160. Financial Foundations For Your CPG Business

Financial Foundations For Your CPG Business

Jordan Buckner: [00:00:00] Building a business as a CBG brand requires a lot of spinning different plates at all times. And as you're pulling together your product, talking to customers, getting into retailers, bringing out e commerce, a backbone of all of that is really your strategy around your business fundamentals. If I'm a financial standpoint and the business model standpoint, so you understand what it is that you are building towards, what you're building, business needs to survive and what it needs to reach the success or exit that you're driving towards.

I think a lot of founders don't fully understand their financials behind their business. And it's because it's complicated. There's a lot of things that go into it. And there's not an easy way to get full visibility. So to really dive into this, I've invited on Brad Ebenhoeh, who is . The CEO of Accountfully, to break down how to think about your business financials. Your goals and how that impacts how you run the business, Brad, welcome.

Brad Ebenhoeh: Thanks, Jordan. Happy to, happy to be on here and thanks for the [00:01:00] invite. 

Jordan Buckner: So as founders are thinking about their business from a financial standpoint, I know a lot of founders are running their business, kind of using PBO, QuickBooks online to look at like how their business is performing.

But I think there's a lot of information that's kind of missed in there. And so as you talk to lots of founders, How do you advise them in terms of thinking about accounting versus finance for their business to understand the big picture? 

Brad Ebenhoeh: Yeah, so that's a great question to start off and kind of preface this entire conversation here.

Three big points three big kind of topics slash responsibilities and roles, right? Bookkeeping, what is bookkeeping versus accounting slash controllership slash finance, right? So let's dive into each one of them. Bookkeeping is. Related to week over week tasks, keeping, you know, the lights on, invoicing customers, getting paid payroll, sales tax filings, paying bills+.,

+et- cetera.

Right. That's bookkeeping. That's task, you know, menial tasks, week over week that are very important. Number two is controller ship controller slash accounting. What that really is, is [00:02:00] getting a good month end financial reports in place, looking backwards. Right. So really you're controlling. The reporting actual package and actual data for the company.

So at the end of each month, February, today's the last day of February. In March, you're going to close February. That controller overseas approves it and signs off on that basically. And then looks and says, what are my margins? What was my cash in the month? What's my AR? Did I make money? Et cetera.

Right. So basically you have a point in time that you complete everything and you look backwards, right? Now what's the next steps? Looking forward. So that's finance, advisories, CFO level services, right? Modeling, forecasting, budgeting, cash flow planning. In order to properly do that really well, you have to have a good idea of where you're at and an accurate idea of where you're at.

Right? So that's why accounting is very important because it shows you a picture of what's going on today from the profit and loss statement. Profitability. Am I making money? Am I going to generate money? Versus balance sheet, which is just a snapshot of saying, what are my assets versus my liabilities?

Am I underwater? Do I have a ton of debt versus cash? And [00:03:00] then cash flow statement that kind of reconciles both of them, right? So understanding that then helps you put together a picture going forward of the business. And, and that's like what an investor, an accountant, I look at a set of financials, I can say right away over the last quarter, last year, what kind of like the story of the business is, right?

So that's kind of the main difference between bookkeeping kind of accounting slash controller ship slash finance. Does that make sense? 

Jordan Buckner: Yeah, I think that's a really great breakdown in terms of how to think about what's happening right now, what's happened in the past versus what's happening in the future.

A lot of founders will bring out someone to do bookkeeping, but they have a challenge thinking about , that financial for looking view of their business, right? Especially if you're in your first year or two of your business, right? Like you don't have strong financials you can't use. Fortune 500 industry benchmarks to look into the featured share.

And so how do you even go about finding someone or thinking about those financial forecasting metrics? Is it the same person that's doing bookkeeping or is it someone with a different mindset? 

Brad Ebenhoeh: it's a great question. [00:04:00] It's. A bookkeeper, you know, like there's a lot of folks out there that are like, Hey, I'm a CFO and they really aren't a CFO.

