Get Your Business Finances Straight so You Can Grow - Amazon Seller Tips with Sam Hill - Part 1

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Things we discussed in this session:

A. Part

Things we mention in this session of Seller Round Table:
Website: ecomcfo.co
Email: sam@ecomcfo.co

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Transcription in this episode:
[00:00:01] spk_1: Welcome [00:00:02] spk_0: to the seller roundtable e commerce coaching and business strategies [00:00:05] spk_1: with Andy Arnott [00:00:07] spk_0: and Amy [00:00:07] spk_1: Wees, Hey everybody, what's up. Welcome to the seller roundtable episode number 136 and this is Amy lease and Andy or not is moving houses today. So he's out today. But I'm here with my friend Sam Hill from com CFO and I'm so excited to talk about what we're going to talk about today because as I was talking about on the livestream before we hit the record button, you know, we often on this podcast have talked about, you know, things we need to figure out with our business in terms of accounting. We've talked about, we've talked about profit. First, we've talked about those types of things, but we haven't gotten into the weeds about what it means to have a CFO in your business and to really scale your business to that level and what you need to be paying attention to. These are things you need to know now before you scale before or as your scale and maybe you've already scaled maybe you're already in the seven figures and you don't have a CFO. Well maybe you should. So we need to talk about that today and I'm so excited to have my friend Sam here. Sam Welcome. [00:01:28] spk_0: Thank you so much for having me AMy. This is, this is awesome. [00:01:31] spk_1: It's great to have you. I'm stoked. So we always start our podcast by finding out a little bit more about you. So you know, you can give us a blood sample or your entire life history, whatever you prefer as much or as little as you want. But let's talk about how you ended up here on this podcast today. [00:01:51] spk_0: Yeah I just did a food sensitivity test. Uh My first one a couple of weeks ago and uh found out I was sensitive to chicken cinnamon and bell pepper. So there you go. But yeah my name is Sam Hill. I run um Aecom CFO we do outsourced CFO bookkeeping and bill pay services for e commerce brands specifically. Uh EECom CFOs two years old. Uh And before that I was just a general consultant for e commerce companies. Uh Some sass cos I did some real estate work and kind of a hodgepodge and really fell in love with e commerce and um it was a great cultural fit with all of my e commerce clients and that's honestly how becomes CFO. Was born before that I sold my soul a little bit to corporate America and was working in Pricewaterhousecoopers and their mergers, mergers and acquisitions practice working on like multi billion dollar deals. And I wanted to try and do those multi billion dollar deals for myself and for my clients. So um I left been on my own ever since and I've been absolutely loving it. [00:03:05] spk_1: So it's interesting that you were more of a general consultant before and what I guess. So that's what you said you you said you kind of saw some of those big deals come through and you were like, wow, this is what it takes to get a big deal, like I wonder if I can help other people do that. Is that what really inspired you to start Aecom? CFO? [00:03:28] spk_0: Yeah, absolutely, I mean, I just um I got to the point where I wasn't passionate about Coca Cola's earnings per share increasing by 10 cents every quarter. I wanted to feel like I actually had an impact on businesses and real people and so um when I left PWC and went out on my own, as you mentioned, I started doing general consulting finance and operations work and when I looked back at all of the businesses that I had touched e commerce, just really spoke to me because I feel like there's so many levers uh in the e commerce world that finance has traditionally not been a part of, because e commerce has been a little bit of Wild West, let's figure it out. How do we like configure the, our game, the amazon algo, or how do we launch this new product on Shopify or something? And frankly finance people don't start e commerce brands, generally speaking, the really smart marketers and product and operations, people generally start e commerce brands and finance, just kind of like we'll figure it out when we make it. And um so I, I just saw so much opportunity to add value in the commerce space and um wasn't as passionate about sass and real estate and, and I just really got along with all of my e commerce clients and yeah, it's been great, [00:05:00] spk_1: I think it's so interesting because something you brought up, I don't think we typically think of CFO when we think of these smaller micro brands and um, you know, e commerce brands, we don't really think of big money deals like that, but as you grow and as we see our aggregators doing right there, raising money there, you know, and cash flow is something that all of us realize as we grow and scale our brands is a major issue that has to be dealt with, and it's just like not hiring people ahead of when you need them and ending up just, you know, being stuck in your business. I feel like finances the same way, you know, you, you you don't figure out your cash flow ahead of time, you need inventory to fill orders and you're just, you're just stuck and you get stuck in this loop and it prevents you from growing. So I'm excited to learn from you today about some of those things that brands that are utilizing CFO services like yours are doing and they're