Jordan Buckner (00:00)
Accounting for beverage brands isn't just about balancing the books, it's about understanding the unique financial challenges that come with scaling a physical product business. Today, I'm sitting down with Jessica Howes, who is the founder of Wizard Accounting, to unpack the essentials of CPG accounting tailored specifically for beverage brands. Jessica, welcome.

Jessica Howes (00:21)
Thank you so much. so excited to be here. Thanks for having me.

Jordan Buckner (00:24)
Of course, I'm so excited to talk today. So starting out, I would love for you to tell me about the work that you do and how you got into CPG accounting.

Jessica Howes (00:31)
Yeah, absolutely. So the types of companies that I work with, I do specialize in beverage and cannabis, but I work with companies all across the CPG space, just not typically in like the frozen refrigerated sector. So snack brands, know, things like that aside from beverages. So I kind of fell into accounting, you know, just my family's in accounting. I didn't know what I really wanted to do and kind of

went through my career thinking, well, I'll just kind of see where it takes me. I'll see how it goes. I'm really good at accounting, but it's not like a huge passion of mine. I still kind of agree with that to this day. But I started out on the CPA track thinking, okay, this is kind of the funnel that everyone in accounting is faced with or goes through and, you know, bounce from a couple of firms to kind of figure out what, what section of the industry do I want to work in? What do I like?

And, you know, one common theme kind of came up multiple times of I really loved like the client interaction piece of it. I loved getting to help clients and learning about their businesses, learning their challenges and how I can help fit into that. And so, I found myself at a tech startup, which was kind of where that love for CPG really came to fruition. I was on an exclusively CPG team and then I ended up becoming a manager. I managed a team of five.

at that company and I got to become exposed to all different types of brands. But for some reason I worked with a ton of beverage brands and that was just kind of like the hand that was dealt to me. And so was like, wow, I actually really like it. You know, I am in my personal life, I'm such a lover of beverage, like energy jinks, sparkling water, coffees, everything. So I was like, well, this really kind of fits in with my personality too and kind of melds what I like.

with what I'm good at, which is the accounting, bookkeeping side of things. So that's still kind of where I'm at today, working exclusively with CPG now. I get to be running the show and decide who I get to work with, which is really cool. A lot of times in accounting, you don't get to determine who you work with or what kind of clients you want to serve. So that's one really cool aspect of it.

Jordan Buckner (02:37)
I absolutely love that and love your story and how you've gotten here. think one common misconception is that like accounting is the same for every single company. Tell me what are some of the differences that,  matter in terms of like working with CPD brands or even within their beverage or cannabis brands and how that's, that might differentiate and like why you want someone who's familiar with the, the industry, products.

Jessica Howes (03:02)
Absolutely. That's actually, you know, kind of the number one reason that people end up finding me is they're like, you know, I just went with a bookkeeper. Like I thought it was all the same. And I kind of felt that at one point in my career too, I was like, you know, the mechanics behind the bookkeeping and behind the accounting, are all the same quote unquote, but there's so many nuanced things, especially in an industry like CPG with inventory and charge backs and distribution. There's so many different.

channels of sales and so many ways that you can handle those from the accounting standpoint. And I think a lot of bookkeepers who don't specialize in CPG or just think, hey, I can kind of like make it up as I go. Then the experts come in and they're like, what is all this stuff? And it's, think people just get in over their heads. It doesn't mean that they're, you know, bad accountants or bad bookkeepers, but it's so important to have that expert in the industry because of all the nuances.

And it's just an industry that's constantly changing. It's really a hard industry to work in, to have a business in. And that's kind of one of the reasons I love it too. I love the founders in CPG They're so much scrappier and, you know, able to pivot on a dime because that's oftentimes what you have to do in like the ever changing space of this industry.

Jordan Buckner (04:17)
Yeah, you know, it's so interesting. think a mindset shift that I learned over time was really the difference between, the complexities within the finance world, especially for emerging brands, right? If you're a small team, like one to 10 people, you want like a really simple setup. don't have a lot of people to work with for your business. And when you look at kind of the financial picture, there's accounting.