They're more of a glorified bookkeeper, low level controller. Right. Those folks are good at, you know, bankrupt, slipping backwards. Right. But really helping you analyze your business going forward. They may not be the best fit. I think. There's contract CFOs out there, there's like companies like Acalpa that actually do the bookkeeping accounting and have, you know, people in the house that can help you with that.

Right. I think one big thing to understand is like within BookBooksOnline, which is where we have all of our clients. We have clients from zero to 20 million there. Everyone owns like BookBooksOnline, right? And we use different systems in areas. So you don't need to worry about going to a highly complex system.

But promote looking forward, forecasting modeling standpoint, you're leveraging data from QuickBooks, and then you're typically using Excel or Google sheets because it's functional. It, you can easily put assumptions in, tie tabs together, and then help you understanding if I based upon, you know, my product and my costs, the velocity at these numbers of stores, this sales channels, this costs, you can create a P and L that then backs into various commentary.

Right? So I mean, number one, [00:05:00] understanding the tools. Secondly. Really understanding that I can put together a great model today as a pre revenue you know, alcohol brand, right? But I'm basing them off assumptions that I have no idea about. So really the biggest goal that I think a founder should do within the first, you know, zero to a million in revenue is not even related to accounting.

It's just your product. Fit with the customer. Are they rebuying it? Are you getting something to help generate more revenue? Secondly, what are your unit economics? That's the big thing, right? Is like, what are my costs in my product to, from initial purchase to when they land in the customer, what are my other costs?

You know, below contribution margin, advertising commissions, et cetera. And understanding that that's going to really help you. Basically say I can grow money. I'm growing my revenue up because customers are repurposing the product. They like it. I found a fit there. Cool. Secondly, am I making money on this?

Great or not? You can make decisions at that point. Once you have that level of data and you see some several months of information or, you know, a year of it, then you can start piecing together a much more like [00:06:00] tangible and relevant forecast slash model to help you make decisions. With that being said.

I don't think you would need a three year model. Let's put together a 12 month forecast by month to say, I'm here today. I want to get to here. This is what I think. And then revisit it every month or every two months and update it. But let's not worry about the five year situation when you only been in business for 12 months, right?

Let's kind of piece together. Then over time, as you get the million, 2 million run rate, then let's have a different conversation about, you know, that level of detail, depending upon your needs, if you're looking to raise money or. Do you need a bank needs to see that or, you know, do your investors or your board need to see that, right?

Some people at times, some people don't need to see that, or you don't have stakeholders that require it. So don't do something that you're not even gonna look at anyways. 

Jordan Buckner: Yeah. I think those are so important. I'm glad that you mentioned the product market fit at the beginning, because I think that's definitely number one that you need , to figure out.

And then what I like to talk through is business model fit, which is how do you then take that product? that product and align it with the right sales channel distribution and and support that you need from a marketing [00:07:00] education and sales team head perspective to make sure you're building that robust business around it.

You know, that kind of brings up a lot of decisions that founders need to make in terms of how they want to run their business. To understand and add context to what their reports or metrics look like. You know, the one is, you know, choosing a path between getting to profitability or growth at a loss, right?

Maybe that comes into play if you have investors or need to hit a certain amount of volume. How are you thinking about advising and talking with clients around like making that decision? Are they making that decision or they just kind of seem like, where's my business go? And where those conversations look like.

Brad Ebenhoeh: I think from, you know, choosing a path between profitability and loss, that conversation is coming to the forefront much more now with you know, the fundraising climate we've had the last 12 to 18 months where it's like, wow, it's not as easy to get angel investment or series seed or pre seed or these different kinds of money coming in.

As it did basically pre 2021 and before [00:08:00] all that, the last five, six years, you know, in that realm. So people , are starting to, you see these small kind of brands that are starting to happen to make that decision. So. So what goes into that decision from, you know, moving to like, let's become a profitable company versus growth at a loss.

Really it's a function of cash, right? How much cash do you have on hand or how much cash do you have access , to help you grow your business? So let's kind of walk through a couple of examples. I'm a bootstrap startup. I don't have any rich family or friends. I don't have any banking relationships. I have no idea who to go to from a debt relationships.

