Jordan Buckner (00:00)
One of the biggest shifts a CPG brand goes through is moving from spreadsheets to a real inventory management system. And at first, spreadsheets work totally fine. I built TeaSquares off of it. You're tracking a few SKUs, maybe selling a line and things feel pretty manageable. But then wholesale orders start coming in. You're working with distributors, production runs get bigger, and that's when spreadsheets really start to break. So today I invited on Matt Lin from Belay to talk about how CPG brands should think about

implementing inventory management software, including when to do it, how to choose the right platform, and how to avoid kind of those mistakes that can happen when you implement a new system. So Matt, welcome to the show today.

Matthew Lynn (00:42)
Thanks Jordan, glad to be here.

Jordan Buckner (00:44)
So one thing to start on that I want to talk to is like, for founders who are early in their journey, when does it really become necessary to move from spreadsheets to some type of inventory management software? And kind of what are those warning signs that you encounter?

Matthew Lynn (00:57)
Yeah, that's kind of a, good question. It's a little tricky because there's really no set point when you should be looking forward to add that. It kind of depends on the nature of your business. We've seen people operate spreadsheets through several million dollars in revenue because they buy and sell finished goods. So it really comes down to when are you outgrowing those spreadsheets? When you have spreadsheets that feed spreadsheets that feed spreadsheets.

and you want to centralize that and get things out of your head and just in spreadsheets into one place, it's about that time. So a lot of what we see with CPG brands nowadays, especially less turnkey brands and more manufacturing, at least contract manufacturing. And when you want to be able to really track the inventory that you have across multiple locations where your manufacturer, your warehouse, your 3PL, your garage, where you hold samples,

just really be able to see everything. And that's about the time you want that system. And you really want that tech stack to start being centralized instead of having to get into three or four different systems in order to feed those spreadsheets. And you really just want one central location.

Jordan Buckner (02:02)
Yeah, you know, it's interesting because I feel a couple of things, right? Like when I was doing running my energy bar company, we manufacture our product and then even we work with the co-manufactured our inventory is like relatively manageable. can basically like see everything that we have and I can keep it all in my head. And I realized for a lot of brands when

inventory, finished goods, raw materials, are kind of out of sight either of mine. It's hard to really comprehend what you have and where and the value of it, one, but then two, can you fulfill orders? What your production timeline is? How long that inventory is gonna last? And when you start having these questions that you can't really answer, I think it's good to start having that system where you can pull it all together. And even for me,

We spent hours building this complicated spreadsheet that was tracking everything, but it was built around one product and three flavors. And once that we added a new size and new set of SKUs, was hard coded to those three initial SKUs. It wasn't built to kind of scale from there. And at that point, I was like, okay, we need to transition to something else because otherwise...

I'll be rebuilding all these formulas, literally hundreds of formulas from years ago and I have no idea how to do that anymore.

Matthew Lynn (03:09)
Absolutely, we see that quite a bit. And another thing, cost tracking, being able to allocate and get a total landed cost of the products from the raw materials that you're buying to the packaging, to the freight you move between manufacturer and warehouse. It can be pretty difficult, especially in these times when freight is very volatile. If you're paying any kind of duty, obviously it's really hard to have a set duty rate. The import duty you paid this month may be totally different from what next month is.

and being able to just get a good idea of what your actual cost of goods are, inclusive of freight, inclusive of duty, inclusive of labors or tolling charges. So you can really get an idea as a business what your true margin is and are you making enough money to be able to keep going?

Jordan Buckner (03:52)
No, I think that's so key because I ran into that problem as well. think a lot of other founders, when you calculate your cost of goods sold and ingredients packaging at a fixed point in time, like when you're buying it maybe, or when you're kind of forecasting, and then three months, six months go by, you're placing new orders. A lot of times founders don't go back and recalculate those costs. Cause maybe even if you order from the same supplier, maybe it's a different size and your freight is going to be different, which affects the landed cost of the product.

