David 0:00
Are you looking to grow your sales on Amazon? Chances are if you’re not selling on Amazon’s international marketplaces, you are leaving some serious money on the table. What keeps a lot of people from selling internationally are all the confusing hoops you have to jump through to get started. That is why we worked with Kevin Sanderson from maximizing ecommerce on our international expansion. Kevin and his team take care of the details and guide you through the process of expanding so that you can grow your sales and reach new customers. If you’d like to find out if working with Kevin and his team is right for you head over to https://maximizingecommerce.com/fire. Once again that is https://maximizingecommerce.com/fire
Tyler Jefcoat 0:46
Don’t show up unprepared to make the investments. But if you have the liquidity right now now’s the time to place those bets that if they work out, we’ll get you that premium valuation in three years when it’s a better time.
Intro 0:59
So welcome, everyone to the Firing the Man podcast, a show for anyone who wants to be their own boss. If you sit in a cubicle every day and know you were capable of more then join us this show will help you build a business and grow your passive income streams in just a few short hours per day. And now your host serial entrepreneurs David Schomer and Ken Wilson.
- Slywotzky, Adrian (Author)
- English (Publication Language)
- 272 Pages - 09/01/2003 (Publication Date) - Business Plus (Publisher)
David 1:22
Welcome everyone to the Firing the Man podcast on today’s episode we are joined by Tyler Jeffcoat the founder and CEO of Seller Accountant where he exercises his passion for helping sellers maximize their businesses. Tyler provides financial coaching for sellers totaling more than $100 million per year in ecommerce sales. Tyler also leads the sellers roundtable and exclusive mastermind group for seven and eight figure sellers. Welcome to the show, Tyler.
Tyler Jefcoat 1:50
Hey, thanks for having me.
David 1:51
Absolutely. First things first. Can you tell us a little bit about yourself and your path to founding Seller Accountant? Yeah, sure.
Tyler Jefcoat 1:59
It’s always it’s always fun to get to tell the story. So I’m also a recovering accountant. David once an accountant always wanting to finish school, worked for the nonprofit for a couple years and ended up in corporate recruiting about Firing the Man this is my story like I was a middle manager for in the Fortune 100 company a big bank and hated my life and ended up back in an MBA program at the same time and realized they needed to fire my corporate sponsorship, paid back about $25,000 in MBA tuition and go start a business in 2012. In the healthcare space, we had a pretty good run zero to 100 employees in four years, and I got to sell that business in 2017. And then my job was to try to find a job because my wife didn’t want me at home all day. And she doesn’t like big cities. We live in Athens, which is this great little quaint college town east of Atlanta. And I’m like hell now what am I gonna do? And so back to my kind of fight. I’m a CFO by trade, right? You get an MBA in finance, and you study accounting, you’re not good at much you can I’m trying to help my dad build a bridge last week, and it was an abysmal failure. I need to be messing with spreadsheet boys. And so we start seller accounting around the thesis that there are riches and niches can we find a way to be so great and focused, I love coaching CEOs, I love the idea of helping the little guy that kind of sub $20 million entrepreneur, Excel and when in the sea of Bezos, maybe he’s getting paid like that extra penthouse is gonna happen even in a bearish market. But how can we ensure that the little guy is successful? And so a seller account? That’s what we do. And so I was grateful to find a good business partner that kind of knew Amazon better than I did. And I had been an eBay seller back in college. So like, building guitars and selling stuff and side hustling, and this has been my first full full foray into ecommerce in the past five and a half years. It’s been a lot of fun.
Ken 3:43
That’s awesome. Yeah. So I if we go down the rabbit hole of spreadsheets, we’re in great company with Tyler and David here. So yeah, with me, no. But definitely you guys. So awesome. Let’s dig into it. So Tyler, you’ve got a unique perspective in terms of working with lots and lots of clients in the ecommerce space. And so can you maybe cover some of the trends, what you observed from the successful sellers? And maybe we can harvest some good information out of that? Yeah,
Tyler Jefcoat 4:10
so I think it’s I heard a friend say this the other day, every CEO makes money in a bull market, right? So we had most ecommerce brands in 2020. And 2021. Felt like superheroes, because it was pretty frothy. And I think what we’re seeing now that things have sobered a little bit is the companies that have it’s like a win for common sense for the companies that have a better fundamental value proposition like they’re, they actually are connected with their customers and that they have great products, their products are actually solving a real problem. Those products are it’s harder to have a me too product be successful right now. And so I think accounting is what it is, I think at the end of the day product rules and our relationships with our customers are crucial. So the kinds of brands that are doing the best right now are the ones that are not running out of cash. That’s first and foremost in a weird market. And to have product and product relationship with their customer where they know, here’s what she wants, here’s what she cares about. And I’m also acknowledging is harder, right? This has been a year where nobody in our portfolio hasn’t faced some level of headwinds this year, but not everyone is losing. So I think there are some sellers that like, we got to lose money this year, that’s not true. There are lots of brands and 2022 that are profitable, they’re just having to work harder to squeeze a little bit more blood out of those stones, that kind of thing.
