Financial Modeling, Forecasting, Budgeting

Jordan Buckner: [00:00:00] Brands are going through a lot of financial challenges right now, but if you manage your money, right, there's a lot of opportunities. What's really important though, is that you understand your financial health of your company so that you can make better decisions on. How do you grow? How do you hire?

How do you expand with new products? And a lot of that comes down to having a clear understanding of the finances behind your company. So I want to break down a conversation around going through forecasting, budgeting, financial modeling for CPG brands so that you can have a baseline to understand how to build up and understand your financial health.

For this conversation, I want to invite on Brad Ebenhoeh, who is the founder CEO of Accountfully. He works with dozens of CBG brands and knows the real numbers behind how companies are growing so that he can provide better advice. Forecasting, budgeting, and financial health for CBG brands. Brad, welcome. 

Brad Ebenhoeh: Hey, Jordan.

Thanks for having me out [00:01:00] again. Looking forward to the chat.

Jordan Buckner: I know you are one of the regulars on our podcast and I am happy to have you on for your expertise as well. So I'm curious to hear your perspective. Do you find that , CPG Brands are forecasting and budgeting and doing financial modeling, or are they kind of just making up as they go month by month?

Brad Ebenhoeh: There's definitely a spectrum in terms of what brands are doing. I feel like there's the brand that is putting together a three or five year forecast, that's basically going to be used to support fundraising. Like on Shark Tank of things that we've seen the last five to 10 years, and then literally just goes to die.

So they spend money on this deliverable. And don't even look at it and leverage it. Right. So you have those folks, then you have the other folks that I think are almost too much into it at the face of their business of constantly this, this, this one, it's like, look, you seem to be our top line. You need to understand, you know, economics and you need to go out and get your brand out there in the world.

And you need to get customers to buy it again and again, and over and over and tell their friends about it. Right. So you can rethink velocity, but like [00:02:00] get out of the forecast for a minute and just go. So I think there's that fine line there. From where we see with our clients, but I think having a forecast in place makes a lot of sense.

And just making sure you have a roadmap looking forward from a profitability from a cash standpoint.

Jordan Buckner: So for a lot of brands here growing, right, there may be under 5 million in sales. They're trying to understand what my company looks like, right? A lot of them are using something like QuickBooks online. Maybe they have some basic accounting in place. What's the next level that they need to be looking at to make sure that they are looking for looking with their company and their growth instead of backwards looking.

Brad Ebenhoeh: Yes, so step one is making sure the backwards looking information is accurate, legit, timely, right? So number, on an accrual basis, so number one is that, really, like understanding the actual numbers that your business is key to looking forward. Number two is, you know, I really look at this at that level of business from two different, you know, you have the budget and then the forecast.

Basically [00:03:00] a budget, how I view that is like within, you know, An annual budget basically really focused more on the P and L, right? Like what is my cargo revenues this year, margins, overhead, et cetera. And so then you can kind of get a budget in place for 12 months for a calendar year or a rolling 12 months, then you can assess it against a month or a month, but just much more on a kind of a P and L perspective.

That's typically what I see on the forecasting side of things is really much more longer term. Like we really look at, but kind of three years, we typically don't look at five years. Because that's a long way out. But three years is a good aspect of it. And when you do a good forecast, basically what you're able to do is have fraud and loss statement year over year, right?

As well as broken down within months and quarters a balance sheet. So basically you can kind of see where your balance sheet resides as well as a cashflow statement. So it's basically a three statement. And the whole goal of that is to show, provide me kind of a roadmap of where you need to go based upon various assumptions from revenues and your economics and overhead and [00:04:00] things like that.

But also it reconciles the cash. So it really helps you understand, Hey, if I have this in the bank today, when am I going to run out of money? When do I need to, when can I get profitability? If I've got to run out of money in six months, Assuming I get another 300K, I'm going to be profitable or break even within six months, right?

