Getting_to_Profitability

Jordan Buckner: [00:00:00] So everyone, welcome to day's webinar on Giving to Profitability, and I'm gonna be kind of going back and forth with my friend and fellow guest, Keith Kohler, who is the Financing Man. I know a lot of you know me, founder of Foodbevy, and here the help founders really navigate the challenges that you are going through on your journey of growing from startup to scale.

And we also have Keith, who I've been working with for a while. Keith, you wanna give a quick introduction? 

Keith Kohler: Yeah, sure. Welcome. Thank you Jordan. Again, it's always a privilege to be here with you and with your community. Welcome to everyone, all of you joining us today. We're excited you're here.

And by way of background Financing Man is my brand and I really have two core promises. One is the right financing at the right time. So I can work with you on helping you get a. Analyzing what financing could be available to you. I do that through a call called your financing review, which I think I've spoken with some of you.

I hope to speak with all of you at some point, and then I help get that deal with whatever type of financing you wish to pursue. And then secondly, my solemn promise to you is [00:01:00] I can meet you where you are and guide you along your financing journey. So whether you're really starting out, you're a more advanced company, or whether your knowledge of finance is limited or just beginning or whether it's advanced, I pride myself in being able to help you at any point along your journey and help you define that further.

Yeah, and as Jordan said we're here to provide perspective and insight. And a lot of what you're gonna be hearing from me is based upon the results of that call, your financing review that I've had well over a hundred of them so far this year, and then additional calls I've had with founders. So can't wait to dive into this topic. 

Jordan Buckner: And. I think as many of you are working or struggling with as well. This is a simple idea, but difficult in practice sometimes of actually getting to that point of profitability. And so what we're going to do today is kind of break down four main areas. One, the mindset around giving to profitability and why that's so important to start there. Two, some specific kinda tips to manage your business to get to profitability. Third, have that analyze your p and l [00:02:00] statement and use that as a powerful tool so that you know where you are on your journey, being able to measure that. And then four, some specific kind of ideas around building your financing stack so that you can still have the funding to support your business in getting to your goals. Knowing that some outside money may be part of the equation. So let's jump into it. I think what I love about Keith and being able to talk to, you know, dozens of the founders within the Foodbevy community, plus others as well, is Keith really starts with this idea around kind of mindset and making sure that you are understanding not only where you are going in your in destination, but the journey to get there.

And, I won't go into the details on like why profitability is important as a business, right. It's core to kind of what we're doing. But it seems like in the last 15, 20 years, kind of with the.com era, there's been this heavy focus on revenue. And over profit. And that has been fueled by a lot of the venture capital money and a lot of the news headlines and the quote, successful [00:03:00] companies are the ones who have raised money and have had a big exit. We know that money has tightened up and there's been a bigger focus on needing to actually survive as a company. And profit is the main determinant of being able to have the money to continue.

And so when you're launching on this journey of getting to profitability and kinda making that decision of it's right to you, it's really taking this shift of a focus on revenue to a focus on profit. Mm-hmm. And I like keith, for you to kinda share some thoughts on like what you've heard or talking to brands.

Keith Kohler: Yeah, Jordan, totally building on what you said. By way of background also, I often speak at equity conferences actually on debt financing. And yet what , I've seen a shift in the venture capital community, right? It used to be, as Jordan said, and particularly pre pandemic revenue at all costs, right?

Whatever red ink you're generating, it doesn't matter who caress because there's a pot of gold at the end of the rainbow for you with an exit. So it says all the headlines we used to see, right? And that's what was the romanticism we would see in the media. And yet we know not everybody had that outcome.

During the [00:04:00] pandemic, I think a lot of the change in focus on profit, I believe was first driven by founders saying, well, you know, what am I really doing here? Right? Rethinking your own mindset, your own goals. And also because indeed that venture capital money dried up, and even today it's still quite dry, and even those who are doing deals are saying companies, we're now looking for capital efficiency.

We're looking for you to have a roadmap. To profitability where that was just not even a part of even the lexicon in 2019 and in early 2020. 

Jordan Buckner: Yeah, I think that's so true. And so in thinking about some of the mindset shifts in order to get there, when I first launched my brand TeaSquares, it was all around creating a well-known brand in the market. It was thinking about sales, which retailers we want to be known for and associated with. We were able to launch at Whole Foods. And so we're thinking about the halo around that. And honestly, there was a little less focus on building the business fundamentals, right? Making sure that our gross margin was correct from the beginning, making sure that our. [00:05:00] Manufacturing processes were figure it out so that we could scale appropriately. And so there both brand is necessary as you're building the business. But a lot of times a lot of the thought leadership that I'm seeing out there as well is really part of your brand is yes, what you're kind of creating, putting out in the world.

But it's also around about what consumers think about you as a business. And that takes time to build trust amongst consumers, to build the credibility and to build that awareness. And in order to get to that point where your brand means anything and has staying power, you need to have a stable business.

Fundamentals beneath that. I made this mistake where, you know, with TeaSquares we're almost building a house of carts where things were working enough to keep growing, but if our funding stopped, if a customer dropped off, if like one thing happened, the entire business could collapse. And so it's really about making the shift from building a brand first to building a business first and letting the brand build alongside of that.

The second is we see, and I make this mistake as well, right, and I talk about this from my journey and also [00:06:00] in talking to other founders, is a lot of founders avoid the financials of their business. Because when you are starting out, the numbers are going to be small, they're going to look bad. And a lot of times your profitability might be negative and it can be really challenging kinda looking at those numbers on a day-to-day basis.