David 5:25
Got it makes a lot of sense. Now, that’s the sixth, we’ve talked about the successful sellers. Now, certainly, you probably have some people that become clients for a couple months, and then fall off, because financial performance isn’t there. And so any trends you’ve observed in terms of who’s not performing,
Tyler Jefcoat 5:42
I think the biggest one that I see over and over again, David is just not actually understanding your profit margins. So if you’re, again, I sell bookkeeping, so conflict of interest. But if you don’t really understand how much money you made last month, than when Amazon has an 8% increase in FBA fees, you have a hard time knowing what the real impact of those fee increases might be on your bottom line. And I’ll give an example. I was on a call with a CFO client this week who, who is still losing money on these new product launches. And I’m like, Okay, help me articulate the plan, how are we going to get this thing to profitability? So we’re going to we’re going to tolerate this really high tacos to get to a certain ranking, and then we’re going to be okay, we’re gonna build it ease back in my comment to him is in some markets, you can get away with that right now, you got to be pretty, pretty high and tight with your strategy to make sure you don’t want to guess that’s maybe my point is I think, the kind of ability to make a living being half assed with it is much more challenging now. And so that’s number one is I got to pay attention to profit. Number two, I mentioned this a second ago. But I want to say it again, it is not as easy to get alone right now as it was a year ago. And I am not going to make every purchasing decision perfectly. I’m going to screw up, I’m going to miss the timing, I’m going to do an ad campaign. That doesn’t make sense. Oops, I gotta learn the lesson. And so making sure that I have a little bit of extra cash on my balance sheet, a little bit of money in the bank, so that I can weather the storm. If I have to pay some my dad used to call it education expense, right? If I make a bad choice, and it costs me money, it doesn’t have to kill me if I have cash, but it’s at least education expense. And so I just encourage everybody right now, to have a little bit of money in the bank account. So that in case you have to fund any education expense, you can.
David 7:21
Okay, these first two questions. We’ve talked about successful sellers on successful sellers. I want to pop back to the successful sellers really quick and ask a question about q4, which is very timely, as we’re talking right now, in terms of profitability, PPC, what are the smart sellers doing to gear up for this q4, especially with these increased FBA fees?
Tyler Jefcoat 7:39
Yeah, I think it’s, I think it’s more important than ever. Now to have kind of a coordinated strategy, like you obviously, here’s kind of the way I view it, if I could somehow stack rank my ASIN, let’s say I sell 10 different products. And if I could understand, from top to bottom, this one’s my most profitable product. And this one way at the bottom is my least profitable. And if I could make sure that I do not stock out of that top 20%. So again, think about it, if I have 10 products, those top two, baby, I am not stocking out of those, I don’t care what is required, I’m going to hold more of my precious capital and resources in those two products. And I’m going to be okay, if I stopped out on number nine or number 10 on the list, you know what it happens? Those are my lowest margin products anyway. And so I think whenever you enter a market where you have kind of scarcity, I don’t have unlimited resources anymore, it becomes increasingly crucial to focus on your most profitable products. And so step one is which products are my happiest, which ones are not my happiest. And once I identify my real heroes now, for some sellers, this is obvious, I sell one ASIN. That’s like, my only profitable product and this 80% of my sales, okay, don’t stock out of that one. And don’t waste too many ad dollars on the other one. But for more sophisticated catalogs, or maybe have 50 or 60 products, I just think it’s worth a couple of hours of making sure you know what your winners and losers are. And then it’s kind of like I can’t fight all the battle fronts at the same time, I gotta pick the front to put as much of my resources as possible in that front needs to be aligned with my best products so that I can capture as much margin as possible.
Ken 9:12
Yeah, like that. And also a talk you mentioned, like things that like the last couple of years that have been like frothy, really nice. And now we’re entering in to a phase of maybe not scarcity, maybe a little bit thinner margins and a little bit tougher. Now, are there any like you’re it’s almost like the Pareto Principle, right? Like a 20. Like what what 20% of your products are bringing in 80% of your profit. Now, when you look at what an ecommerce seller gets, their P&L is every month, we should be looking at them, and we should be gleaning information from them and then utilizing that to improve our business. So what are the top two or three things that you advise ecommerce sellers when they’re analyzing the P&L to look for and what actions should you be taking?
Tyler Jefcoat 9:53
This is a really good question. Let’s be real unless you’re an accountant. I mean, David, most people don’t love looking at their financial statements. But again, to your point, Ken, as the market gets a little bit tighter, it’s really important to guys take 30 minutes a month, this doesn’t need to dominate your life, but take a little bit of time, and pull up your Xero your QuickBooks Online or whatever it is you’re using. And what I’m really interested in as an accountant and CFO is if I look at my month over month, so I have October next to November. And I want to make sure that my accounting is in a pretty close to accrual fashion. And I want to get to accountant nerdy, but I want to make sure that I’m expensing my inventory in the month when I sell it. And the reason I care about that is I want to know that my profit margin is not telling me BS, what I mean by that is, if you ever look at your P&L, let’s say you split it by month, and it’s five or six months and columns, in your gross profits like positive 50%, negative 20%, positive 15%, negative 80%, right, you have this all over the map, that means that your financial statements give you zero value, there is zero value in looking at those statements, because they’re stated in what’s called a cash basis. So the first thing, have good books. Second thing is don’t ignore them once they’re good. They’re telling you a story that you need to pay attention to. So for instance, I look at a month and I’m like, my tacos just went from 10% to 20%. That’s important. My advertising budget just doubled. I need to go take a step back and ask the critical question, was this a part of my strategy and my launching a new product where I was intending to spend double on my ad budget, or have I hired a marketing vendor and I’ve let them go rogue and I didn’t realize that I’m burning a lot of cash. And so by the way, that happens a lot. And so I think starting to look down your P&L and just keep an eye on a seller account, we use a metric called PAG post advertising gross profit, it’s the idea of taking your gross profit area and going down one more line to include those advertising expenses. Because an E commerce, you can’t understand your margins without understanding ads that fuel the you have to put on the fire to get the product to move. It’s so crucial that you, that’s what I would really pay attention to if I were seller.