So really what you got a roadmap looking forward that allows you to make better decisions from more of a cash standpoint of the inputs of cash, equity, debt, et cetera, and how it can be used to get to that magic breaking point, which is where everybody's striving for. 

Jordan Buckner: When I ran my brand TeaSquares, we put together.

Forecasts and financial models for investors. I think that was primarily the way we used it, but then also we would use that internally as well, but that was kind of the external emphasis to, to do it. And I always come to struggle between how do I create a, right? Like the forecast is typically optimistic in terms of like what might happen, but then we [00:05:00] also use that same forecast to try to break down like a budget, right?

Like if our sales are gonna grow. Three times, four times, does our marketing budget grow three or four times? Do we allocate money based on that exponential, like, best case situation? Or, how do we kind of think about are we able to plan kind of like a budget for the whole year up front? Or are we kind of budgeting month to month?

How do you kind of recommend brands think about actually putting together a budget if their growth is, you know, Uncertain kind of step stare and potentially exponential. 

Brad Ebenhoeh: Yeah. I think if you're at a position where the brands, you know, at an uncertain standpoint, I think it's more important almost to understand how do I get more consistent sales?

How do I like analyze data looking backwards of. You know, which sales channels are really doing well. Do I need to get rid of a sales channel? Should I be so wide versus deep, you know, like looking at some metrics on your digital advertising and marketing, you know, and what does that [00:06:00] look like, you know, looking at your margins within distribution and things like that.

Right. So I think step one is a little more uncertainty or you're younger. It's kind of getting a little more information in that perspective. Then I think what happens is then you just, you have to put. together a budget for, you know, 12 months and you, I don't think you should use best case to that. I mean, you could do, some people do like, you know, worst case, best case, middle case, right.

Which is fine, but like, that's a lot of information. So I think the key to it is, like I said, analyzing what's been going on, what's working. And then basically from that, those access circumstances, you have to make assumptions. That's like update from the sale perspective. And if we're in these two channels, what are we going to assume velocity is going to be the number of stores?

What are we going to assume, you know, this is going to be in terms of digital marketing. What is my, you know, lifetime value of a customer? What is this? Like you , average order value. You can start kind of putting that in place, information in place. Same thing on, you know, you did economics margin, same thing on overhead.

Do I need to hire an employee? Do I, you know, do we have still an office space or warehouse, right? So you have to start, it really kind of helps you. I think from an annual budget, really dive into the numbers in [00:07:00] the different chart of accounts you have, and really start thinking through what's going on with your business.

And that's why I like it from a 12 month perspective, because it's more short term and tactical, right? Let's look at that. And I think that's, you know, before you put a forecast in place, I think of annual budget in place and when you get it in place and then review it monthly and, or every other month and having it like keep expanding you know, updating the assumptions and having like a rolling 12 month aspect is much more.

Tangible for the small business owner is much more usable, like, frankly, to a. 500 K million dollar company. Like it just kind of gets them into reps in that aspect. So I think it's never going to be perfect. Even if you have a consistent business, things are going to be off, but it's just kind of revisiting it and reanalyzing it and not just doing it to do it.

Like actually like looking what, what drives it's not. Is this number needed? What, you know, what drives the columns? What does this mean? How do we do this? Why isn't my contribution marked off? Okay, let's analyze and look into freight the next 60 days. Are we, is there different options and different things like [00:08:00] that?

It's constantly reassessing everything. And that's, I think, the whole practice of consistency of looking at it and reanalyzing that information. 

Jordan Buckner: You know, that kind of brings to mind one thing that I learned from, I think it was during the, the Gary Hirshberg Institute, Rob Andy Whitman and Elliot Began was this idea of.

Essentially like taking your profit and loss statement, your PNL, kind of as it breaks down to all the categories and then creating a budget and short term forecast based on that, I think they're recommending like even do it like monthly, maybe sometimes weekly for brands who are like a really tight cash position doing it daily, but of having like, okay, we have this much money to spend.