But I have a hundred thousand dollars that I put in the company. Then basically you need to map out how you get from here to here. With that a hundred thousand dollars and how you keep generating revenue to put cash back in, to buy inventory, to kind of do all that, to get to that aspect with that leveraging credit cards, different things like that, that may come up or, you know, quick and easy loans that, but you have to manage that from a cash perspective, that person there should probably look more so.

Profitability at the start. And how do I get that? How do I minimize my overhead and expenses and maximize my you know, profitability or, my margins , on the sale price, right? You [00:09:00] may be doing much more. You may be doing accounting, you know, guerrilla marketing, everything for your company.

Whereas separately, if you were a founder or , maybe you have access to a line of credit or you have a great debt financing Parker and you're basically realized like, Hey, I can. I'm going to leverage this money to keep growing top line. I'm going to keep losing money month over month, maybe not a lot, or maybe more or whatever.

But at the end of the day, I'm going to hit these numbers. And I know my cash cycle. I know my margins that I can kind of keep this business moving for over the next 24 to 36 months, just based upon what's going on. And so when you have that leverage, you have those relationships and you're able to say, if you go from here to here, you can get a little bit more of a line.

Well, let's keep going. So you're willing and able to lose. 50 grand a month, wherever it is. Right. Because it's just kind of the cash that they're restocking in terms of that. And that level of growth may get to a point then where then you're like, cool, now we can turn this on and now let's become profitable and sustain ourselves.

Right? So that's basically the whole conversation here is how do we keep cash in our bank account longterm, right? Cash is King , that's what this all comes down to. Do you have money to grow your business and to spend on things or do [00:10:00] you not, and if you have that access. The problem is, is people five years ago had access to cash, but they didn't understand how it, like, this leverage standpoint and what is your end game of not needing any more outside cash?

When does profitability come? And it never got to that point. It was just grow a top line, grow a top line, grow a top line. Next thing you know, you're a 20 million revenue company. But you're spending 700, 000 a month on ads at Google and it's a non profitable situation. So, 

Jordan Buckner: yeah, and you know, like , I talk to founders all the time and I'm guilty of this myself of investing money in marketing activities and events without clearly looking if I can measure a return on investment, what does that look like? Even just overall as a company, I know I'm spending X amount on our overhead salaries, any kind of base level expenses. And then anything on like growth marketing and then what does that impact on sales, right? Because I think a lot of people, as you mentioned, they'll look at those numbers that they actually ever break it down or talk to someone in finance.

They're like, Hey, you're spending more money. And you're losing money on every sale that you're generating because your [00:11:00] marketing expenses are, are so high. And that's okay if you know it, especially if you're like closer, maybe you're doing that break even cause you're looking to build up that education, that customer base.

But at a certain point then that means you'll run out of money unless you have a way of changing that, that formula. 

Brad Ebenhoeh: Yeah, definitely. I think, you know, you at the core, when we're looking at your business, you know, let's look at three different kinds of challenges here, right? Number one is. Kind of overall unit economics of your products, right?

Of the cost of your product, the cost of getting in a warehouse ready to sell. And then what you're going to sell it for, right? So you need to understand that aspect of your business. Step two is when you start selling into various sales channels, leveraging that data to understand your economics at the sales channel level.

Not just from an inventory standpoint, but from revenue, you know, net revenue after you're discounting, or after you're getting trade spend or whatever, your cost, your product, but also then shipping to the customer, the pick, pack and ship, plus even like the advertising costs, right? Understanding what that kind of gets into place there.

Once you have that, and that the third [00:12:00] thing is, is dependent upon actual long time data or long term data. Both of these are, but essentially it's. Okay. Great. What is the cost to get a customer, especially in the DTC space, right? But again, you'd look at that, the distribution space of retail spoilage.

Number two, the cost of the customer, what's the value of light time value of the customer and what is my average over value, i. e. velocity, right? So over time, as you're kind of looking at it, you understand the unit economics, you understand your sales chain economics, then you're able to do this. That's when you can piece together a very simple.

Forecasts of showing this, this and this, and this is how we're getting there. And then the more accurate that data, the better you can drive your business forward from a decision making because all those things, you can see how much money I left over for overhead or payroll or cash. And then boom, then that re the cash, you know, comes back to the bank account and then you do it all again.