David 12:02
Definitely I want to dig into this peg a little bit, because you’re absolutely right. Yeah, PPC is a huge component of it. And while it may sit in operating expenses, it’s not it really is a cost of goods sold, and it should be considered that way. So when somebody goes through this exercise, and they’re calculating the peg percentage, right, so your, your, what is peg stand for, again, your post advertising gross profit, that divided by revenue. When you look at that percent, what would you say generally, you’re doing great, or generally you got an issue.
- Tracy, John A. (Author)
- English (Publication Language)
- 384 Pages - 11/01/2011 (Publication Date) - For Dummies (Publisher)
Tyler Jefcoat 12:34
No, and this is great, because and this is so important, because there’s a lot of pressure on this right now. So everyone, if they were to pull up their profit and loss right now is going to feel a little less happy than they were probably a year ago, just because of the way the market has evolved. And so just to define post advertising, gross profit, so you visualize your P&L, you get sales minus your product cost to get sold minus your Amazon fees. And then I’m also adding advertising, right, so I’m getting a true, they call it contribution margin after ads. And so as a percentage of sales, if you are below 10%, you’re dead. That’s an unsustainable model. If it’s funny a year ago, I would have said, if you are below 15%, you’re dead. But there has been some compression this year in margins, or some of my sellers are having to tolerate 17 or 18% profit margins to weather the current storm. So again, we’re moving up the list here, if you’re above 20%, right now and 2022, you’re probably okay. But you’re not premium. And so my target if I were launching a new product, if you’re like Tyler, let’s engineer a new product, I’m going to do everything in my power to try to engineer a product that can capture at least 25% After advertising. So you think about that I’ve got cogs, I’ve got my Amazon fees, logistics, fees, that kind of thing. And then I’ve got ads. And I want to try to keep 25%. And the by the way, just in case, you’re wondering the brands that sold last year for seven and 8x multiples when the market was really to use that word, again, frothy, those guys were capturing 3035 or more points after advertising. Those were the brands that were really capturing the premium valuations in the market.
David 14:08
Okay, now, a follow up question to this. If, say we’re sitting at 15, or seller sitting at 15%. And they want to improve, there’s a couple of levers that they can pull some of our some of them are in their control, some of them are out so you start at the top you’ve got sales, you could increase your sales price, you could negotiate better pricing and decrease your cost of goods sold that’s in your control, but ultimately someone else has to give you the thumbs up on that you could decrease adspend that is in your control what of those levers have you seen to be the most effective in increasing this post advertising? Gross profit?
Tyler Jefcoat 14:47
I think you nailed it. There’s some of these variables like for instance, okay, Amazon decides to increase FBA fees. We like we don’t like that. We’re sad. But frankly, Amazon’s still cheaper than the alternative. So we hem and haw about it. We move about our bids. In this, there’s not a lot we can do to impact an FBA fee, it just is what it is unless we can re engineer the packaging or something like that. But the two that you mentioned there, let me just say this, I had a CFO call yesterday, where I, where we realized that this particular client had a 22% refund rate, that’s really high. And so the first thing I would do is I would just look through my P&L and say, Is there anything that’s just completely out of whack 22% refund rate would be very much out of whack for this category. And so for that guy, the lowest hanging fruit was to realize, Oh, my customers are getting confused about the sizing of this product for pets. So the first thing we’re going to do is we’re going to go spend some money for some professional videos to educate the consumer, so that they buy the right size, and they don’t have to return it as often. That’s if you ever see anything like that celebrate, because that’s a sub $10,000 investment you can make and maybe have a substantial impact on your bottom line. But beyond that, that experience there, the two that you mentioned, that I think are more important than anything else are the product cost of goods sold in the advertising. And I would even go so far as to say we like to look at these two in tandem. Let me give you an example. If you were to look at your cost of goods sold as a percentage of your sales price, and it’s really high, let’s say 50%. Like I sell the product for $100. I gotta pay 50 bucks to secure the product, that’s a really high cogs factor. Then I have zero budget for advertising, if that’s my reality, if I have 50% of my budget and cogs, I don’t have a whole lot left for ads. And so you imagine the opposite end of the spectrum, or maybe I have an unbelievably high profit margin product where I’ve got like, only 12% of my sales prices and cogs, oh baby. Now I can afford to spend money on advertising and be more aggressive because I have higher margins in the product. And so I almost if you can imagine, like a seesaw between those two variables, the higher my cogs are near, the lower that advertising load has to be if I’m going to be viable. But if I can engineer products with more margin, or if I can, as you mentioned there raise my price a little bit. That gives me permission to outcompete my competitors and spend more money on ads. So people ask me all the time probably asked you to David, but people always ask me, what’s the right tacos? What’s the right ad budget? And I’m like, that’s the wrong question. The right question is, how much margin do I have on my product where I can afford to out compete my competitors on ads, and I need to earn the right to spend those ad dollars where I can buy that real estate and get higher ranking. But I can’t do that unless I engineer products with higher value propositions and are able to charge a higher price point and have higher margins, then so I think those work in tandem. So obviously, you can’t change that overnight, I would look at my reality. My reality is that my cost of goods sold is x. Okay, given that reality, that means I can only afford to spend y on my ads, that’s probably how I would approach it in the current form.
