps our team execute their job. Also, we’re able to kind of benchmark our clients. The problem is because of some of our clients. They have different ways that they want to report. We’re like, “If that’s how you want to see it, that’s how you want to see it.” It’s like some gross margins are factoring, it’s fully loaded, all the fulfillment costs and all that stuff and it’s here. Other people have the trade spend. “That’s not in there. We shouldn’t do that. Don’t put discounts. That’s all marketing. All my gross margin is 60%.” It’s like, “No, It’s not.” Understanding that, but at a minimum of looking at the gross margin with your product costs, I would say 30% to 40% should be your minimum in that aspect. If you’re higher, fantastic, but I think that would be the minimum.

Some of you aren’t going to be there yet here. Here’s what I would say. You need to understand first and foremost, if distribution growth, in general, is an investment or a moneymaker for you. That starts ultimately with contribution margin. If you take your selling price and you subtract all of the direct expenses that come out from that selling, that’s cost the goods and that’s trade. All of that down transactionally for your biggest customers to understand what your contribution is. That transaction is contributing to absorbing the fixed costs in your business. If that number is positive, that means every time you sell a unit. This is not reflective of cashflow. I want to call that out. In terms of every time you sell a unit with a positive contribution, it’s doing that. It’s contributing positively to absorbing some of your fixed.

What many of you will find out, especially in the early parts of the run, and it’s why burn can be so high, is that contribution net of everything is negative. This means the growth of your business is an investment strategy. You need to think of it as an investment strategy. Should I invest in this account? Should I invest in growing my D to C? Why should I invest? Is it going to help me build longer-term consumer relations? Is it going to help me understand product-market fit? Is it going to help me get to a price break in our co-man? All of those things. I will also tell you, please don’t answer, “I’m going to solve with gross profit, with scale or with volume.” Even if you do capture gross profits savings or COGS savings, it almost always goes hand in hand with price compression as you get bigger. Keep in mind, understand if you’re an investment strategy for growth or whether you’re in a positive contribution margin. Do you want to add anything there?

A lot of times, the negative contribution margin that you see, it does reflect this whole investment in a mindset that you’re talking about. It includes upfront free fills, slotting fees, especially if you’re getting the distribution world. You are making an investment. Understanding, in the future, how that’s going to impact you and making those decisions accordingly. You have that visibility to it, which a lot of folks don’t.

Brad, I know you guys are slammed, which is a great thing. Life’s busy for everybody. If folks want to learn more about Accountfully and understand the services that you offer, what’s the best way for them to go about that process?

I would say go to our website. We have a Getting Started form and fill in some information. When it comes to me, I’m actually the only salesperson at this time. I’m enjoying all the conversations with the folks. I think we’ve launched a podcast called The Month End. It is focused on CPG world like finance, accounting, operations, like the nuts and bolts of what we chatted about here. It has a brand-founders on them, which are the majority of my clients. It’s cool to me Primal, Drink Recess, check those out because I think then you can see some real-world examples of the app that helps you understand a little bit of how we can help our clients. At any point, I am happy to have a chat with anybody about anything, inventory, tax deductions, accounting, bookkeeping, finance, etc. If you’re too big for us, we have partners that can help you. If you’re perfect for us, we can try to work together. If it’s not a good fit, that’s fine. I want to help you guys understand what’s going on. As a fellow entrepreneur, helping make the best decisions you can, that’s what we’re trying to present.

Thank you so much for joining us. This is a cool conversation. Thanks, everybody. We’ll catch you on the next episode. Take care.

Important Links

• Spinster Sisters

• Accountfully

• Bill.com

• The Month End

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