These are the bills that are coming in for like this week and this month to like really understand your business and you don't have to do it forever. But if you get into that, that discipline mindset. I think a lot of founders will end up less surprised by how their business is operating because I know I've talked to a lot of founders who are like, yeah, we were like running and just spending money.

And then all of a [00:09:00] sudden we found that our, you know, the amount that we were spending on like Google ads or on this other random thing were astronomically high. And we like knew it was kind of growing, but we didn't realize the like relationship ratio between the return and how much we were spending and it ended up in a pretty like crappy position.

But when you're forced to like spend some time and just knowing how much money is coming in and out the door and setting limits and caps on that, I think it helps to understand your own business better versus just thinking about the esoteric kind of brand that you're building too. 

Brad Ebenhoeh: A hundred percent.

And I think kind of the, the, the middle ground here, we're talking about. I mean, middle ground, starting around a lot of times you have, we're talking about a forecast looking, let's say three years out a budget looking 12 months. When you're talking about what you're looking at is I love more. So the basically like 90 day, which is like essentially 13 weeks, a quarter, right, basically rolling weekly cashflow snapshot, not snapshot, like rolling cashflow, a sheet where basically you [00:10:00] have.

Bank balance on top, you have all the actual outflows of your business that week and the inflows that week and what's left over. And then you map it out for the next 13 weeks, or you can do longer. So to your point, that's when you kind of had to get more in the everyday outflow of what's going on and make good decisions.

Clearly you're not going to run your business week over week with that kind of scarcity of resources, I. E. cash at some point you need to get there. But if you're like, look, what I need to do, and some of our, Clients have done this where they're like, look, I need to make a dramatic change to go from here to get the profitability and I have six months of due, so I'm gonna reassess every expense, cut down on service levels, cut down year, get over in the week over week aspect.

And then maybe over time like, okay, cool, now we're a better position. Now we can raise this back up and turn this level on. Right? So the key is, is with that, I think it's kind of more the week over week, you know, looking at actual like cash and, and what it's being spent on spend on. Renegotiating your loans, your credit card payments, your supplier open AP, all those types of things you can do, but that's where, to your point, [00:11:00] I think it's like actually seeing the data in and out, you know, is where it comes into play.

And that's where like, you need to get in your bank account and see it week over week. So I'm astonished that, you know, aren't looking at that in that realm. So like that, that's kind of what I would recommend there. 

Jordan Buckner: With a lot of our listeners businesses being so variable, what's your thought of using.

Ratios various accounts to kind of manage their, their business, right? Like it might be hard to set a cap in like a thousand dollars versus a 1, 500 budget on ad spend or on hiring, but maybe like understanding a ratio that you're have a goal of this return on advertising or this ratio of. You know, retail sales to trade spend.

Do you talk with your clients a lot about kind of setting up key ratio benchmarks internally, less about like external things, but like having an understanding internally of what those might be? 

Brad Ebenhoeh: Yeah. I think over time is, is it like we can talk about hypotheticals and I was in. The food baby slack channel and this person said, this is what [00:12:00] everybody should be doing until you actually get into it and see what's going on.

It's hard to actually understand what your own target should be to your point, right? So I think understanding your business at the precise level, you're talking about it. What are all the ins? What are all the outs? What are my margins? What is the understanding? PM on a cruel basis, understate app flow kind of factoring in, which is why having, you know, an advisor accounting for somebody, they're helping you out.

If you don't have that background as a business owner, then basically it's hard to throw these benchmarks out because like, Hey, I'm a 500, 000 company. Well, this, you know, my benchmarks here, but it's like, This, it doesn't matter. You're like, you're looking at pine stackings. Where are we at today?

Again, how are we going to grow top line? How are you going to have for your clients or customers? Excuse me, you know, repurpose your product and tell your friends about like, focus on that, getting the product game, getting operations over time. You can be able to, Hey, look at this, you know, our digital spend.