Ken 17:45
one follow up question on that Tyler. Let’s say for example, we have a brand that’s let’s say they have this brand has a catalog of 10 products, would it be more profitable to manage? Given what you just said? Would it be more profitable to manage tacos on it on an individual product level? Were across the portfolio of catalog products? Let’s say we’re targeting at 10% Tacos? Would you will across that portfolio products? Would that be more profitable? Or would you go individual skews and based on your seesaw and change the tacos for each of those skews what’s more profitable?
Tyler Jefcoat 18:21
Yeah, it would be in a in a situation where they’re all children of the same parent, you maybe would manage them as they can as an entire kind of parent product, like a. But in a situation where these are distinctly different products, I really do believe in having a profit strategy for each of my products, because I may have a product that has a higher margin where I can afford to spend more on ads. That’s great news, because I might be able to sneak in insert or a QR code to continue to earn relationships with the customer. And I don’t, I think ultimately, obviously, your entire portfolio needs to have a tacos target of whatever makes sense. But the only way I’m going to really impact that is to get granular to your point there can and look at each product and say, Oh, I can’t afford to spend 20% on this product on ads. Great. But on this one, I can’t. And I’m gonna have to be nuanced enough, I think have is that kind of how you guys do it. I want to make sure I’m at landfill here.
Ken 19:13
Yeah, yeah. So yeah, we look at it from a couple of different perspectives, but as the at the parent level, or pro our portfolio level, and I think it’s yeah, it’s can be all over the place, depending on what space you’re in or what market you’re in. Yeah, I was just curious in terms of the numbers, but it makes sense. David, to add in on that one.
David 19:32
No, really good question. I think it leads into our next question pretty well. So one thing that we’re doing and we’ve talked a little bit about on the podcast is trying to fail on paper before launching products. So we have right now or ideas then we have capital. And so what we’re trying to do is make educated decisions. Because when you launch a product you never really know. However, there’s a lot of things that are known unknowable. I can no My FBA fee is you can know what your referral fee is, you can look at competitors and know what your sales prices in. So I’m curious if you have any rules of thumb between the relationship between your landed cost, right unit cost plus shipping tariffs, etc. And sales price. Or maybe it doesn’t have to do with those two factors, but to someone that is, say, has three ideas, but only capital to launch one? How can they make the optimal decision before they place that Pio?
Tyler Jefcoat 20:30
This is a, I feel like if you guys were on my podcast, I’d be asking the same question. Because this is really, this is the product development art and science. But I really think you alluded to it there, I, in a market where I don’t have unlimited resource, I can’t launch every product, it’s still a great idea to have lots of ideas, maybe that’s the first point you made there, David is I don’t want to just have one idea. I don’t know whether it’s the best idea I have unless I have 10 ideas. And then I did the good old fashioned spreadsheet exercise can right, where we put them down, and we’ll look at them. And I will say this, all things being equal, I never know for sure what my advertising budget is going to have to be I don’t know how good I’m going to be at attacking those keywords. And so the thing that I’m going to feel most confident in is having more margin in the product. So if you gave me a choice between obviously, it’s like, of course, if one has a much 20% Cost of goods sold, versus 30%, I’m gonna go with that 20% Because that’s a higher margin product. But I think, in general, just thinking, okay, even if I could sell more volume of one product, if I can get much better margins on another one, I may go there. Another rule of thumb that is under appreciated is, Do I understand what my cash cycle is. So if I think about this particular supplier, whoever already got a relationship with them, because of a prior unit that I’ve bought before, therefore, I can get 60 day terms on payments, I don’t have to pay those POS right away, there was a chance that I actually might be happier, this is gonna sound crazy. I’m a CFO, but like a slightly larger, smaller profit margin, but lots of velocity where I can reuse that dollar five or six times a year, may result in a happier business owner. And so I just think it’s a complex discussion, because I want to have as much margin as possible. And I want to have as much cash flexibility as possible, like lowest mo Q’s longest runway to have to pay for them. And if I can somehow graph those all 12 of my ideas and find the one that intersects at the highest optimal point of those two factors. That’s what I would go with if you gave me the choice
Ken 22:27
tool. I just And yeah, that answer. And that topic goes well into this next question. And this is, so as we’re entering into maybe skimpy market where we’re trying to we’re trying to squeeze his P&L down, we’re trying to squeeze the bottom into where it’s larger, and it will say, seller has a large catalogue of products. And I think sometimes this is hard. This is an emotionally, like when you build a company, it’s your baby. And it’s like, you don’t want to get rid of anything. But to your point of turning over amatory that’s how you’re making profit is that you’re turning inventory, right. And so if you’re holding on cash, you’re not turning inventory, you’re not making profits, what is your advice to sellers say they have 50 skews they’re selling, what is this exercise to weed out the bottom 10 20% to get more cash to feed the new products, and then the top products.