There's also kind of tax planning and preparation. And then there's the financial planning and analysis of PNX. And I see a lot of businesses start out maybe using QuickBooks online, maybe working with a bookkeeper and they're like, wait, what's like, when do I work with an accountant versus like having my books for financial planning? Because a lot of times when you're small, you want to use one tool, but then it gets complicated because right.

how things show up on your profit and loss statement or your balance sheet aren't always actionable from like a day to day running the business standpoint. And so it's important, right, to know where those industry specific things are coming in, like deductions, chargebacks, how to account for them in both your accounting side, but then also how do you make decisions based on that data and tracking them? And so I'd love to hear kind of what you've learned your perspective on how to think about accounting for

because small CPG businesses in terms of like the accounting piece and preparation for taxes, but also the financial planning aspects. So that's actionable.

Jessica Howes (05:45)
Yeah, that's a good question. think, you know, a lot of founders, I think they really overlook the entire accounting function. And for the most part, when someone hears accountant, they're like, taxes, great. Like I have people, even friends of mine reach out to me and they're like, hey, season so hard. And I'm like, how many times do I have to tell you? I do not do taxes. I've never done taxes aside from my own tax return, which I dread every year. So it's hard to shift that public perception of like, you know,

Just like when you're an insurance company, you don't just do one type of thing. Like it's an overarching umbrella, whereas accounting is the same overarching umbrella. can have all these different branches off of it. And so I try to, you know, walk through that with people as much as possible so that they start kind of understanding the value because that's one thing and bookkeeping that's A harder sell than I thought is like showing the value. And a lot of times it takes seeing it or experiencing it.

A lot of times when clients will come to me, maybe their financials were on cash basis before, which is already kind of setting you up for not seeing the data as it truly is, especially in CPG, because sometimes those chargebacks come six months later. So it's like, well, crap, now we have to go back and say, have to restate our financials now. So yeah, think understanding is the first part of that. But then...

you know, telling people like, hey, we're truly a strategic partner with the businesses that we work with. And that means that we're trying to not overcomplicate it. So if you want to use just a couple of things, we can kind of make that work to a point. You know, we can of course use QuickBooks, maybe have some other plugin softwares that are crucial, just to start out. And then we set a cap and say, hey, okay, now things need to start getting much more complicated or robust.

Jordan Buckner (07:32)
You mentioned some of the mistakes or the challenges that brands make starting out like using cash basis and counting instead of accrual in right like how you recognize expenses that just changes the view of your your business and what's happening. What are some of the common mistakes you see early stage brands make with their accounting?

Jessica Howes (07:51)
So a lot of times, especially going back to that cash basis, one important piece is of course inventory. So with cash basis, a lot of times, you know, there's modified cash basis where you will have an inventory balance still, but I've encountered so many bookkeepers who just expense all the inventory. And what that does is first looks horrible for investors because they're going to say, where's your inventory? You have none. And then you're going to, as the founder, you might not know, where is this on my books? I don't understand because

you outsource that piece of your business because you don't understand it and you need someone who does. So what catch basis also can do or does rather is creates these huge spikes in the P and L of like, okay, he, you know, did a production run and that was 50 K. So now we have 50 K sitting in one month and it makes you look like you had no profit margin and it will show negatives. And then the next month.

It might look amazing because you're not going to have anything in cost of goods sold. I think it's challenging because as a founder, when you're focused on getting product in people's hands, driving the business, opening new partnerships with distributors and retailers, you're not thinking about, okay, now how do we need to reflect this on the financials? And how can I then view that, see what's our, truly is our margin and how do we make decisions on that?

Jordan Buckner (09:07)
Yeah, you know the whole inventory piece is so crucial and I'll tell you from experience. I think there's a huge opportunity here because. A lot of founders will use a cruel accounting and when they're trying to make decisions about their business and operating, they get tripped up because they're like, hey, it says I should be having all this money or this revenue, but I don't have a cash to my bank account, right? So like one tension is that.