And so I know it's common for founders to avoid knowing their financials but it's something that actually can be a strength and give you power if you're framing it correctly. And so moving from this point of avoiding financials to really knowing your numbers as you're growing, and Keith, I know you're talking with a lot of founders about this, what's been your experience around that mindset around financing?

Keith Kohler: Yeah. I think when I speak to founders, particularly in our space, and again, C P G is the space that I cut my teeth in financing on. And I, in fact did have my own gluten-free food factory at some point too. So I was a founder as well. And even then I, with a MBA in finance, I had my head in the sand. I was not looking at financials like I could have.

 So not surprisingly, I was often [00:07:00] mired in what's going on. I don't know what to do. I'm not sure what the next step is. Even though I had a business partner who executed really outstanding financial statements and projections, I wasn't looking at it like I could have. And so I think Jordan, what your point is really an important one of what knowing your numbers could mean to all of you.

It doesn't mean finance is your full-time gig or it's what you're doing all day long. One of the things I've come up with and I encourage you to think about it, is you really can be on top of your financials, your statements, everything with as little as 15 minutes a day. You really can. I. Just reviewing the AR understanding your cash in, your cash out.

 It's not gonna have to be something you do frequently or even by yourself. And having the right team of support, whether it's a bookkeeper, c p a, anyone on your team internally, externally you can be really at a safe level of cash flow. And knowing your numbers to some level of sophistication, I promise you, does not take too huge an investment of time.

And anyone can get there, even if you feel like you're someone that has not been [00:08:00] good at numbers or math or anything that you felt might be holding you back from feeling on top of this.

Jordan Buckner: Building. From that, Keith, I'd love for you to talk through this idea of a scarcity mindset versus an abundance mindset and how this can relate.

Keith Kohler: Yeah, I appreciate that. When I was developing a lot of my materials, I. I had not been aware of , the importance of mindset, even as a foundational bit of work before we even start talking about numbers and managing and tips and tools and things like that.

So what I've come up with is we all live along this continuum, my little chart in the sky from scarcity to abundance. And probably for most of us, a lot of us find ourselves stuck in scarcity or focusing on scarce elements of how we manage our business. Financials, meaning we might have money stories that we're thinking of or other limiting beliefs, they'll never be enough money.

Money's the root of all evil. Other things that we tell ourselves that keep us stuck in a perspective that isn't really useful for us, and again, I'm not minimizing this, this is me even today. I often find myself in [00:09:00] scarcity, but to get into abundance and to really be thinking about, Hey, I'm in charge.

I know my numbers don't denote all myself, but I have a good sense of what I need to know so that I can focus on my growth and on my opportunity and not be thinking about, as you know, Jordan, as you said with TeaSquares, right? Like always thinking it was a house of cards and you were one bad problem happening or occurring that would take your business down.

But doing an abundance mindset, everyone, it takes works and it, whether it's mantras or some type of daily practice or as I said, 15 minutes looking, even just understanding your customers or your ar something that makes you step into feeling I'm on top of this, can make a world of difference for you and help you stay as much as possible in an abundant mindset.

Jordan Buckner: I think there's another side, as I was reflecting on this, Keith, of my personal journey as well, where when I started TeaSquares, it was really my first real business. I had no idea of really what to expect. I was in my twenties, I was young, I was, you know, not married and didn't have any kids. And, and it was [00:10:00] actually okay that I had a scarce lifestyle in terms of making little to no money and sacrificing in the now so that I could have a theoretical benefit in the future.

 Five years into that journey, we had raised some equity. We were selling in places like Whole Foods, but I was still like not making any money and it was almost taking on myself. Whereas a founder, if I take money out of the business to pay myself, if that was even allowed, then I would be. Dooming the business to fail because it wouldn't have the money to grow.

And I think there's definitely a belief that I had and a living belief that if I wasn't sacrificing myself and my lifestyle, my financials and paying myself and everything, then the business wouldn't be successful. And, you know, for a time that's definitely can be the case when the business isn't generating money, it's just getting, starting out.

But one thing that changed, it was the birth of my first [00:11:00] child to say, Hey, I need to start thinking about how to create abundance now versus a theoretical lottery particular exit into the future. And with that mindset, I was able to kinda change how to operate the business or in the business that I was even in, quite frankly.

'cause we closed down TeaSquares and I was able to start something else. , and really make that shift to how do I create abundance now and every day versus a theoretical point in the future. 

Keith Kohler: Yeah, I think that's really an important point, Jordan, and I appreciate your vulnerability and sharing that.

For me, myself, how I drop back into scarcity is my ongoing money story is I'm not worthy. I'm not worthy of receiving money. And a lot of that comes from childhood and early young adult experiences with money, and probably all of you on this call, if you were to think about, and maybe there's abundance stories too, right?

So much of the way we manage our business finances has foundational roots in how we grew up with money and how it became a part of our family experience or our business experience early on. So indeed to the degree you [00:12:00] can talk about it and claim it and feel accountable for it with no judgment.

Key thing. That's a great way to start really doing the work so that again, you can move as frequently as possible towards the abundant mindset.

Jordan Buckner: I think, you know, coming back full circle, it's really about, in some of the practical sense, you know, a move from focus on top line sales to thinking about gross margin and net profit. And I know Keith and I are very pro equity, pro debt in the right way when managed correctly.

Absolutely. And we'll talk about this a little bit later, but it's not, to only focus on net profit and not worry about top line sales. You need a base level to sustain and grow your business, but it's really to understand the priority of what you're focused on so that you can make better decisions and position your company up for success.