Tyler Jefcoat 23:12
Now I’d say it is an emotional one, because you don’t like shooting your children and you feel like your babies are your products, and you’ve developed them. And I don’t want to get too technical on this particular podcast because we’ll lose all of our listeners. But there’s a concept out there called Return on working capital that actually gives us true return on investment for every dollar that’s put into a product. And I’ll try to give you guys some links to some videos I’ve done about that. I want to try to get into the weeds here unless you guys want to, if I had a way to objectively compare my entire catalog, top to bottom happiest product in terms of return on investment to lowest product. And I was realistic about how hard it is interest rates are going up guys. So getting a loan in 2023 is going to be harder than getting a loan this year, than it does become a math problem to say okay, I’m only going to have cash to grow the top 80% of these products. That means my bottom 20% are going to have to go and then I’m going to have to have the guts of the CEO to say okay, we hate to let you go Suze, we’re letting you go. You’re out of here, right? We’re going to liquidate this inventory. It was a good experiment, but I’m going to redeploy that cash into the other product here that’s more profitable. That’s going to get me further faster towards my goals.
David 24:25
Sorry to interrupt the episode, you may have heard Ken and I talking recently about a new tool that we’re using for Amazon refunds. Now I have used other refund tools like this. However, I can tell you in the first seven days, they scrubbed the back end of my Amazon account going back 18 months and found $5,000 of refunds. And the nice thing about this is it’s my money. Amazon made a mistake and they are just auditing my account. The other thing I really like about this tool is there is no monthly fee. They only charge a commission if they are sick. successful in getting you your money. Go to att.com GETIDA, and enter promo code ft m for Firing the Man FTM 400. This is an awesome tool, I can’t say enough good things about it. Now back to the episode. Two things that if you could send links, we’ll post those to the show notes to people that really want to go on that into that return on working capital. I think that’s a new metric that actually we’re not looking at that I am really interested in. And then I just wanted to point out, you said killing your children. That is an excellent analogy. I was looking at a super slow selling product. The other day, my wife was in the product photography, it we did it like five years ago. And I wrote the listing like as before we were outsourcing anything. And gosh, it does, it feels like you are killing a child. And and so what is it actually, I’ll just tell you about this product. So we have inventory of it. It’s sitting in a warehouse. And my thought is, let’s use discount prices and sell through, like I’m not going to reorder. But also there’s no point in me dumping this in a dumpster. I’m just not going to run PPC on it. And if I sell two a month for the next 15 years, oh, so like, how do you effectively killed the children?
Tyler Jefcoat 26:23
No, it’s really hard. Because I think, again, in an environment, in an imaginary world where you have unlimited cash, you would always do exactly what you said, Ma’am, I turn off PPC, I’m going to let Suzy ride off into the sunset, it’ll take 15 years, but I’ll sell through that. I look at my inventory report. And I’ve got 10,000 days, whatever it is, I’m just gonna sell through the spot. But in but and so this is where it takes some courage. Like, the real question is not, can I make a bit of profit or not product a profit on this product? The real question is, if I had that cash, if I had access to that capital that I was getting back, could I deploy that into another investment that would do better? For me? That’s actually the real question. The real question is, if I had to lose a little bit more, maybe I discount a little bit more aggressively or do something, go to a liquid or whatever you have to do, and I decide this product is a loser. And so two things, I want to free up my mental space to start working towards products that are really achieving my goals. And second, I want to free up the cash, I may not be able to free up much cash, but I want to build a redeploy that capital to a project that’s going to give me a higher ROI. And so again, if you have unlimited cash, you just got a ton of capital in your business right now. Don’t worry about it, you get to keep a lot more like dud products if you get cash. But if you’re trying to decide to spend your time earlier may only have capital to launch one of these three great ideas I have. Okay, what if I can liquidate the junk in this clunker and do two of those three great ideas instead of just one? Now I’ve got the power to move forward more quickly. That makes
David 27:54
sense. That makes a lot of sense. I like that over to you, Ken.
Ken 27:57
Yeah, for sure. No, I really want to give a shout out to Tyler. This podcast is going amazing. And we’re ripping through these questions like crazy. And so in quick responses. I like it. So we’re as we’re talking about, like cashflow budgeting, we’re moving into a it’s what seems like a cycle that this is really important. And so are there any tools or recommendations for sellers, QuickBooks or anything like that to really like Dray land on cash flow and budgeting, say over a annual cycle or something?
Tyler Jefcoat 28:27
Yeah, so in terms of getting forecasting and budgeting, right, I mean, just wanna acknowledge is really hard. That’s the, that’s the most difficult part of this for a CFO and for the seller that’s out there. And in terms of technology and tools, I wish I have a silver bullet, I’ll tell you what we’re testing. We’re currently testing fathom, which kind of integrates with QuickBooks Online and Xero. So Fathom is a dashboarding tool and not to get too nerdy about it, but it will at least take a 24 month, trailing revenue and do a regression model that takes into account like seasonality to try to build you out a model for the future. And so we’re like, wow, that’s potentially exciting, because now we’re having to manually build them right now. And that sucks, right? And so everyone else who’s listening to this, if you’ve ever had to build a manual, like, like model, you’re like, wow, that I would love to get those hours of my life back, because that really sucked. And so yeah, that’s David. Yeah.
David 29:15
Yeah. Absolutely. And that’s the one thing that I’ll just share with you how we’ve been doing it, we I like to look at cash coming into the account in that relationship between P&L revenue. So my P&L revenue may be $100,000. But the actual cash coming into my account is $65,000. And so we can forecast out our revenue, and then understand that relationship of what cash is coming into our account. It’s super manual. And that’s like, I find it being the toughest part of my job is this forecasting, you get hit with inventory storage limits you get there’s all these surprises. And it’s like, I don’t have a crystal ball, but I’m going to do my best and and so yeah, I was curious fathom, I’m gonna have to check that one out.