Let's analyze this. We're spending X, you know, 5, 000 a month. It's generated this and then , the customers, you know, rebuy the product. Well then next month, we're going to have a [00:13:00] little more money. Let's generate a little bit more or spend a little more, spend a little more. Then you have a story to tell that then you could use some targets and benchmarks internally.

And then you have a story to tell to a bank or somebody else to start those relationships to say, Hey, look, we're growing and we're doing this. We're reinvesting. And if we had some more working capital, then we could do this, this and this. So then you actually have that. You know, picture you can paint, I do like roadmap.

 You can show to them, but until you understand all that, it's hard to make sure that level. 

Jordan Buckner: Yeah, definitely. I mean, as a slide aside to that, but it reminded me for my gifting business, Joyful Co. I was starting to look for like, what's a good metric and Northstar that I can use with me and my team to determine like where we want to go and really identify that with us being a relationship based business, we're focused on lifetime value for our customers.

Because it meant if customers are coming back to us repeatedly and purchasing and have a higher frequency, then we're providing a real service and solving a need for them. And so we then set that up to say like, all right, where are we at now with our lifetime value? Like how much customers are spending?

We use a [00:14:00] three month period. Because we feel like anything high over that time period, we have to almost reacquire that customer because they're not familiar with us. And so now we're starting to track that three month rolling lifetime value and with a goal of continuing to increase that to make sure that we're doing all the things to like build those relationships in.

I think things like that are really, you know, powerful as you just mentioned to like the storytelling aspect to say, Hey, these are the values that are Really important to us and the company and they're going to lead to our, the goals that we have and the success and then having that measure to then start, start going after.

Brad Ebenhoeh: Yeah, that's a great example and you know, that as shows you then, like if you're. And then you're looking at that within the three month marker. And if you start flagging customers that are in month three that haven't bought the last two months, maybe you send something to them to get a discount code to be like, Oh yeah, cool.

I want to do that. Right. So that's the whole play. And again, I'm going to count that a marketer or a seller, right? But those are the things that you can do to start analyzing it. So then you're looking at. These five or eight key, you know, [00:15:00] performance indicators that are really going to focus or drive our business.

And then you've got to analyze, look at it, people in that direction. So I love that you know, thought process there. 

Jordan Buckner: Zooming out a little bit. I know a lot of founders are thinking about like, as you mentioned, like putting together these forecasts or. Investors may be, and for a lot of smaller businesses, they're thinking, like, how do I know where my business is going to be in three years?

Like what's reasonable to say our goal is, I'm curious, is it more important to see like a close approximation to the numbers, or do you find that investors are really just looking to understand the, the story that the founder is trying to tell through the numbers of like where they want to be as a company to see if they align.

Brad Ebenhoeh: I think that investors or prospective investors want a story that they can connect with initially, right? Cause they can get, you can be positioned or sold a hundred products. And you're going to be like, wow, these five are like I did connecting with whether it's, you know, like my prior [00:16:00] experience or emotionally, I'm attached to it, whatever.

Then I think once you dive in that realm, then you can get into the information and looking at, you know, forecasts and cashflow and needs and sales plans and different things like that. But I think the initial is the storytelling, the community building, the like, Hey, I had to have this, we did this, we, this is why we're doing it.

I'm passionate about it by the way, I have all this financial aid here to do it. And this is what we're going to do to go execute because I don't think. Investors expect perfection because they know it's never going to be perfect or accurate. It's just more of This is awesome product. This is an awesome story.

You got to motivate it. I'm behind this experience and you have a little bit of a plan about action to move forward. I could help with this. Let's go. Right. So I think that's where it comes into play here. You can't, you can be just a data analyst and again, overmodel, overspec. Forecast everything and overanalyze everything.

And if you don't have a product that's selling effective to customers or, you know, people like that, then it's, it's not going to end well. 