getting ahead of those problems that some of the rest of us who aren't even realizing that, you know, this is even a possibility for us are struggling with, right? I know for me [00:06:18] spk_0: it's [00:06:19] spk_1: constant, it's like, you know dealing with and helping clients as well, you know there are always trying to deal with cash flow issues and with just trying to stay ahead of their growth and that's I think so so important. Something that we have to master, so I'm excited to talk with you about that today. [00:06:40] spk_0: Yeah and and we should view we should view finance the same way that we do all the functions in our business, whether it's HR marketing or operations, like the the complexity of that function should be pretty directly correlated to the level of complexity of the business and level of scale overall. Like if you're just launching a product on amazon and you're selling you know a couple of $1000 of product per month, you're not going to go hire a full time operations manager, you're not gonna hire an an HR manager and you're not going to hire a full time marketing person. And so you shouldn't be hiring a full time finance person either. Like the business just doesn't support that and there's not as much complexity uh to support that. So the level of all of these functions should align with the scale and complexity of your business. And I think that's some of the issues that I've seen um with other clients is either they you know they wait too long, it's like oh we should have done this a year ago or even sometimes I think um hiring someone a little too early and I think I think that that does exist um because you have to have some foundational knowledge of yourself and and understanding what's going on to make a relationship with someone like us that much more fruitful. [00:08:06] spk_1: Yeah, that makes sense. So let's just start at the beginning, can you define what a CFO is in terms especially in terms of an e commerce business? [00:08:18] spk_0: Yeah. Absolutely. I mean you hear so many different names and titles of people in finance or accounting getting thrown around. And I think it's super important important to define these terms. You have, you know accountant, you have bookkeeper, you have maybe a financial analyst have a CFO, you have maybe a tax accountant or a tax attorney. All these people do different things and some of them overlap and some of them don't. And I think starting at the lowest level of a bookkeeper, a bookkeeper is primarily responsible for the transaction level. They're not asking anything of the data, they're just producing the data and making sure that uh banks are reconciled and generally stuff lines up in quickbooks or zero or whatever you're using. Then you've got uh an accountant which an accountant may or may not be C. P. A. Um But generally the accountant is asking some, they're asking more questions of the data and some but not all accountants will also do your taxes. Uh But I think it's it's important to separate kind of those two parties from a CFO and the way that we think about a CFO is how do I maximize your long term profitability period? And um we make the distinction of, I don't like doing taxes, I don't like touching taxes. And so I think the tax people's primary job is to help you keep more money more of your own money and um avoid taxes if at all possible. My job is to make you more of it. And whether that's, you know, launching new channels, um, analyzing a certain business decision that you have, of creating projections, analyzing your margins, all that kind of stuff really fits into our view of, of what is that is, [00:10:32] spk_1: I love that, you know, because that's the thing is we need as business owners, we need that, we need an understanding of all those things that I can't really go to my accountant for, right, I can go to my account and say, hey, you know, um, what loans are available to me right now or, you know, have you have, is anyone else doing this right? That's one of your clients, but she can't really help me make complex financial business decisions or really decide whether or not to move into. Um, you know, a global channel, Like often I see people, they'll launch in to many channels before they've scaled their, their first channel and then the the cost of expanding, for example to europe and Canada and Mexico and all those things actually cost them more than they're making because they expanded too quickly and they think oh I'm going to make more sales this way, but you also have to take all those other costs um into consideration. So I love that what you do is fill those gaps, those gaps. That's the one thing we all wish we had that that person that could tell us. Yes, this is a good financial decision to make for your business. Yes. This is what an eventual buyer would be looking for. Yes. This is how you cut those expenses and maximize your profitability. Like period all of us could benefit from that. So it's it's so important to know that these types of services exist. And you know, all of us, we start by first trying to do accounting on our own. Nearly all of us, right? Unless we have a significant, we've built a brand before, you know and we have a significant business experience background. Um We normally we start, you know fresh, we're we're just starting, we're just getting into um you know, building our business staying lean right? And we um and and we try to do our own accounting and then we quickly realized that we can't do all of our own accounting because this is just bananas and we're probably making mistakes until we hire an accountant and in my case my accountant