Tyler Jefcoat 30:00
Cool Can I think in terms of and you started the process. So if someone’s starting from scratch, we’re getting into the end of q4, I want to try to do a forecast for next year. The first thing you have to do and something that really your accountant can never do for you is that demand forecast. That’s the thing that you have a better crystal ball than I do, right? You know, what your marketing efforts are going to be? And guess what? You’re not going to be right. But you’re going to be closer than the average bear trying to figure out what do I think my sales will actually be in January, February, March, April, May, June, July, right, like just do the thing and try to decide where volume is going to be. And then a couple of things are actually really helpful from that. One is I by the way, I would be very suspicious of any budget or forecasts, you guys will laugh at this, because we’ve all seen these where it’s you look at the past, and it’s like negative, lose money, low margin, then all of a sudden you hit next month. And it’s this guy couldn’t do anything more to print money, like this business is going to make so much cash every future month ever. Like I can’t believe it. So you want to make sure that you do a BS common sense check of your model. Because your past performance actually is the best predictor of what your profit margins will be in the future, unless you make some major changes. Okay, I’ve done my demand forecast, I think I’m going to do this many units in January, this many units in March. And that means I’m going to have to reorder at these points, or I’m gonna have to spend this money. And then just realize the final thing with this is, if I’m going to grow, I’m going to need more working capital, like I have found very few businesses that can somehow grow a lot and still use the same amount of capital. In other words, and what I mean by that is, if I currently have $100,000 in inventory, and I double my business, probably going to need $200,000 in inventory. And so that’s really helpful to know, because if I’m like, okay, great news, baby, I mean, me going my wife, we’re talking about getting a loan, Hey, sweetheart, this is gonna be great. I’m gonna double the business next year. She’s okay, how many how much louder, we have to get now I can actually tell her right. And she can be like, I don’t know what that $200,000 line of credit. But it’s planned for that in advance. And then the final thing we’ll say about it, because I know you guys have some things to say about too is that in a bearish market, sometimes it might make sense to slow down your growth just a little bit, and prioritize profit margin. And I was on a call with a CFO client yesterday where we talked about this where he’s like, Tyler, I quit my full time job. And I really need to start pulling a little bit of cash out of the business to pay my mortgage. But we’re growing a lot like how much can I afford to pull out? And I said, you actually need to tell your business how much it can afford to grow, because you’ve got to pay your mortgage, right? And so you end up thinking, okay, Mama needs $5,000 a month to pay the mortgage and put shoes on the baby. That means the first $5,000 that come out is going to mama because mama happy everyone’s happy. That leaves me with whatever’s left in the internally generated cash flow the profits from a given month that I could potentially invest in increased inventory. And if you view it that way, you may choose to throttle back it had to prioritize making. And by the way, how would you do that you would just raise your prices, or you would lower your ad budget a little bit, slow down the growth a tad and capture more profit margin.
David 33:07
Very nice. Very nice. You had in that answer? You had talked about your business, and then knowing what your capital needs are. And this dovetails pretty nicely into debt, which is really helpful tool. But as we were experiencing this in our businesses with floating interest rate with floating interest rate lines of credit, we’ve seen our interest expense double since last year. And so it What’s your opinion on a healthy level of debt, whether you’re just just for running this type of business?
Tyler Jefcoat 33:39
I think in general, I agree with you. I think having leverage having debt can really be a powerful tool for growing these kinds of businesses. And they’re a lot more attractive to you and me when the interest rates are what was the Cares Act had 3.75 30 year if you can get that kind of debt, you take it all day, every day, because your ability to make money with that investments, kind of a no brainer. But to your point, David, as the interest rates continue to creep up, and I don’t have a crystal ball here, but I can almost guarantee you, they’re going to creep up more than they even have so far, we’re going to have to be more selective, our costs are actually going up. And it means we have to to our discussion earlier, we’re gonna have to be even a little bit more aggressive, killing bad products. Because here’s the definition of insanity. That same situation we talked about earlier, David, where you just let Sally ride off into the sunset and you sell a few units a day. But what if you’re paying $20,000 a year in interest expense just to keep Sally on the shelf? Because you’re not getting your cash back out of it? Oh, I gotta make sure I’m counting those additional costs and interest expense is one of them. And so, in terms of what’s a healthy ratio, I think a more important question is probably to say, Okay, how much risk can my family whether if we had a disruption in our business, and what I mean by that is, if I’m independently very wealthy, I’ve got a huge 401k My wife has a maybe my wife has a professional job. She’s a physician. Then my ability to carry a lot of aggressive debt on my business is probably okay mortgage is gonna get paid baby’s gonna get fed regardless. But if I if this is my only asset, and if this business goes bankrupt, my entire family is toast, I’m may have to actually choose to be more conservative with my balance sheet. Because the problem with leverage may have heavy if you have debt, if things go bad, they snowball right Amazon shuts you down your supplier had a client a few weeks ago who had a catastrophic quality issue with one container container. 40 foot container comes to the States and has a quality issue that forces them to shut down their hero SKU for about six weeks, we’re talking about an eight figure seller. So this is a $2 million in revenue half a million dollars in free cash flow like problem, it tanked their listing organic ranks so much that they almost have never recovered. And so you think about that business as an eight figure seller with a lot of track record. But he had one major disruption. And he was in trouble. And so what he what we’re working through now is man, we wish that we had a little bit less debt on the balance sheet because now with interest rates rising and our cash flow down, we’re having a hard times servicing or payments.