Most early stage businesses never have enough money and they're always on the verge of running out, but they need to understand what's going on in their business kind of holistically. And I almost see this tension between two levels of using a cruel base accounting for strategic decisions and long-term decisions, but then the need for essentially a cash based accounting as an operating for operating decisions, right? Like, can I buy this product?

for $50,000 or this inventory for $50,000 today, or do I need to wait two weeks before I get paid from another retailer so I have the cash to be able to make that, or do I have to put on my credit card, which I need to pay in 30 days and I need to get the revenue now? And so I think that's where a lot of the complexity comes of needing almost like multiple different levels of viewing your financial data so that you can make different decisions.

Jessica Howes (10:23)
Exactly. And yeah, the cash flow is something now that I've kind of really honed in on when I first started my business. I was like, we're going to be the gold standard of bookkeeping and we're going to put people first versus here's your financials to buy. It's hard to book a meeting with some outsource partners. It's hard to get a hold of them. Anytime my clients email or call me, I treat them all the same and I put their problems first. And I think that that has gone a really long way. But with that,

came a huge need that I was hearing from all of my clients of like cashflow. Do we have the money for this? When's our next production run? Can we afford that? Can we do this? And so I've started implementing some tools. I was kind of doing more, you know, manual math at first to determine like the cashflow, creating plans with people, determining your burn rate, how many months of runway do you have left? But now I'm using, starting to use a tool called Fathom.

And so it's a forecasting tool. does a lot of things, honestly. I'm still learning all of its capabilities, but what I'm kind of focused in on now with clients is it pulls in your historical financials and then it'll pull out like a three year forecast based on the data that you're telling it. So you're saying, Hey, we have 15 day terms with all of our AR invoicing.

that you can put that in there and it'll forecast out. You can also put growth rates in there. You can also put what if scenarios like what if we need this amount of money to fund our next production run in May. You can go in and hard code a number in there and it will tell you what that's gonna do to your cash balance over time. And I think that that's been an amazing tool because it.

it immediately gives founders an answer. And then it gives us data that then I can help them make decisions on, okay, we have this, what's our first priority? Okay, check that off. What's next? Creating a plan and also understanding that, especially in CPG, the first plan you make probably isn't gonna be the plan that goes to fruition. We might have to update it a few times, things fall through, especially when you're getting into new.

distributor partnerships, new retailers, a lot of times those first payments from invoices, they don't come on the due date, you know, especially with distributors, it can take 90 days sometimes to get that first payment from them. And it's going to be just riddled with charge backs that you have to kind of sort through. So, so yeah, those are, those are definitely some challenges.

Jordan Buckner (12:45)
I love that. I think FATOM sounds like a tool. just took a look at it. I think it's something that a lot of founders probably don't know that they need, but they probably do, to better understand what's actually happening with their business. Talking through some of the beverage specific challenges, what have you found that's helpful to think about from an accounting perspective as a beverage brand that some other companies might not have to experience?

Jessica Howes (13:09)
You know, I was thinking about this earlier and I'm like, there are definitely nuances in beverage, but some of them can still apply to other products as well. But the main thing is the weight of the product. Beverages are very heavy, especially if you're in glass packaging or depending on other, you know, how the product is cased and packaged. It's so heavy. so having the right fulfillment partners, I've, that's one area that I've seen can quickly dwindle down like your overall margin.

And a lot of times when founders are selecting, of course, I'm not involved in the selection process and vetting a fulfillment partners, warehouses, three pales, all that kind of thing. But I think a lot of times what I've seen is people are like, well, I want one that's kind of close to me or that's in the right region. So then automatically all other regions are off the board. we've got, okay, now we've got a narrowed in view of where we can select someone from. And then a lot of places will be like, well, we only do e-commerce.

Well, we only do this. And so then it narrows it down. So I think that's one problem in the industry is like, there's just not enough choices when you start really filtering down to what you need as a company. And then I think too, a lot of people will meet with someone and they're like, great. And they don't meet with five different, you know, providers and say, let me compare the pricing. Let me negotiate. Everything is negotiable. I'm still learning this as well, cause there was a time I did not know that either.