So you need to understand all that aspect at that level. Then that will help drive all of these decisions that you need to make month over month. 

Jordan Buckner: Yeah. I think that's incredibly, really valuable. And, you know, I want to share something that I see other earlier stage founders, even larger stage founders dealing with as well as the emotional [00:13:00] impact of finance for their business and the ramifications of that, you know, when I was running Teasquares at the beginning, we knew that we were going to Take an outside money and grow as much as we can.

And we would operate at, at a loss until we were able to become profitable at some point. And we were finally partnered. What I didn't quite realize was the emotional toll of knowing that every single month I look at our bank account, it was going down and having the scarcity mindset that I am constantly running out of money.

And when I'm constantly running out of money. I didn't feel secure, the company didn't feel secure, and at times it has a sense of desperation, I'll even say like, I need this, the next financing round or else our company will close. Right? Like, cause we didn't hit the scale that we needed to turn profitable.

And we operate like that for four, almost five years until we got to a point where we became break even. But I'll tell you, like not having a clear mindset on that, I found like leads to founders and myself too, [00:14:00] like not even wanting to look at the numbers because every time I looked at the numbers, I'm like, Oh crap, like we lost, we lost money.

Even if we lost less money than I thought, like we, or more like we, we're losing money. And so I think like having that right mindset of what you're trying to accomplish and the ramifications of it helps a little bit. But, but it's tough, right? 

Brad Ebenhoeh: Oh, yeah. I mean, you know, like the people are more like open to share like relationship and various personal, like just life events with people versus even talking about like their finances.

It's like such a, it's a guy we just. stressful thing, right? To begin with. So, like, once you start with that, then secondly, You know, impacting, you know, day to day where, where essentially if you don't know where you're going or you're not hitting where you're going, you're managing it, you're in a reactive mindset.

So you're checking your bank account every day, like, Oh no, no, no. And you're running a business, your bank account, it can become highly stressful. So that's where you literally have to, to your point, have a plan in place, have some fundamentals, have some goals and consistently review and revisit them.

Right. Like, and then if things [00:15:00] change or your assumptions like didn't hit. You need to adjust and change it to do it. Cause otherwise it's when it gets on a day to day basis, it's really hard. If you look at this in like a 90 day tranches or 30 or 45 day tranches and like, Hey, we're here today. That's where I'm going to be.

It becomes less stressful from a reactive daily situation. Cause you're like, all right, here's this. How do we get to here? Cool. We hit this, you know goalposts next one here. Right. , and then if you didn't, then how do we just, how do we adjust? So like, that's why I recommend people just having some sort of plan and understanding of what's going on based on the data you have.

But then revisiting it and changing, it's just like you know, like driving across country using Waze or Google maps. If you didn't have one of them, you're just going literally, you would have no idea where you're at. Then all of a sudden you're like, Oh, I'm in Arkansas. Sweet. Like, well, I mean, you know, like that's not how it works.

So literally when we're driving every day or walking across the city, we're using a map, but then business owners who are literally putting 20 hours a day in stress, not sleeping. aren't even leveraging that information or trying to, right? So like, that's a big part of this whole conversation is getting information in place, looking at the data, [00:16:00] making a decision, trying to set some goals and then revisiting those and keeping to 

move forward.

Jordan Buckner: What level of information is really necessary? As I'll talk to me at like the early stage, you're under a million dollars because right, you have like your QBO chart of accounts, and then you have. All the data for your business for like individual customer sales, channel margins, and it's tough to kind of like force fit that into your QuickBooks account.

So how do you think about like what level of data complexity is needed? 

Brad Ebenhoeh: Yeah, I would say you know, we do get challenges with some clients that come to us then while like highly complex. Information and chart of accounts and things when they're, you know, 200, 000 revenue or just starting up and they're like, well, I want this because I want to see where this is at two or three years.

It's like, well, the more complex that you are from the number of accounts or the detail you want to get, like within like your profit loss and balance sheet, the more errors are going to be made, the more mistakes can be made. And overall, the more time that needs to be spent to do it. So it's going to cost more money, whether you do it or whether somebody else does it.