David 36:14
Got it? Is there when you’re looking at a balance sheet? Is there a metric for instance, I always like to look at my debt level relative to inventory balanced thinking, if shit hits the fan, I can sell out all my inventory and cover my debt. And I’m left with zero liability. Is there any like metrics you’re applying to say you need to lever up or D lever?
Tyler Jefcoat 36:37
Well, I think actually, I think it’s a pretty good what you just said, David is so wise because if you think about it, we don’t have when most of us as sellers are not buying a lot of real estate, you may get a warehouse eventually most of us, we don’t have a whole lot to spend money on except for inventory, let’s be honest, and we’re gonna buy ads, but we tend to buy ads in the same month that Amazon pays us or Shopify pays us. And so I think where you have to be careful is if it’s not what you just described, if you look at your balance sheet, and you have $100,000 in inventory, but you’ve got a million dollars in debt on your balance sheet, that tells me that you’re borrowing money, and not investing it in the inventory that makes you money, you’re either borrowing it to pay yourself or you’re borrowing it to pay a huge staff that you can’t carry. And so I think your point is well taken, maybe that’s a great rule of thumb, if you are close to one inventory to debt ratio, you’re probably okay, because like David said, if shit hits the fan, you can liquidate and you come out clean. If you see that debt to inventory ratio getting really high, like I’ve got a ton of debt, which by the way, normally you see that because you’re not very profitable, like I keep buying inventory, but I’m not actually making a high return on that investment. And so I keep borrowing and robbing Peter to pay Paul and I go to this thing. And eventually, that house of cards can implode? Yeah, that can be something to be careful about. I think in general, by the way, we’re Pooh poohing this, but I’m a big fan of getting debt to build these businesses, this is a great idea. And in fact, when interest rates are, even though they’re climbing, I would rather you take a little bit of extra line of credit right now and make sure you have liquidity than to run out of cash next month, what we’re trying to say is just be a little bit more conservative and with the investments you pick and how quickly you run close to red line. Because if you run it red line, eventually you’re gonna hit a disruption, quality issue container gets stuck in a port, and you’re gonna end up crashing the ship and you don’t want to do that.
Ken 38:25
Yeah, that’s really good. All right, so last question here, the hardest one, maybe not. So we’re gonna ask Tyler to get out to crystal ball. So like the kind of the theme of the podcast was like, next, we’re out of the frothy stage we’re in to kind of operating lean. And so over the next 12 to 18 months, what is your advice to sellers? What are like maybe the top two or three things to focus on to whether this
Tyler Jefcoat 38:46
the things we’ve talked about are good, be profitable, make sure you have enough cash. But guys, I suppose say this is a reversion to common sense. Like three years to three years ago, the aggregators, we’re paying such high multiples, for an Amazon only business with five hero skews. No people no complexity, no IP, no, nothing, that we were lulled into kind of a false sense of maybe that’s just the right way to run a business. It’s to keep it as simple and straightforward as possible. And that, in a lot of ways is still good, simple as good. But now it’s time to your question or can now it’s time to invest. Can I do anything to own more of the relationship with my customers? Can I do anything to do more discovery to understand what she cares about so that if I was going to reengineer my products, I do it in a way that really meets her needs better? Now’s the time if you have a lot of cash to maybe invest in a secondary sales channel where Okay, the aggregators were paying irrational valuations for a one channel business that was, frankly, objectively pretty risky. Right now that they’re not doing that. Okay, cool. Let me go ahead and try to build an organization if I’m going to really build a company or let me try to expand to another market. i By the way, I say that with a small caveat. Don’t shotgun approach this there’s nothing worse than half assing Three new sales channels. Pick one, do your research. If it’s the UK go all in with the UK with Amazon. If it’s Canada, Go Canada. If it’s Shopify, get ready to spend some money buying influencers and buying those Facebook and Google ads. In other words, don’t show up unprepared to make the investments. But if you have the liquidity right now, now’s the time to place those bets that if they work out, we’ll get you that premium valuation in three years when it’s a better time to sell.
David 40:27
So Ken, what he’s saying is going after UK, Germany, Canada and Walmart, in the same year is going to cause stress, which is what we’re feeling right now, man. Yeah, no, that’s that is really good advice. I like that. And Tyler before we get to the fire round, can you talk about seller accountant and what services your company offers that may be helpful to our listeners?
- Hardcover Book
- Cagan CPA, Michele (Author)
- English (Publication Language)
Tyler Jefcoat 40:48
Thank you. It’s a really by the way guys, I really appreciate you having me on the show today. Seller account is not flashy, we do bookkeeping, we do fractional CFO for E commerce sellers. So that’s our entire business. I also have a podcast return on podcast that’s more of the finance strategy side of this. That’s a way to hear about us. But yeah, if you guys need help with bookkeeping, or with getting more profitable, we might be a good partner
David 41:10
for you. Sounds good. And what about sellers roundtable?