Matthew Lynn (04:19)
Absolutely, and that's what we see with spreadsheets. Most people treat a spreadsheet like a standard cost. Here's my estimated for this flavor, it costs me X, for this flavor Y and Z. And like you said, because the rates are so volatile, you don't update that spreadsheet. you're making, maybe your accountant's making a monthly journal entry to book your COGS, and it's off a number that you calculated three months ago. And now your most recent production or your most recent purchases are totally different.

and you lose that visibility in your financials, you think you're making more than you actually are, you're not aware that your margin has started shrinking. And then as you're expanding into other channels, retail, distribution especially, that can really eat at that margin even more. You have no idea.

Jordan Buckner (04:59)
So I think here's one thing that comes out pretty fast when they start talking with other founders and brands about the space is that they don't really know what kind of set of software they need, right? Because I think a lot of terms, there's ERP systems, Like enterprise resource management systems. There's your accounting systems, like QuickBooks Online.

inventory management systems, that you have all your sales channels, you might be tracking some things in Shopify, maybe you have a 3PL and they're using a warehouse management system. It gets kind of complicated, like what do I use, what needs to connect? And so I'm curious, like what insights do you have or perspective on like what core systems a company needs?

Matthew Lynn (05:37)
Yeah, and that's great. then, you know, there's a lot of acronyms that get thrown out, you know, three letter kind of abbreviations that you hear. It can be very overwhelming. And even when you understand what those are and what they mean, then you start looking and then there's a hundred different inventory management systems. You you Google inventory management and immediately you're overwhelmed. So for most brands, especially, you know, emerging CPG brands that, know, an ERP sounds great for everyone. It's a one-stop shop.

However, with high prices, high contracts, user licensing agreements, for most brands, it just doesn't make sense. So you end up with a more decentralized tech stack. And so kind of where you wanna focus is really your financial software. In the US, that's pretty much gonna be QuickBooks Online or Xero. They kind of have the market cornered as far as that goes. Then you're looking for inventory management systems. You're looking...

Probably if you're emerging where you have D to C, you're looking for Shopify as your website back in or WooCommerce being another one, you're probably trying to get your name out there and we're looking at Amazon. And then depending if you can get into national retailers, distributors, you may be forced to have EDI capability. So that's another system we're looking for. How can I have a middleware that can automatically feed that information?

So I think really when searching for products, we're looking for areas where we can link those together as much as possible. Try to get out of the weeds of the, you know, I have to go into this system to create this and then go into this system and do the same thing and then go into the WMS for my warehouse and do the same thing. So it's just trying to find those systems that connect. And that's the beauty of where we're getting to now with technology is a lot of things are really able to be connected. So.

When you're looking for an inventory management system, one thing I'll tell people is like, what are your needs and make sure that this system has that. If you're strictly on Shopify and you have Shopify, Amazon and your financial software, find something that can just connect those. you are with, let's say a distributor like Kehi and they're gonna require you to have EDI connectivity and they're gonna require you to use SPS commerce, one of the nation's largest EDI providers.

So you wanna make sure you're looking for systems that can easily and quickly and cost effective connect all of that. Because that's another situation you don't wanna run into is that we end up with 10 systems and they all cost a lot of money. And before you know it, you're wishing you were still on spreadsheets just because you're not ready yet.

Jordan Buckner (08:00)
There's been a lot of conversation, I've been hearing this phrase probably for about 15 years now of a single source of truth. And the idea being like one system you can go into that has at least an overview of your entire business that maybe links out to other systems or something. Is that the reality? Are there systems or software that can be that single source of truth for a brand or is the reality that's gonna be spread out amongst different systems?

Matthew Lynn (08:28)
Typically, it's depending on what you're looking for, we can get a single source of truth for certain areas. But overall, you end up with a couple systems. Like when we're implementing inventory management systems from an inventory perspective, that can become the entire source of truth. So that's where you can capture all of your purchase orders. So you know what you have open. It's where you can capture your production orders. So you know what your coman or your self manufacturing facility, what you have going.

and it's where you can capture your sales order. So you can see how much inventory you have, how much inventory is coming in, how much is expected to go out. So it becomes the source of truth for inventory. And then you can compare to what your 3PL has and we have that. Now, again, that's inventory source. We still end up with like the QuickBooks being your financial source of truth. All of the financial information from purchasing sales, production, all that good stuff will sink down and then you have that. So you can limit the...

sources of truth, but typically you're probably gonna have one for your inventory management and one for your actual financials.