So with this, there's a couple ways of really getting to this, managing to profitability. And Keith, I'd love for you to walk through each of these that you've seen from your experience for companies who are operating profitably or close to it, the things that they're prioritizing.

Keith Kohler: Yeah. Perfect. [00:13:00] Jordan, thank you. So everyone, this is a list that Jordan and I really brainstormed together and thought, okay, what are we observing in our conversations with founders? What are we hearing either directly or indirectly? And then from my own experience, what am I seeing on financial statements? People send them over to me so that I can analyze them either to make comments on their operation or to help them go out and get specific forms of financing.

So this list is not exhaustive. Probably all of you could add to this list based on your personal experience or your conversations with other founders. And yet, as a starting point for our discussions, we wanted to take this through this with you and give you some perspective. So the first thing that I'm noticing with companies that are either profitable or man on their way to managing the profitability.

So a lot of them are not yet, but they have a vision towards when it could happen. The first one is better than average gross margin. So hopefully all of you are managing your gross margin very strategically and consistently really, really quite important. And then as an example, can [00:14:00] you get perspective from the marketplace?

As to where your gross margin is relative to your peers in your specific category. Examples could be if you're a supplement company, we know the standard is about 70% extremely high gross margin. Functional foods, highly functional beverages, snacks, whatever. Also gonna be very high, 50, 60, 70. If you're more mainline type of snacks and beverage.

We know those can be twenties, thirties, forties, starting out, particularly early stages. So if you have a way to benchmark where you are, whether that's through investors or talking to your peers or getting other syndicated data, the ones managing the profitability tend to perform a bit higher. So if the industry average is 30 there at 40, if it's in, it is 40, it's at 50.

So if you're not there, please do all, you can work hard on your gross margin, whether it's negotiating with your vendors or co-packers or whatever it really takes. And in fact, that's my second point, negotiating with vendors. A lot of times all peer founders saying, well, you know, I'm just a small person to my co-packer, or I don't have a lot of leverage in my negotiations [00:15:00] with my raw materials providers.

Well, yeah, you could say that, and that might be you right now, but it's not gonna be you forever. You're here in a game of growth in business growth. So what I've observed is even if someone is small, whatever that means, talking with vendors to help them buy into their long-term vision for their company.

So I'd encourage you that if you're talking to a co-packer or someone you're buying from, if you're talking with them saying, I'm a $100,000 company, sure you're gonna be small in their eyes, but if you can get them to step into your vision of, but I'm gonna be the $2 million company in two years. I want you to support me on my journey all the way up.

Well, now you're becoming significant, right? And so having that conversation about what you're going to grow into be and getting them to buy in helps you negotiate with vendors. And think about it. Imagine if you get 1% less, right? 2% less on all your co-packing and your raw materials that can make the difference right there.

And it's not just in your contracts and in your purchasing. If you happen to have recent rounds of financing, if you get money in, make that cash work for you. What I'm seeing a lot of people doing is [00:16:00] now brands are negotiating with their vendors for early pay discounts. If you have net 30 terms with them, and you have the cash today, Hey Jordan, can you give me 5% off my $10,000 bill with you and Jordan, you might say yes, right?

Because. Hey, I'm excited for that to work for my cash flow. So really actively managing your cash if you have it, and negotiating with vendors is a key thing. 

Jordan Buckner: One thing as well Keith, when TeaSquares is, we realized we were buying some like sliced almonds and pepita seeds from a great vendor in Washington state, but we were based in Chicago and the freight was always like a third of the cost. And we found a vendor in Chicago even better quality. And we were able to get free shipping from them because we're local. And so we saved a third on that ingredient, which is our most expensive ingredient. And so these things, whether it's negotiating with your existing ones or reviewing your suppliers across the entire value chain can make a huge difference.

Keith Kohler: Thank you Jordan, for that comment. Reviewing with your suppliers, you know, it's not just a static thing where you're buying from someone. You make the decision once a year and you're never going back [00:17:00] to look at can you get something better, right. That's a key thing. No expensive employees and smart use of contractors. Pre pandemic, it was very common that the first hire was a super expensive VP of sales, right? Jordan from the outside. And that person was a $250,000 person with warrants and or advisory shares. And all of a sudden now you're starting in the red in a big way and you have to dig your way out.

But that's what was expected, particularly for companies that were getting venture money. But now not just because venture capital is dried up, I think founders are now saying, Hey, we don't need to do those expensive hires because looking at all of your expenses in your p and l, when I see huge salary numbers early on, I get concerned because we know that.

Profitability is so much more pushed out. So to the degree, and again, sorry, you know, I'm almost working against myself, right? Against the service provider community. But if you are gonna hire someone expensive, hopefully they'll have a great return on investment for you. But right now what I'm seeing is those big hires are just not happening, particularly at the early stages.

And then smart use of contractors on an as [00:18:00] needed basis, right? And then, and what follows on with that is founders do more for a longer time. I'm finding that founders now more than ever, are jack of all trades. They're doing it all Now, I know that means a lot more of your energy, a lot more of your time, and a lot more of your blood, sweat, and tears.

And yet, if you see that doesn't have to always be that way. But if you really work hard or are fully dedicated, maybe it's a year, maybe it's two years. The other side of that reward can be big, particularly if it gets you to a profitable. Result. Jordan and I talked about this one a lot next, which is have a financing plan in place and understand, use that all that's available to them.

So the founders that I'm seeing can manage profitability. They have a good sense of what's next, the short, medium, and long-term planning they have those financials and projections, I would say very well thought out until the end of 23. Pretty good to 24 and a good sense, but no one has a perfect crystal ball to 25.