You don't need a lot of complexity. You don't need to have [00:17:00] your advertising and marketing bucket, like, Oh, Google ads, Shopify ads, boom, boom, boom, boom, boom. No, I have some like three or four buckets and putting them in and assess against it. Right. So number one, keeping it as simple as long as possible, because that's going to minimize errors fast.

That's going to allow you to see some more summary data and allow you to see the big picture better, right? The whole goal. I think from a financial statement perspective, from my end as a business owner, myself is you got to see some high level and step back in order to make good decisions and see where you're at.

Right? So if you're literally looking at like office supplies, I spent, Oh no, I spent 200 more this month on last month. I mean, I click into a, what was it? Number one, I understand cash. Like you don't want to spend it on any expenses, but saving 200 a month at office expense is not going to impact the business like long term.

Like you need to figure out product fit. Am I selling, are people buying it? What are my economics? Where am I getting the cash to support the next inventory run? Right. And then over time you can add in complexities and things like that. Right. So it's really trying to understand and mirror in [00:18:00] simple workflows, processes and systems, getting some good data.

You're moving and growing your business and that's your goal. And over time, let's add in different complexities or different systems or different workflows, you know, over time, that'll help that, right? If you can put on the back of a piece of paper, excuse me, or an Excel sheet, Hey, I know this level of data from Shopify sales and do it and then put it in.

You don't need to put it in QuickBooks, right? Like QuickBooks is for more reactive looking backwards. And if you're a small company, it doesn't matter. I mean, it matters, but that's going to help you run your business more. And then go forward and do it. And then afterwards you can assess it and deal with it in that perspective.

So I would just highly just say, recommend keep everything as simple as possible until you need to get complex. So the more complex you start with, it's really hard to go backwards. 

Jordan Buckner: Yeah. I think that's really important. I think right for founders, figuring out what are going to be those key metrics that will determine how successful your business is.

Figuring out the process for how you're going to measure those, you know, one to 10 things, maybe it's closer to five. And then like, do [00:19:00] those and like focus on those areas. And if something like major comes up, there's like, Oh, that's something else we should add into our list or take something off because we.

We misjudge what was most important and that helps you keep a healthy view on your business. 

Brad Ebenhoeh: Yeah. And sometimes those metrics, your point , aren't like that data sometimes isn't coming, right? It's like go to Shopify and see this or that, or first, you know, how many new customers did I get? How did I acquire them?

Right? Like what was their average order value? That doesn't come in QuickBooks. That's in Shopify. Take some of that data, put it on spreadsheet. Okay. Quick books here. What is my gross margin? What is this? Cool. What is my cash balance? What's my AR? And all of a sudden you have a nice eight to 10 metrics you're looking at every month and you're like, okay, I see it.

And then you're like, you know, you're still looking at financials each month with your accountant. What does this mean? Or every quarter, like educate me on it. And then once you're mirroring that and you're like, these are the eight things I want to work on or focus on. If you focus on that, everything else kind of take care of itself.

Right. So that's kind of like highly recommend that. And I mean, I have chats with people that are like, cool, but I can't get organized. I need this. I need that. I'm like, you're going to spend a thousand bucks on me and I'm [00:20:00] going to add zero value to your business. And like, fine, I'll do it. I run a business as well, but like, I, you don't need me, like you need to figure it out yourself.

Then we can be here to help out longterm in it. But I need like you open the business. I didn't do it. Right. So you got to take some ownership and figure it out yourself a little bit. 

Jordan Buckner: So important. Brad, thanks so much , for talking about this. I think if founders can start putting in some of these foundations for their business to understand where they are now, where they want to go and track their progress all on the way, then they'll have a much likely.

But reaching that success, what they are looking for, as you mentioned, create the map to get across country. So you know where you're going. You might make some mistakes and get lost along the way, but you need to find your way back to that map or revise where you want to go. 

Brad Ebenhoeh: Absolutely. Thanks for the invite Jordan.

Enjoy the chat. And I hope everybody enjoyed the conversation.