But I think that's something that's so important to know is everything truly is negotiable. The price is never the price when vendors are quoting you.

Jordan Buckner (14:42)
Yeah, I think one thing as well with beverage is interesting is more than other categories, the minimum order quantities can be much higher and oftentimes it has cash implications, right? So are you required to pay for all the inventory upfront or can you pay over time? And how does that affect your finances, right? Like if you have to hold this inventory value of, I don't know, $100,000 in inventory as a small brand early on,

that's going to be a big weight on your cash and your financials versus maybe being able to space that out where you're actually paying upon delivery or when it's dispersed. And so ways of understanding how having large inventory amounts affect your financials and even how much you need to sell. Right. And we're talking to a beverage brand. They're like, I have a hundred thousand cans of product.

And I need to be in those large retailers. If I sell this to like independent retailers, I can't move the volume that I need to get rid of my product that I created. And so I have to go to these large accounts, even knowing that I'm to hit with like chargebacks, deductions, and all these other things. And so it makes far reaching kind of short and midterm kind of business decisions.

Jessica Howes (15:58)
I definitely agree with a lot of what you're saying.

Jordan Buckner (16:01)
Awesome. What is your take on how to calculate a true gross margin, especially when brands are selling to multiple channels like DTC, retail, and Amazon?

Jessica Howes (16:11)
Well, I feel like this one will probably get a lot of disagreement from the accounting industry, my sort of view on this, but I think gross margin, a lot of times, if that's the only thing you're looking at, can almost feel like a fairy tale land. So I try to really emphasize more so that contribution margin, maybe not necessarily the unit economics. That's not as much as what I'm focused on, but still in the aggregate. But that's because if you say, okay, well our gross margin,

I've had clients come to me where they're like, oh, our gross margins, like 80 % it's great, it's amazing. And I'm thinking to myself, there's no way, there's no way that it's that high. I mean, I would love it for them if it was, but then we kind of get into the nuts and bolts and say, okay, what are all these costs that contribute to contribution margin? And then they realize, oh, well, my margin, you know, was like less than half of what they originally thought it was. And so I think that that can be sometimes dangerous with founders, especially

some that love to go out and sell, sell, sell, and then you're kind of misrepresenting the information unknowingly to investors or interested parties or banks. So then when they see your financials, they're going to say, well, this isn't the story that we were told. And then it kind of builds a little bit of mistrust there. So I really like to focus on all of the components that we're talking about when we're fulfilling that word is because shipping, especially.

is so expensive or can be for any brand, but especially brands that are heavier like pasta sauces, beverages, things like that. It's so important to also view everything that's going into it so that we're realistic about what we're looking at.

Jordan Buckner (17:46)
So in looking at that, is the P and L statement the place that you want to break out your revenue and cost of goods sold by channel because they're so different or on a P and L, is it always going to look at that kind of total blended? Like, does it make sense to break each, like have sub accounts or sub categories for each one of your channels to track or is that something better done in like Excel or spreadsheet or another software?

Jessica Howes (18:13)
I think you definitely should, can slash should be doing it in QuickBooks to a point. I think where you get into like the questions of well which skew exactly is underperforming and that kind of stuff, like really truly the unit economics of like on a can by can basis, how is every skew performing by channel? I think that that analysis needs to be done outside of QuickBooks, but I definitely have the majority of brands I work with, we've at least split out the revenue to say wholesale, DTC,

all that kind of stuff. And then some of my clients, do class tracking. So you can run a a P &L by class in QuickBooks, and it will give you full statement so that you can view your margins there by channel. It'll still be in the aggregate, but I think that that's a huge value piece. Of course, when it comes to like the accounting side, that is a little bit harder to do, especially class tracking. It's harder to get everything in that class to set up the backend.