fixed years of taxes that I did incorrectly and you know, she immediately paid for herself, right? Um but then but then we reach another level where okay we've got our books in order and we're doing well, right? And this is something that that we talked about often or that I've spoken on in many kind of end of year podcast and end of year time periods is we get to a point where we're like, okay, well I have my numbers down now, I'm doing my bookkeeping, I know that I'm profitable or not profitable, but I'm not really sure what to do now. Right. I think that maybe I should expand or I think that maybe I need capital, more capital to you know, move these products further, but I don't really know how to take that data that my accountant put in quickbooks and really turn it into like strategic business decisions are going to help me grow my business. And so this is so wonderful to kind of have this. So I would love to get into um some of those things that you guys help people with that are really strategic. So what are some of the struggles that you see people have like when they're first um coming to you, What are the scaling struggles that people have? What are the mistakes that they're making? What are, what would you say are like the top Top two or 3 things that most people are not getting right. [00:14:21] spk_0: Yeah, absolutely. And um to take a step back for a second, it's really important, so make sure that you as the business owner, take ultimate responsibility for your numbers. And I think um the bad relationships that I've had with with clients is when you're asking a CFO to tell you what to do our job is to present all of the pros and cons and the financial impacts of all these different decisions. But at the end of the day it's, it's on you to grow. You're the business owner and you need to take ownership of that to say like, okay, well I'm thinking about opening up an amazon France store. Okay, great. There are a lot of qualitative elements of that decision, what products you're going to launch, who are you competing against other supply chain issues, all that kind of stuff. But then there are a lot of quantitative elements of that. How much is it gonna cost to get product over there? Where is the product coming from? How did how did the fees differ? And we're gonna have to do v 80. Do I have additional reporting with brands or that or that other country. And those are really important for us to hone in on and present that to the owner to say, hey, here's what I think the, you know, the budget is going to be here are the contingencies here, the thing that you look out for financially, but ultimately I'm presenting those to you as like a pro con list and you're ultimately making the decision. You shouldn't be relying on your CFO or a business advisor consultant or board member whatever to make those decisions for, you need to take responsibility for this. I think that's really important to say, but some of the common mistakes are um really simply number one is just not knowing your numbers and um to take it up a level down from that is I see a lot of businesses right now that have been doing their books on a cash basis historically and they want to double their business the next year or they really want to scale. And it is extremely difficult to do that from my perspective if you don't switch to accrual accounting and it's it can be complex. Uh Now if you're an amazon only business, it's a little bit easier. You can use a program like a two X. Or something. Um but having the awareness of setting up your books on an accrual basis and why that is important is like a huge huge topic and something that the union to be aware of. So um I would I would think that's one of the first issues and especially when you're again going from a smaller store to a larger store that that's critical when you're smaller or Yeah, like you can produce valuable information, like all spreadsheet, but as you cross hundreds of thousands of dollars and certainly that million threshold you need to switch to a cruel, yeah. Um, other common mistakes is related to that, Not just knowing your numbers in terms of, am I making money, but knowing what my cash flow is going to be next month, two months from now, three months from now and how much inventory I'm gonna need and how much cash cash I'm gonna need and where am I going to get it from? And especially with all of the supply chain issues, I see some of our clients just buying more inventory to say, okay, well I used to buy three months, but now I'm, so now I'm going to buy six months. Okay, that's great. I understand you know why you're doing that to maintain inventory levels of course, but that obviously has a significant impact on not just cash flow, but other costs for storage. If you're storing it within amazon or if you're storing it in a preliminary warehouse and then you're gonna ship it to amazon, there's additional costs involved. And that is going to have a significant burden on cash flow and understanding what your deficits deficits are and when and then how you're going to fund it. And then, and I think related to that, if you don't do that planning, then you get to the end of the road and then you say, okay, well the only funding options available to me are now a Shopify loan or an amazon loan or a paypal loan or a clear bank loan, which there's nothing inherently wrong with those, but they're expensive and so if you can get ahead of it and understanding, okay, am I gonna take investor equity capital? Can I go to, you know, friends and family or ideally can I go to a bank to get a line of credit or you know, some of their funding source and you