So I encourage all of you to think in that time horizon, if you can do it, I realize it's not easy, but if you can [00:19:00] do at least 23 and a good sense in 24, that's gonna put you in a good spot. And once you have that plan, and hopefully if it's profitable next year or in 25, you'll know what financing can be available to you and when.

That's what I'll do in the your financ and review call, by the way. So if your cost of capital is high right now, maybe it comes down next year and into the following year. So again, everybody who's managing the profitability is currently profitable, is really dedicated to that plan. And then the last thing I'll share with you is there's a high amount of alignment in companies.

And if you're a solopreneur, I hope you're aligned with yourself on what your financing strategy is and when you're managing or how you're managing your business, whether profitable or not yet. And yet the key thing is if you have co-founders, have you had this discussion? Are you fully embracing your financial plan and your financing plan?

Do you agree that this is what your objectives are? And if you don't have investors, but do you have advisors, do you have other people have an important influence on your role? It can even be family members, right, Jordan? 'cause you [00:20:00] mentioned. In the beginning, hey, until I had a family and you know, I had to change my thinking about what amount of money I was bringing home.

So this financing plan had to work in a very different way for me. So here's a list of seven for all of you to take a look at. Certainly we invite your comments on this. And again, just 

a summary of our observations about what we see those managing the profitability doing and being actively committed to.

Jordan Buckner: Yeah, and I think the thing that I love ending on is for this slide is you really have to make a decision that you are going to aim for profitability in words to really hit there. Because if you don't, it's hard to just happen upon it. Some get lucky just based on how they were able to set their gross margin, their business. Yeah. But it really has to be something that is front and center and something that you are actively managing towards every day, week and month. Yeah.

So let's look at the, some of the ways that you can utilize your financial statements to actually get to profitability, right? And so we're talking about like overall profitability or a line of sight to get there because when you're [00:21:00] starting the business in the first couple of years, you're gonna have to make investments that may take some time to pay off.

A lot of what I see Keith is honestly a lot of founders who get started and half of them have this idea that they need to raise money already. The other half will say, Hey, I'm giving myself a six month runway, and then my goal is to be break even or profitable by that point so I can build a sustainable business.

Like that's how much cash I have saved up for how long I wanna stay at my job to be able to do this before full-time. And I think the reality that you and I see is the time it takes to build a successful. Business in the food and beverage space takes years, and for some it can take four to five years and others 10 before they're kinda getting to , the point that they're really looking for.

And so it's important to kind of think about all these different areas. You can start leveraging the decision making, the success to get to, to where you wanna end up. 

Keith Kohler: Yeah, and , I'd build on that. It's pithy, but it's true. It's a, takes a long time to be an overnight success. Right. So I think looking at this list, and when Jordan and I were taking a look at this, one of the comments I made was, what I'm [00:22:00] observing is when founders are talking about their p and l with me.

Where do they go to first? What do they talk about and what do they understand best? Most? I think Jordan, you and I would agree, have a good sense of their revenue, right? And usually the building blocks and where it could be going by customer and by channel. We always encourage you if you can have individual p and LSS by your channel to understand channel profitability and in some cases, by major customer particularly if they have an outsized role in your current revenue or your future revenue.

But what was interesting to me often is where founders tend to pay a little bit of less attention, generally is in cost of goods sold. And yet that's where the money is. It's all there y'all. So as we talked about, those managing the profitability are negotiating with their vendors. They know when they're gonna get price breaks.

They can think about, Hey, this is constant, right? Maybe there's a better pricing for me today. And I think what Jordan and I also talked about was, thank God for all of you here. That outrageous prices in freight and supply chain, we hope are a bit of a thing of the past. Still, certainly there's [00:23:00] some hangover, but hopefully most of you who have realized some savings from what you were having to take a hit from during the pandemic years.

And if you haven't, I'd encourage you to go back and, and really negotiate hard to work on this area. Okay? Really on every element of your cost of goods sold, have those vendor discussions. You're now in July. Maybe you can get them excited about what you're gonna do in 24, particularly if you're on a high growth arc.

Get them committed to providing you discounts because again, one point here, two points there, that can be five, 1,000, you know, lots of hundreds of thousands of dollars perhaps for many of you. And I often see that this is the area where people don't focus as much as I would like because. My feeling is that's an, you can have an outsize influence in driving profitability by focusing on cogs and then expenses too.

We talked a little bit about salaries, right? Jordan, I'm wondering what you're seeing in marketing. 

Jordan Buckner: Yeah, I see. Is it is interesting, so as brands and consumers have shifted towards a [00:24:00] more e-commerce space, Consumer behavior to shopping in person. Again, a lot of founders are shifting their marketing dollars from digital spend to in-store.

And here's what's interesting that I've seen it looking kind of behind the scenes at a couple of customers numbers. When you are doing e-commerce marketing, a lot of times the costs are fairly clear. You can see how much money you're spending on Facebook ads, on meta ads, on marketing resources. The numbers are there.

And for C P G, a lot of times they don't look great at the beginning, right? Like the cost to acquire a first time customer might be 20 to $30 and maybe you're average or their size is only $30, so you're actually losing money from that first time customer. But it's very clear because you can see a lot of those numbers.

Amazon kind of gives you all the numbers. And so that marketing kinda looks high in those areas, but with brands moving towards. Spinning to support retail. A lot of those become obstructed because you don't have , a clear cut sense of how much of my marketing dollars are actually driving in-store sales or these programs.