Jordan Buckner: Whether your thoughts on building a forecast [00:17:00] from the bottoms up versus top down for our audience, right? Bottoms up is looking to say, Hey, if we're selling in one store and our velocity is 10 units per store per week on average, that we can use that to exponentially kind of identify how many stores we need to be in versus saying the markets from the top down, like.

A billion dollar market opportunity. We're going to capture 5 percent of it. Do you have kind of thoughts on like how you and your team think through building out those financial forecasts? 

Brad Ebenhoeh: Yeah, we prefer kind of looking at it. I think especially if you're smaller at the bottoms up, right? Like let's, how do I get into this?

How much am I selling each door and all that stuff? So could you start kind of understanding all the inputs that drive it versus the top down of this industry? I'm going to take 8%, 10%. Like, what does that even mean? Like, I have no idea. That's just kind of like, you know, more like pine sky, right brain aspect.

I could take this, this, this, which sounds great. But again, how am I going to get to that million dollar revenue within the first eight months or 10 months, I'm going to do it by this number of doors, this average order value this velocity, this [00:18:00] number of customers of these three channels, and then you build it up and then that's where you kind of have some assumptions or even like you know, some calculations of formulas where you can be like, we did this, this boom that gets to that revenue. 

that's to me. Where are you actually makes more sense to us as accounts, especially in a lot, a lot brain and you can kind of see how the data flows, but I think it also helps you just as a business owner, understanding all the inputs of everything that goes on that can impact, you know, that top line revenue, right?

Like discounts, you know, how many you know, coupons, you know, and then even margins and and all that stuff that kind of goes into play. I think when you analyze it at that. All those inputs, it really helps you understand your business and, and what you need to tackle as you move forward.

Jordan Buckner: Right. There's a lot that goes into understanding the financials behind your business and taking that, you know, getting the backwards looking view, the bookkeeping accounting, right. So that you can do forecasting. I love to hear how you in the services that you guys have account fully to help brands get a better understanding of their financial health and their future.

Brad Ebenhoeh: Yeah, I think you know just from that again, like, you know, as we [00:19:00] discuss everything looking forward is based upon, you know, accurate information really helps you set a good baseline to understand your business moving forward. So like looking backwards, really are for, you know, providing an outsourced accounting service, which really is a.

Weekly proactive bookkeeping service, updating books, helping with paying bills, supporting in customer invoices, AR, cash flow, snapshots, et cetera. Providing monthly financials a lot of the times that the P& L is segmented by sales channel. So you can see kind of how You know, your direct, so we're Shopify and Amazon distributions doing, and then actually have a conversation about it.

So you can have like a bookkeeper that does, you know, just updates the books once a month, sends it to you. But if there's no interpretation and it's done on a cruel basis, it's hard to like, what does this even mean? And as a business owner, you're busy. If it's just in your inbox, you're not having a conversation about it.

And a lot of times it doesn't even mean anything if it's not important to you. So I've had the aspect of that level of support, as well as the conversation, a little bit advisory conversation. They used to look out and then And then continue as , you know, before, I think a lot of our grads, [00:20:00] clients, as we had been that consistency, that steady state, that monthly kind of, you know, weekly bookkeeping, monthly reporting cadence, they start learning more, asking different questions, looking at different information.

And then that's where it kind of, as they draw on scale, a company like a company that is a, you know, can grow on scale with them with different services, plus just more resources to them as they grow, you know, like that's, I think a key aspect of what we do. 

Jordan Buckner: Yeah, I think that's awesome. I think it's so important to brands to have, if you're not, don't have expertise yourself to have a partner that knows accounting and financing, have a financial partner to grow your company.

Because ultimately I found the most stress that comes from running a company is around money, right? Either not having enough or not having the growth opportunities. And that's the one thing that I find a lot. So get yourself a good financial partner, talk , to Brad and his team to see if they can help as well.

And I'll put information on the show notes on how to connect. Brad, thanks so much for being on. 

Brad Ebenhoeh: Thanks so much Jordan. Really appreciate everything you're doing for the CPG community.