Jordan Buckner (09:25)
And then how about on the sales side? you find that there's, right? know a lot of them are talked about as like inventory management systems, but then they kind of couple in sales. You can match up purchase orders with sales orders or not purchase, but like sales orders are coming in with like the inventory that you actually have. And so the sales usually fit within one of those or is it kind of spread amongst multiple?

Matthew Lynn (09:45)
Absolutely. that's when looking for an inventory management system, like said, that's one thing we want to find a place where I can connect all of my sales as much as possible. And so we're looking for inventory management kind of becomes your sales hub, you know, a lot have native integrations with the Shopify is the online marketplaces, Amazon, Shopify, WooCommerce, eBay, Faire direct connections. And even if they maybe isn't a direct connection, but they have an API capability to build into

other systems, middlewares, give you EDI connectivity. And then there's always the chance that maybe you still have some house customers that they call you up or they send you an email when they wanna place orders. And we manually do that. But that system becomes your hub, whether it's an automated sale or a sale you create manually, you can keep track of all of your orders by customer, by channel, just depending on the view you wanna see it and it keep everything at once so you can

really start predicting and forecasting how much inventory do I have? Well, with the sales that I have coming in, how much am I gonna need? How much do I need to buy or produce? And really when you can see it all on one spot, it helps make those decisions a little bit instead of a sales forecast spreadsheet, a production forecast spreadsheet, and you're hoping to link those together somehow.

Jordan Buckner (10:58)
I think that's really important. And so, you know, as someone's even thinking about getting started or maybe they're have a system or two, but they're looking to kind of pull everything together. What are some of those other questions that they need or foundational data or processes that you need to have in place before kind of onboarding into a new system?

Matthew Lynn (11:15)
Yeah, I think one of the biggest pieces is, I ready for this? And what I mean by that is from a capacity standpoint, there is really no system that becomes plug and play. We've had clients who come and they think that if they just create an inventory management system, connect it to their other systems, that they can set it, forget it, the business runs itself. And unfortunately, that's just, that's never the case. We try to automate as much as possible, but there's always manual intervention.

And any system that you implement, if you don't have the resources or the capacity or are willing to pay maybe an outsourced person to help you run that, you end up spending a lot of money with somebody to implement the system. You're paying for the system and then it can snowball really quickly because like anything else, you have to stay on top of it. You have to maintain it. So a couple of considerations from a cashflow standpoint. Can I?

Am I able to pay the monthly fees for this without it dipping into anything else? Am I able to pay someone to actually help me implement that system again, without it causing a cash crunch? And then from there, monthly fees and then the ability to just keep the system maintained. Do I realistically have that? Do I maybe need to hire someone or outsource some departments and then think about the system? What you don't wanna do is just rush straight into it.

and then figure out after you spent several thousand dollars that, I really don't have the time to do it, then you're playing catch up and you've got a very expensive system that never gets touched.

Jordan Buckner (12:37)
Yeah, I think that's this big. I've also seen within this where maybe one team is using the software, but another is not right. Like maybe the operations team is using the system because they were really pushing for it, but sales isn't inputting all of their orders. And so there's a misalignment there. They're still taking that and like working off of the spreadsheets. They're like, okay, sure. There's some stuff in the software, but I'm still going to do my thing in the spreadsheets.

Matthew Lynn (12:59)
Yeah, buy-in is a huge thing. If you're a smaller brand and you maybe have just yourself as a founder or some employees, easier. When you scale and you have a larger team, a lot of people don't always love change. So they're used to doing it their way, it works for them. You're trying to get everyone on board with these wholesale system changes. Like you said, if the left hand isn't aware of what the right hand is doing, that can cause delays and issues. So you wanna make sure that...

you have your team buy-in or everyone that's gonna be using the system or at least understand what the goal is, why you're making these changes, how it benefits everyone and how it benefits your brand and your company growth.