They're doing a [00:25:00] merchandising within a store. It's a little bit harder to, to measure the impact. And so these marketing numbers can start increasing a lot without a sense of the return on investment for them. And so what I always advise founders to really do is be really clear on making sure the areas that you're spending on marketing to get to this point or providing a immeasurable return if possible.

And if not just being very clear that of what your expectation is from those so that you can manage towards this goal of profitability, if that's the decision that you're making. 

Keith Kohler: And Jordan also to your work on looking at distribution, right? Yeah. And a move towards. Move away from the legacy providers and looking at regional or others where perhaps you can have more influence on your effectiveness of your marketing spend, right?

Jordan Buckner: Yeah. And I think that's why we went to make sure they call out the top your under income, the expenses by a channel of major customers. Because when you are selling to a Walmart, whole Foods or Kroger, the amount that you are invoicing 'em for is not the amount that you are giving back, right? There's the [00:26:00] distributor fees that are taken.

There are chargebacks that are included within there, some that you agree on, some that are erroneous, and it can cost you hundreds of thousands of dollars per year. And so it's really clear, it's really important that you are actually looking at saying, how much income am I actually generating? And then what are the expenses that they're coming out of that to make sure I understand what that true margin is.

Because a lot of times we're looking at this, This gross profit of margin. A lot of founders are looking at ingredients, packaging, tolling, freight, but they're not really accounting for the major costs of doing business with some of the dis larger distributors. And then some of the retailers and the marketing programs that are included within there.

And so some retailers have those marketing programs that you have to participate in and others don't. But making sure that you're analyzing your channels and your major customers so that you know which retailers are profitable, which ones are not, and then being able to make the decision on do I continue working with them or do I cut them out?

What do I, if I [00:27:00] do continue, what do I need to change about their relationship? So it's advantage changes for the business and how do I communicate with them so that we can work together to get to a point of being profitable on the customer level. And this happens a lot of times for those mid to large sized customers.

Keith Kohler: Yeah. And that was big perspective because again, pre pandemic. You took what was given to you, right? There was so much concentrated power in the legacy providers in this space that you just kind of went with it, right? And now, yet I think the up and coming regional distributors are making a dent and making a difference.

I'd encourage you all not just to listen to what we're saying. I hope a lot of you here will connect with each other by the way, so that you're talking about your different experiences. 'cause you're founder to founder connections about, Hey, this program worked well with this retailer, or, I had a great experience with this distributor on a rotten one with this one.

All of your stories that you can share with each other are certainly incredibly valuable as well as hopefully the perspective and stories we're giving for you today. 

Hanah: Is there scope to do that at the end I'd love to do that.

Helen: Or should we wait [00:28:00] to, at the end to share that kind of thing? Can share, ask question

necessarily in, I just.

And the opportunity with focusing on cogs. But really you know, I'm quite interested to hear this perspective because actually what I've been discovering is by focusing on my top line I was obsessed with COGS actually , for four years, and that's what kept me in my main job. But then I realized that, you know it was the top line.

I can only focus on one thing. So, I just wanted to ask that question because you mentioned so much about the opportunity in cobs, but really without cashflow in the business, you know, without sales, without, you know, which in turn attracts talent, et cetera, et cetera, and then investment, all of that.

So that kind of felt like me, like the horse leaving the cart there , with the top line. So just wanted to, sorry if I interrupted. I'm just really keen to, because that's really a [00:29:00] decision that I'm painting over at the moment is , which direction I focus there. 

Jordan Buckner: Yeah. I think I'll start Keith, I think, yeah. Starting out, knowing and working towards getting the right cost of goods sold is important because otherwise, every dollar that you sell could end up losing you more money. If you're not clearing your cogs and they're actually much higher than you expected. You could be generating more top line sales, but in effect, losing more money where you're with your business for every new customer that you open and driving yourself further outta the business if you're not aware of it, there definitely is a need for the a baseline top line sales, but getting to that point with the fundamentals before that, kind of figure it out while you're doing it to make sure that every new customer or new channel that you're opening is adding incremental progress to your business and not just pulling you further into a cash flow issue.

Hanah: The challenge with that is [00:30:00] that , there are too many moving parts with it in the inputs with pos because I'm actually manufacturing, I'm not co-man at a cost that I can project out. So actually my actual pos you know, right now is changing every month. 'cause my cost base is so dynamic. And then my output is so dynamic.

It's exactly, so it's like a sort of a, 59,000 variable system, right? So then like you can calculate that and then just have no sales because you've spent your lifetime, you know, your PhD on that, right. I mean, it's literally, it's endless when I started modeling these things out because just things as simple as like, your distribution costs when, you know, a customer orders one more case, it like changes everything overnight and then it instantly, so my question is, , when you know, you are gonna have to make some assumption to keep something stable within cog.

So do you mean just make sure that in theory it's profitable even though it's not now. If that makes sense or if know

Keith Kohler: yeah. I'll Hannah, first of all, good to have you here. And I think what I can first say [00:31:00] is witnessed you a bit that I think one of the points Jordan and I was making is that many founders don't pay as much attention to cogs as certainly you have.

And for you two have led with cogs is a bit different. Most founders will focus on revenue expenses first. So just wanna witness your leadership there, first of all. And secondly, because you're manufacturing yourself, I'm not surprised that you did choose to focus and I remember Hannah, your background is in finance too.

So that was a tremendous Benefit for you to have that background. And I'm glad that you're focused on it and now you're turning to sales and trying to get a better understanding of how those costs could vary, particularly because you're doing your own manufacturing. And we just appreciate that you're committed to that above all things.