But I always say like, here's a good starting point. Let's just break out revenue vertically first and say, okay, let's split it out into each category it needs to go into. And then as the business is starting to get a lot bigger, then we can choose a date to say, let's truly do class checking. So we can see, you you can see even like your marketing stuff and operations, can view it by department and you're going to get a lot more value out of that and not have to pay for an external like plugin to do that for you. Because I do think.

That's one area where QuickBooks is pretty good. Others, like inventory, not so much. But yeah, that piece of QuickBooks is really, really helpful.

Jordan Buckner (19:43)
Yeah, I think that's so hard because as a founder, I would love to be able to say like, what's my profitability selling on Amazon for last month, then be able to see my Amazon revenue, Amazon specific fees, costs, Amazon advertising, and like the cost of the product that I sold to Amazon. The problem I also see, right? Like the only...

source of that data really coming in a lot of times is like your financial data that's coming in. And usually that's coming through your two years accounting software. And it's not really made to then say like, you bought this much inventory. Let's allocate it this, know, 20 % to Amazon and 40 % to retail and right to like really split that out. Also be really manual. but I think that's like one of the tensions for like founders who want that level of detail, but in order to get there requires a lot of human you'll work.

that may not be worth it, in the early stages.

Jessica Howes (20:38)
Yeah, I always try to reset expectations with founders of like exactly what to expect to view in QuickBooks and to say, okay, there's other things that we can view. There's other things that we can prepare reports on, but those, we start with the data in QuickBooks and then we say, let's get more granular. Let's get more granular. But QuickBooks or any ERP in itself is not meant to be that.

granular and so I've had founders be frustrated about that. get it. If you're like, well, this is going to do it all for me, but yeah, it's just not, it's not meant to be.

Jordan Buckner (21:11)
So Jessica, what's one small change that founders can make today to improve their financial health?

Jessica Howes (21:17)
Honestly, everything in CPG we'll keep going back to is inventory, inventory, inventory. So with that, one major piece of advice I would give, know, founders don't need to have an accountant or a bookkeeper right from the jump. think you can kind of bootstrap, know, do it, do it yourself or whatever, to a point, to a point. But I think inventory gets overlooked because people are focused again on getting product in people's hands.

opening up new opportunities for themselves and getting inventory made. the inventory's made and then we get it to the warehouse, I think it just kind of gets erased from people's minds sometimes. something that I have definitely noticed through my years of experience is when brands are using smaller warehouses, smaller fulfillment partners, they just don't have

any data integrity. There's an Excel sheet that someone hardcodes numbers into, and that is not real usable data. We don't know if those numbers are right. If Bob went and counted the inventory, did someone check back behind him? Do we have a trackable kind of ledger of data in the system to say, okay, well, was counted at this stage, here was all the orders that were fulfilled. So

I definitely think just choosing the right partner, just taking a little bit more time and consideration to ask people, do you have a warehouse management software? A lot of times now, like especially with so many new softwares coming out, some of them being powered by AI, it drives the cost down of a lot of those, which is one amazing thing. So you no longer have to pay tons of money every month to have some sort of system, but I've run into a lot of issues with smaller

warehouse and fulfillment providers that, you know, inventory just kind of poofed off of the ledger and we weren't able to go back like, okay, what was it in January? What changed from this month to that month? They're like, well, we don't know because we just hard code numbers and we don't kind of revisit that. There's no data like behind that that we can use.

Jordan Buckner (23:18)
Definitely love that. Jessica, thanks so much for being on today and talking about all two things accounting for CPG brands. For those who want to get in touch and learn about working with you, how can they best get in touch with you?

Jessica Howes (23:29)
Yeah, absolutely. Thanks so much for having me. It was definitely not as nerve wracking as I thought once we got talking. was like, okay, this isn't so bad. It really is just like talking to a client, which I do every day. But people can find me of course on LinkedIn under my first and last name, Jessica Howes. You can email me at jessica at wizardacct.com or you can fill out a form on our website, www.wizardacct.com as well.

Jordan Buckner (23:55)
and we'll include those in the initial notes as well. Thanks so much, Jessica.

Jessica Howes (23:59)
Thank you. Have a good one.