Jordan Buckner (13:33)
So Matt, with Belay focusing on finance and accounting for CPG brands, I know one of the biggest problems you help to work through is the financial impact of running a inventory-based business, right? And like properly accounting for inventory compared to cost of goods sold. And so talk to me about that relationship and what a lot of brands get wrong around.

buying inventory but then maybe not allocating it properly is cost of good sold

Matthew Lynn (14:02)
Yeah, it's understanding what your margins are and ⁓ huge thing for an outsourced accounting and just accounting in general, understanding your cashflow as a CPG brand inventory is your lifeblood. However, too much inventory and you've frozen up your cash. You can't expand. You can't do anything with that too little inventory and you can't make sales and you run the risk of losing accounts or losing customers. So it's a fine line of understanding.

when I need to order at what point, you don't wanna just have it sitting on a shelf somewhere in a warehouse because that's doing you no good. You don't wanna have not enough of it. But with that, wanna be able to, a lot of things we see, bookkeeping kind of falls to the wayside at times with brands. have people who are great entrepreneurs, they understand their business, but then you get to the accounting piece and it kind of, it's a deer in headlights look a little bit.

And so if you can't take your inventory, your sales data, how much is costing you and be able to funnel that to a financial system and see the actual position you're in, then you can get a little bit lost. A lot of brands, know, they'll have their CPA try to clean up their books at year end. They know they've had money coming in. They know they've had money going out, but they're not really sure how much they're actually making on their product. They're not sure if this is something that's going to be able to go if they need to.

address prices or address costs with vendors. So it's really being able to take a large amount of information, funnel it down, and really be able to make business decisions off of it.

Jordan Buckner (15:25)
One of the biggest problems I had starting out, cause I was kind of doing my own bookkeeping at the beginning, was booking all purchases as cost of goods sold, essentially. of moving it to...

inventory as an asset first and then allocating as cost of goods sold as I sold units. And I think at the time, you know, we were relatively small, pretty much the inventory we were buying, we were selling within a month or two. And so we weren't holding that much. But I think as a lot of businesses get larger or have more

and product assortments, they get really get lost in terms of like, how do I actually allocate the inventory that I bought?

and align it with actual cost of goods sold. And I think a lot of people get confused, right? Cause like other times QuickBooks does not track the individual products that are sold. You might have a revenue number come in, but it's not associated with a specific product to deduct a specific amount of cogs from. And so how do you recommend brands manage that relationship of properly allocating cost of goods sold into like an accounting system as well?

Matthew Lynn (16:29)
I think that's huge. you know, if you're cash basis and it's very easy, I buy a bunch of stuff. I code it directly to cost the goods. You're still losing that visibility and your margin month over month, because let's say you're a little, most brands are going to be a little bit cyclical. You're going to order a lot here and then maybe not so much for the next month or two. And you're, when you look at it, have revenue coming in and then you just booked everything you bought to COGS.

And so a lot of months, it's going to look like a roller coaster. You're going to look like you made a lot of money or you lost a lot of money. You have no visibility into that actual margin. So what we want people to be able to see is, you know, booking it to that asset, having a system that automates. Now we have people that do it with a spreadsheet. You're having to track and make manual journal entries every month into your accounting software, which is just a little bit cumbersome. Again, the goal of a system is to help save time and help you make better decisions.

What that does is you have the system that can calculate how much you paid for that particular item, how much it costs you to produce it with your manufacturer, get to a fully landed cost. So you know that every time I sell this for $100, it costs me $30 to make it, I'm making a $70 gross margin off the top. And all that information flows to QuickBooks or flows to your accounting software. You can really see that in real time on a monthly basis, see what your good gross margin is.

But guys, let's be honest, as people look to scale and maybe they're looking to take on capital, that's one of the first things that any kind, anybody, any capital lender is gonna look for. Can you make sales? And then they're gonna look at your margin. And if your books are just a total mess and they can't really make heads or tails of it, they're gonna pass before you even really get a chance to make your case.

Jordan Buckner (18:04)
Yeah, I mean, that's true because then they're going to be looking at your PNL, which is usually derived from something like QuickBooks, right? And it's such a pain to go back and try to fix those numbers and try to make it right if you're not tracking it all along.