And unfortunately, you're right, it can change from one minute to the next 59,000 indeed. It could be that many variables. It could even be more. But I think the thing for all of us here whether we're co-packing, we're doing our own manufacturing, is that all of these numbers have to really be managed actively.

And there's no one magic formula. [00:32:00] But Hannah, let's set up some time again too. I'd love to hear an update of what you're working on 

Hanah: thank you so much. Really appreciate. Yeah. And then, yeah, because I'm also told that, you know, exit strategies assume that your back acquirer will sort of give you back margin.

So yeah. Anyway, we can carry on the conversation. 

Keith Kohler: Yeah, I'd love to, I'd love to hear more about your update and always exciting to hear your voice and that what you're up to. 

Hanah: Thank you. 

Jordan Buckner: Thanks for that question. Mm-hmm. So this is , the last point that I think Keith and I wanna walk, work through before opening up a conversation and discussion for other questions that came , is that in thinking about your path, whether you are.

Going with the aim of profitability or if you do need to focus on revenue growth based on your business goals, it's really thinking about how do you build your financing stack along the way, making sure you have as many options available as possible. And one thing that Keith kinda mentioned, the one thing that is key on is that your options change over time.

And so it's not just looking at your options at one fixed point when you're beginning, but understanding how that [00:33:00] changes as your business grows, as you may reach profitability or not. And what options those open up. I wanna preface this. There are dozens and dozens of ways of building your business, right?

And there's no one way that's best. It's really finding out what's best for you, the business and your goals that you want to achieve. We wanna just provide some options from our perspective on things that have worked well, if possible. And so Keith, what are your kind of thoughts on how you should go about thinking around building this financial stack and your financial plan?

Keith Kohler: Yeah. Hey, so everyone you all may know that my focus is on the debt financing or what's called the non-dilutive options. I sometimes call it e e e, everything except equity is what I tend to focus on. And yet as Jordan kicked it off at the beginning of the call, we're fans of both used in the best way possible.

And hopefully there is a holistic strategy for all of you out there to combine these as you need them and for the proper uses. What I wanted to share with you all now is the changing landscape of debt financing that [00:34:00] I've observed so far during 2023. Based on my calls with founders and also what I'm seeing with the finance sources themselves, the traditional ones, the FinTech legacy ones, some emerging ones, et cetera.

And just highlight a few areas that might not have been as much on your radar screen before, but what I'm seeing now. Right. So one of them is revenue-based financing. This is something some of you might have heard of. There's a new firm that came outta nowhere called Sage. And that's not an endorsement, but it's just an example of doing revenue-based financing.

And what that essentially is you get a hundred thousand dollars today, you have to pay it back with some guaranteed return to the funder over 2, 3, 4, 5 years. It's not prescriptive like an S B A loan is always 10 years. The payback is a negotiated element and also is the return. This particular group wants to earn double their money in the timeframe that they give you.

So with equity being as dry as it is, and I think Jordan, you and I said, and we would agree that it's still likely the case throughout this year, [00:35:00] and who knows when we're in a US election cycle, things can get dodgy as well. Take a look at revenue-based financing if that's an option for you. Talk to your peers.

Again, I know that one I'm researching a few others. It can be an alternative to equity and on the long run still provide you as much capital as equity would have, and yet it's non-dilutive for you. So that's one thing to investigate production, run and inventory financing. Inventory financing is probably what all of us would say and call it.

I want to change. Well, I invite you to consider thinking about what the, how you could call it, because I'm often seeing that a lot of our founders are saying, well, how do I fund my next round of production? Right? How am I gonna get that done? And so there are some legacy providers, particularly in the FinTech space, saying, great, I'll give you money to get you through your next cash conversion cycle.

Meaning from the moment you need to start spending money to get your product produced until you get paid Hannah, that's gonna be a little shorter for you 'cause you're self manufacturing, right? But for those of you using coman or [00:36:00] co-packers, it could be ninety, a hundred twenty, a hundred fifty, in extreme cases, 180, but more likely in the 90 to one 50 range.

So if you know that your next big cash outlay is $200,000 to get that done, where can you go to get production run financing? And usually that looks like. It's almost like a merchant cash advance. You get the money at a certain time, and then you're paying it off over 3, 4, 5, 6 months. Right? And hopefully you've gotten paid by your customers before you have to make your final payments or finish off the cash requirements of paying back the funder there.

So I've also seen some of the FinTech providers provide new products specifically for this area beyond the traditional financing. So that's something we can go over if you wanna talk about that. Factoring AR and inventory, , these are the traditional legacy financing vehicles that have been around in C P G forever, in fact, for over a hundred years.

If you ask as the origins of that, were in 1920s New York. But what I've observed in this area is the cost has gotten more expensive, as you know, because prime rate has [00:37:00] gone up. It's gone up what Jordan 500 basis points from a year ago. So everything is 5% more expensive. At least if you have great gross margins, sure it's a little bit more tolerable.

But what I've observed in this space is these people have tightened up. The traditional providers have tightened up. They're doing more what's called a paper, meaning the more profitable companies are the ones that have a lot of cash on hand, have cash runway. It's harder than ever for all of us in this space to get and qualify for these where it was a lot easier pre pandemic.

So you might find yourself turning more to the FinTech options that are a little less stringent, and even they though have raised their requirements. S B A loans, what I want to call your attention to is the small balance programs, small balance. The definition changed in May. So it means anything under $500,000 in total loan size for all of you here.