put yourself in this like vicious cycle um of, you know, very costly decisions. And again, those decisions continue to compound as you grow and instead of those decisions being $1000 decisions or $5000 decisions, those decisions quickly turned into $100,000 decisions, half million dollar decisions. Uh, and so it just, it's really worth the investment of paying someone like me to help you understand those decisions and begin planning uh, for all of those really awesome new challenges in your, in your life as an entrepreneur. [00:20:14] spk_1: So why do you think, I mean, I guess we should explain accrual accounting and why accrual accounting is so important. So what is the type of accounting that most people are, many are using if they're not using accrual based accounting and why is making the move to accrual based, so important for your overall financial outlook? [00:20:38] spk_0: Yeah, absolutely. I mean, look, I think the, To spend 10 minutes on this is probably not worth it worth our time. You can just as easily Google it and and see cash vs a cruel and I think just having the awareness of what a cruel is, um, when to switch, um, is really important for your listeners. But in general, cash basis of accounting just means I recognize an expense or a sale at the time it hits my bank account. Accrual basis means you're recognizing the expense or sell of a product in the period In which the sale occurred. So I mean the best example is inventory. If I write $100,000 check to my supplier, then I'm recognizing all of this cost of goods in that particular month. Whereas I could have sold zero product, but I still recognize all $100,000 of it. Um, and that just doesn't help us make any strategic decisions ideally what you want to do. This is what you know, larger companies do. That certainly applicable to smaller companies. I mean we do it every day, but recognizing the expenses and sales in the month that they occurred. Um, so you can match all this together and understand if you're actually profitable or you're not? And if you're not, where are the areas that need to improve? Is it a gross margin problem? Is it a marketing problem? Is it a fulfillment costs and shipping problem? And you just simply cannot do that? Um, with cash basis period. So that's the two minutes? No, [00:22:18] spk_1: that's perfect. I think that it's important to point that out and I agree, you know, we don't need to get in the weeds. People can use use the googles, we're going to [00:22:28] spk_0: lose your entire audience. [00:22:30] spk_1: But it is important to understand why, you know, and that makes sense. You know, we want to make sure that that we're understanding when we sell that unit if we're profitable, right? Not just looking at, okay, well I spent $100,000 on inventory and you know, so I'm down $100,000 this month. No. What, what is that for that sale? You know, um do I need to, because you can't improve, You can't move the needle if you have no idea um what your actual cost is, what you're advertising and marketing costs are what the cost is when you're, when you're selling that product and you're taking into account, you know, like you were talking about storage fees, everything else right across your business, but of course also looking at those types of things that you have control over there are certain things we have no control over like amazon fees, you know, other than changing our our packaging, making it a little smaller or you know, making our product collapsible, those kinds of things. We can control, we can control the size of our product, but we can't always control certain fees, right? So we have to look at what we can control what we can budget for and if we don't have the right accounting in place, we have no idea what those things are that would move the needle for us. So I think that that's so so important to recognize. Um And then the other thing that you mentioned was just thinking ahead, like knowing okay I'm gonna I'm gonna have to order six months of inventory because this this is a mess right now, right? And what does that, what is that going to mean for other areas of my business, such as storage fees, such as Especially if I'm storing it at Amazon during Q4, you know, that's insanely expensive. Um so I think that's so so important. Um so I love talking about these mistakes that people make and how they can kind of correct them and how they can think ahead. Um Can we talk about 2022, right? We're we're about to hit a new year And people I believe should take the time to kind of look back at the previous year, look back at 2021 and kind of assess what happened. Um and then they should start looking at 2022 and setting up that vision and the things that they want to improve. Um So can we talk a little bit about that from a financial perspective, what are the things people should be looking at in terms of their budget, things that they should cut, things that they, you know should be tracking more closely um that contribute to or hinder their growth. Let's let's talk about that. What kind of things are end of your things besides taxes that we should be focusing on To get us the most profitable that we can be into 2022. [00:25:32] spk_0: Thanks for tuning into Part One of this episode, join us every Tuesday at one PM pacific standard time for live Q. And a. And bonus content after the [00:25:41] spk_1: recording at cellar Roundtable [00:25:42] spk_0: dot com, sponsored by the ultimate software tool for amazon sales and growth [00:25:47] spk_1: seller S C. [00:25:48] spk_0: 0.com and amazing [00:25:50] spk_1: at home dot com.

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