Matthew Lynn (18:18)
it helps if you're doing it through the process and over time it simplifies life because we have a lot of clients that come and they're going through a funding round or they want to raise capital. And then it's a mad dash to get their books looking any what clean so that someone can actually look at it and make decisions as opposed to the ones who have kind of grown into the system, got in early, allowed their business to scale, learned the functionality of the system and how it works. It flows.

And then they're ready to do that pretty much at any given time. At a month end, they could give those financials to a bank or a lender or anyone that's raising that capital and not be so stressed out.

Jordan Buckner (18:54)
So

does the best case process work? Or do you use an inventory management system where you're inputting all those costs and then either, like do they usually automatically translate those costs of goods sold to QuickBooks or are you generating a report that says you sold X amount of revenue, these are the columns associated and then you're kind of booking a journal entry back into your financial system for it?

Matthew Lynn (19:17)
⁓

there's a couple of ways to look at that. And that really just becomes preference of the brand or of their accounting team. The best way, what I love is it can automate if you want it to. So the system is calculating based on the purchase price, the production of everything, what that cost is. And it knows every time you sell it, what that financial entry is to debit your cost of goods, credit your inventory, and that flows automatically. And another great thing about the system, which comes with that,

is like you said, as costs change in real time, the first time you buy it versus the next, the system's automatically calculating when you went from a $10 per unit cost to a $9 up to an 11. And so you're getting that accurate margin and that accurate sync of data all the time.

Jordan Buckner (20:00)
I love that. And so I think for brands listening to write, like make sure whatever system you're choosing has that visibility and connection to automate and make your life easier so that you can clearly get a picture of what's happening with your margin and with your business.

Matthew Lynn (20:12)
⁓ Absolutely. I think that's one huge thing to look for in a system is do some digging, you know, outside of the fact of how well it can help you track just where your inventory is. Does it have a good financial connection to an accounting software? Because if it can do everything and calculate it, but it doesn't have the ability or doesn't do it well to push down to your accounting software, then you're kind of, you know, it's back to manual entries and everything. So.

We wanna make sure that it's just the right setup across all fronts for our brands, from their selling channels and marketplaces through their inventory management and down to the accounting. It's one big picture and we just don't wanna piece-mail it together.

Jordan Buckner (20:53)
So for any founders or people at brands listening today and realizes that their inventory system is maybe a mess, what are the first kind of steps they should take to clean it up into something that's functional?

Matthew Lynn (21:03)
I think the first step is, you know, they say the first step is admitting there's a problem. So it's one, recognizing that there is an issue and then also being honest whether they have the bandwidth and the capability to get that cleaned up. If not, we'd recommend reaching out to someone who has an expertise in that, whether it's just simply inventory management or inventory management and accounting, financials, being able to have a second set of eyes who looks on that can help you understand your pain points.

Can who's seen it, you know, a thousand times and can really help you get it on track faster. Worst thing is, you you keep kicking it down the road and you kind of bury your head in the sand. And then, you know, then it becomes a crisis. What we want to do is help people before it ever gets there. So then again, you're, you're stressed out enough as a founder and as somebody trying to grow a brand, there's no reason to unnecessarily stress yourself with other items that can be helped.

Jordan Buckner (21:51)
No, I love that. think it's so important. So if you're listening to this, definitely get help. Usually if it's gotten to the place where it is now, it's not something that you have the capacity for or the knowledge of to do it yourself. And so I always recommend get help now before it becomes an issue. So you're not rushing. There's lots of ways that you can do that. People that you help. I always recommend a accounting group who knows CPG brands specifically because inventory and expiring inventory is a lot different than, you know, just your regular service-based business. And so.

someone who just specializes in that. BELAY is one of our great partners here with what I recommend and you all offer like outsource accounting, finance, and tax services designed specifically for CPG brands. And so, definitely reach out because I love that your team is

know, US based at service clients across the US and can do everything from bookkeeping to fractional CFO work and support. And so encouraged, you know, if anyone needs help, definitely reach out now before it becomes an issue. I'll put the link to believe in the show notes as well. Matt, thanks so much for being on today and definitely appreciate the conversation.

Matthew Lynn (22:47)
Absolutely, was great Jordan, thank you.