Those of you who are US citizens or green cards there is one particular program that's up to $150,000 and it's based on last year's revenue on a filed tax return [00:38:00] and your personal credit score. So if you wanted to check in on your personal credit score, it needs to really be 700 or above on Experian or TransUnion.

There could be a way for you to get money, even if you're losing money in your business. It's, again, it's more a function of your total revenue and your personal credit score. That's a product which only came on the scene a little bit ago. Something that Jenny, it's called a small balance loan program, and I can talk to you further about it offline and how you might qualify for that.

So definitely hit me up. And then the last thing I wanted to highlight is what I'm calling one-off solutions. Everyone in this room is certainly creative. You had to be to be get you where you are. And what I'm finding now is I'm seeing outrageous creativity by founders on figuring out, particularly bridge lending solutions for yourselves.

If again, equity's not out there, and maybe some of these traditional debt or FinTech options are not easy for you, or not preferable for you or for any other reason, you may not qualify. I'm seeing a huge outpouring of creativity of you saying, US [00:39:00] founders saying, wait, hey, I know that I'll qualify for this six months from now, a year from now, so maybe I myself can contribute more money to my business.

Or I go back to my friends and family, ask for some bridge financing, something short term that I can pay them out on until sometime into the future. Or if you have investors , and they've given you equity. Maybe there's opportunities to talk about them doing a debt instrument for you on a limited basis.

What I've been participating in and helping founders come up with is usually one year to, on the outside three year programs of a type of bridge. Because if I know their financial model gets them to profitability, it can be refinanced out and it'll be eligible to do so. So I encourage you to think about, who you've got on your team, right?

Who those friends and family are, who the current investors are, can they help you get to what the next level is? Given the tough environment, we're still a part of. Can you be creative and see what you can come up with and happy to help you brainstorm on those two. So, wanted to really just offer these perspectives and as just to [00:40:00] finalize it, as Jordan mentioned, your options change over time, right?

When you're super early stage, there's one set that's open to you as you get bigger, particularly in revenue and except exceptionally so if you do manage the profitability, your options become exponentially larger. So we hope that you're taking a look at all that's available to you. Again we know this is a big thing and it's not an easy or straightforward path.

Each of your journeys is your own, and yet hopefully some of what we provided today is helpful in reminding you of what you are already doing really well. Or what you have some inkling about. But hopefully no matter what we've said and what we'll have in the chat, that you'll be committed to taking action and hopefully if this profitability is on your mind, moving towards being, commit more committed to it.

Jordan Buckner: Thank you for that, Keith, and walking through some of these options and, and closing them out. What I'd love to do is open it up for discussion and with the interest of time, I'd love to just jump right into it. So, Amy, thanks for raising your hand, Amy from Zoom. If you wanna unmute yourself, I'd love to hear your thoughts [00:41:00] on our conversation or any questions.

Amy: Thanks. I have two questions. One's a little quicker As Zoom ramps up and important decisions need to be made and as we get closer to profitability, I find that with every big decision, legal fees go up. I'm curious, Keith, if there's a certain percentage of revenue or like percentage of growth that we can budget for legal fees or you've seen in your experience because they always seem to grow, quote, unquote, out of the blue.

And I have a second question if we have time. 

Keith Kohler: Yeah I'll be quick on that one. If you're getting debt financing, legal should be almost always zero or very nominal if someone's just gonna review loan documents for you. It usually should not be more than an hour or two hours of their time. Mm-hmm.

So that's that side on equity, I'm sure. Jordan, you can add to this. We see huge swings, right? Depending upon the sophistication of the firm. And if you're using junior versus senior, the range I've usually seen, if you're raising equity on the small side, could be 5,000. On the high side, I've seen 25 or higher.

I [00:42:00] wonder, Jordan, what you think on that too. 

Jordan Buckner: Yeah, definitely. The more complexity it'll gets, the higher it grows. And the reality I think, is that your business as it gets more complex, will require more complexity from a legal standpoint. Yeah. And so I don't have an exact percentage, but it, you probably could, should plan for it to continue growing and budget that into it.

Keith Kohler: That's something other than something that'll like stable out and just remain flat. Yeah. And Amy, if you're using safe notes or things that have templates, and again, all of you here, please share that with each other. If you have structures that have worked for you so that you can all save on those types of fees you also may be aware.

Elliot be and his work Jordan, you've been involved with that, right? With Yes. COGS based financing is a new emerging area that could be an alternative to the traditional structures we see in equity. That could also be something, Amy, that saves you a bit on legal fees. Great, thanks. And my second question is, we've been addressing this assume inches towards profitability, which are working capital needs.

Just because a company becomes profitable doesn't necessarily mean that that profitability will [00:43:00] cover all working capital expenses. So I'm curious if you could address that and maybe poke holes in that or just give your thoughts. 

Jordan Buckner: Jordan you want, can I take a shot? Yeah, I think it, it comes back to a lot of those points that Keith mentioned as well in terms of managing the profitability, because you're right, the time that it takes from like getting all the inventory, holding it and then selling it can be 90 days.

, and so it's really working actively to shorten that cash conversion cycle as best you can, negotiating with vendors , on the front end and with suppliers on the back end. And then utilizing some of these resources to bring cash in quicker if your business needs it to grow. And it's important to really manage towards that gross margin because if you're able to increase your gross margin and net out, you know, additional 5%, that's something that you can actually use to use some of these financing sources that might cost you five or 10% to get that money in the door quicker so that you can continue to grow on your trajectory.

If you're interested in what you think Keith. 