Tyler Jefcoat 41:14
Yes, I do lead this is by the way, this is a funny thing I’m getting sellers roundtable is a mastermind for seven and eight figure ecommerce sellers that I lead. And it’s been amazing because it’s this great close knit group. But damn it is not a business boys I feel I feel and feel great saying this, there’s 15 of us in the group. And it’s a waiting list kind of thing now. So at some point, maybe I’ll turn this into some of these guys like whatever, Andrew and some of the guys that have turned these into great businesses. For me, it’s an intimate kind of Board of Directors kind of group. And if you’re not in a mastermind, find one doesn’t need to be mine, but find one where you can get accountability and counsel. And if you want to get on our waiting list for when a slot opens up, feel free to reach out we do the hopefully they’re like happy kind of marriage of what’s the latest greatest with an Amazon business coupled with how do we implement traction? How do we drive execution in our organizations? How do we become better leaders? How do we become better husbands and wives like it’s a little bit more holistic becoming a CEO Plus, we’re all Amazon sellers that deal with the same FBA issues and stuff like that.
David 42:13
Very nice. Very nice. All right, Ken, over to you for the fire round.
Ken 42:18
Actually, taller. You
Tyler Jefcoat 42:19
ready? I’m ready. All right. What’s your favorite book? Okay, so the Eos, the EOS traction book by Gina Whitman is currently my favorite business book, love it. I just reread it finally hired a coach to help me and was worse at it than I thought it was retraction. And then on a personal level, Amazon had the new Rings of Power Lord of the Rings series, and we just frickin ate it up. I love it. So I’m rereading The Lord of the Rings right now talk about the three layers of nerd there. We’re going to talk about accounting, attraction EOS and Lord of the frickin rings. But yeah, I’m reading right now.
Ken 42:51
Awesome. I love it.
Tyler Jefcoat 42:52
What are your hobbies? Okay, so recently, I love anything that combines math, strategy and competition. And so Texas Hold’em, and chess are my two jams right now. So I am playing a little play a little chess on chess.com. I’m going to a conference here in a couple of weeks where I’m going to go a day early to Vegas and get my ass kicked in Texas Hold’em tournament, because I got to know for sure that I shouldn’t be a pro poker player, my $150 is gone. I’m going to go and say that, but it’ll be a lot of fun. So that’s what I’m getting into right now.
Ken 43:21
That’s awesome. I like how you’re, you’re dipping the toe in the water and checking it out. I think that’s that that shows a lot. So that’s awesome. I wish you luck on that. I’m not going to Texas hold the middle. What is one thing that you do not miss about working for the man?
Tyler Jefcoat 43:35
The political meetings, man, we had so many meetings where it was a middle manager choosing another Middle managers as I was that lower middle manager getting the attitude for not presenting the presentation in a way that made the guy look great in front of the executives. And so the fact that you can be in a small business and cut through the BS and politics of man, I don’t miss that at all.
Ken 43:56
Yeah, absolutely. Yeah. I’m looking forward to the insight onto this one because you work with so many ecommerce entrepreneurs. So what do you think sets apart successful e commerce entrepreneurs from those who give up fail or never get started?
Tyler Jefcoat 44:09
I really chewed on this question because I love this question. And I think the most successful entrepreneurs in any industry have a growth mindset. They’re gritty. And they demonstrate that grit and Growth Mindset by joining some kind of a peer group or coaching group. There’s a reason that LeBron James spends like half a million dollars a year on coaches and people to take care of his body because his body is a machine. That’s how he makes his money. Tiger Woods doesn’t necessarily pay to go to a country club because he’s famous and a little play. But he’s pays a lot of money for coaches to make his Swing Better. And my point is, is if you want to be a successful CEO, you’ll find a mastermind it’s funny we mentioned Teletraan and we we may have a spot for you right now but find a spot where you can be humble and get in front of people who will call you out ahead. I had friends on my mastermind the other day just completely call me to task they’re like, bro, you’re believing your own bullshit that area that’s an area where you’re blind and I was so pissed off But them can. And then I went home and I was like, dammit, they’re right. I’ve got to change the way I’m thinking about it. And thank God because it keeps me from making a really major disastrous decision. And so I think just being humble enough to surround yourself with people who will call you out is really a crucial part of being successful.
Ken 45:15
Yeah, excellent answer. I 100%. Agree. David, over to you to close off the show.
David 45:20
You absolutely Tyler want to thank you for being a guest on the Firing the Man podcast and looking forward to staying in touch. Always good to talk to somebody in the industry and your perspective is very valuable. We we really appreciate it.
Tyler Jefcoat 45:32
So thank you, David. Ken’s been a pleasure. Thanks for having me.
David 45:36
Thank you everyone for tuning in to today’s Firing the Man podcast. If you liked this episode, head on over to firingtheman.com And check out our resource library for exclusive Firing the Man discounts on popular e commerce subscription services that is firingtheman.com backslash resource, you can also find a comprehensive library of over 50 books that Ken and I have read in the last few years that have made a meaningful impact on our business, or that head on over to www.firingtheman.com/library Lastly, check us out on social media at Firing the Man in on YouTube at Firing the Man for exclusive content. This is David Schomer and Ken Wilson, we’re out
before you go fun fact for all you Amazon sellers out there when you start selling in international marketplaces, all of your reviews come with you. At the beginning of this year, Ken and I sat down and talked of ways that we could double our businesses in size and landed on international expansion as our number one initiative this year. We partnered up with Kevin Sanderson from maximizing ecommerce and he has made the process an absolute breeze walking us step by step through the process. If you want to grow your revenue and reach new customers head on over to https://maximizingecommerce.com/fire and connect with Kevin Sanderson today. Now back to the show.