Keith Kohler: Yeah, Amy, , and building on that, what Jordan [00:44:00] says, Amy you're right, we can have profit and loss statements that show profitability, and yet we know that for all of us here, it's really about cashflow, right? And so to the degree that if you're comfortable creating cashflow based projections, either with yourself or the team, that's fantastic.

If that's a little bit more challenging, at least having a profit and loss based on cash going in and out, not accrual based ones can give you a better sense of those cash requirements now and into the future. So it's really important to make that distinction because projections can often minimize or not even reflect what cash you really need right now to help support the growth of your business.

Is that helpful in your thinking about it? Yes. Thank you. Okay. My pleasure. Alright, Dave, well take your question.

Dave: Hi everyone. It's first time attending one of these, and I gotta say it's extremely helpful considering what I've been doing all day, which is looking at the financials of my business.

Long story short, I started eight years ago, at the time we had one hot sauce. Now we have 14 SKUs. We're sold across Canada, Canadian business. I moved [00:45:00] away from traditional distribution model for C P G because we're a higher end. And I sell direct to high-end grocery stores.

I sell direct to a lot of high-end butcher shops, and that way, you know, we have full margin, but shipping now falls on us versus, you know, paying a distributor could get it there. So shipping now is like coming in around 7% of my revenue. So financially speaking, the decision was great.

Now I mean, on paper, in reality due to a few some situations that were unforeseen, i e covid you mentioned before production issues, supply chain, and also a little bit of my fault. During Covid, when I was scrambling to collect from some of my accounts my manufacturer decided for myself and for a few of his other clients to put us all c o d.

So I now have to pay upfront for a significant amount of inventory, cash tra like transferred to his account out of mine, and [00:46:00] then once I receive it, then I can sell it. So I'm constantly chasing after. You know my accounts receivable because I can't just overnight transfer all of my accounts to c o d terms.

Right. Especially in the food industry. We have, you know, going food service other accounts like that's more on the food service side of things, but , they're grandfathered in, you know, a 30, 60 day payment type. So it's been absolutely catastrophic , on my cash flow and just to get inventory, just to buy inventory, you know, it's not and, and right now I'm at a standstill.

I, I have $37,000 of sauce that I need to send out, and I had an unforeseen expense on my end. So I have to collect, collect, collect, and then place the order. So I'm wondering if, sorry, and thank you for bearing with me there. I'm wondering if you would have any advice. You know, they're playing hardball, my manufacturer.

And yeah, I'm just in this position right now and I need to sort it out. 

Jordan Buckner: Thanks Dave. The biggest thing that I'll just say quickly is that as you grow your relationship and with your manufacturer [00:47:00] is one of the , biggest relationships in your business. And so it's very important that you have someone who you are aligned with both in terms of the production, your product, and the quality, but also the financials around it.

And so it's just gonna be important to continue opening those conversations, sharing with them the difficulties that you have as a business, that if you are your appreciative of that account but to really make sure you're really managing that relationship and finding a partner, if it's them or someone else, they can really support your business.

Keith Kohler: Yeah, and I would add to that. Dave, I don't know what financing options you've explored. In Canada quite a different market, but there is financing available for receivables and inventory. There are some specialty lenders, not as many as in the US but a couple. And we are You have any financing from your province?

Jordan Buckner: Yeah, I've gotten some. F B A financing, like there's A, B D C, the business development or Bank of Canada. When I explained to them, you know, where the funds were going, they were, you know, it's much easier obviously to fund inventory. The more funds I take, [00:48:00] the more excuse my balance sheet, the more other people are like, oh, well you already have this debt, this, that, da da, da.

So , it's becoming more and more difficult. So, I agree with you. Equity is planned like the last on the list in terms , of how to get cash. But I'm just right now finding it quite difficult to manage the ins and outs , of this. Well, yeah, happy to have a call with you to go over your cashflow model and, and take a look at that and get granular with you and hopefully come up with some recommendations.

I appreciate that. Thank you very much. We are a pleasure. Thank you for your questions. We are just over time here. I do truly wanna thank you, Keith, , for joining for this presentation and for providing such great, great insight and thank you, all of you for your questions, your commentary. This is not a easy journey in building a company as you all know firsthand.

Then I think the biggest takeaway that Keith and I want you to come away with is just to be thoughtful on what you're doing, what you're building, and to put in that time for really building the company that you really want. Because [00:49:00] it's easy for the company to get outta hand and become something , that we don't actually want or looking for.

And so be very thoughtful and intentional as you do so. 

Keith Kohler: Absolutely. Thank you. It's a tough journey and we recognize how much you're here. You know, first of all, your presence. Thanks for sticking with us and giving us an hour, your valuable time. If we can be helpful offline or to continue the conversation, please reach out.

But will, wonderful to have all of you here and wishing you all the best. 

Jordan Buckner: Thanks. And the last thing I'll just say is for. Anyone who has questions, what we want you to be able to do is really think about creating a financial plan to get you the 2025. What's your short, medium, and long-term goals?

And then wanna offer up a free call to review that with Keith. I'd love Keith because he doesn't try to sell you on anything you don't need for your business. But he's really just here to have a conversation with you and make sure that your business is on the right track. If you either have a plan and wanna run it by him, he's happy to talk with you if you don't have a plan and don't know where to start.

He's equally, if not more happy to talk to you to make sure that you said your business success no matter where you want. That's it. Perfect. [00:50:00] I'll send out Keith's information and the, , recap as well. Thanks so much everyone for joining. Thank you everyone for your participation for being here.