241. Holiday Cash Flow Strategies with Brad Ebenhoeh of BELAY

0:01Brad Ebenhoeh:Welcome to Startup to Scale, a podcast by FoodBevy. I'm your host, Jordan Buckner. Join me as I talk to aspiring entrepreneurs, seasoned industry experts, and everyone in between as we unlock the keys to growing from startup to scale.

0:18Brad Ebenhoeh:Welcome back to Startup to Scale, where I'm going to be diving into strategies and lessons that help founders grow smarter and faster. Today, I am joined by frequent podcast guest Evan Ho, who's with Belay, a company formerly known as Accountfully. And Brad is a frequent podcast guest and a trusted voice in the CPG community. So we're going to be talking today all around holiday season, right? With it being just around the corner, I want to tackle one of the most important topics, which is planning for Black Friday and Q4. and especially covering how to make money during this period and not lose a bunch of money when it comes to heavy promotions.

0:58Brad Ebenhoeh:Cash flow is another big issue that comes up in this time. And so we want to make sure you are not overspending on inventory and overspending on promotional costs so that you can actually have a successful season. Brad, welcome today. Thanks, Jordan. Excited to chat about this exciting topic. I can't believe we are almost two months from Black Friday. Two months from Black Friday. and I can tell you there's some brands who like have had things dialed in for eight months now and they're like, all right, we already know what things are going on in a new year. Other brands listening are like, oh crap, Black Friday's two months away, what are we doing?

1:33Brad Ebenhoeh:And I think for both is really understanding, right? Like how to have some control and strategy for this period and not let it take over. And so, you know, I'd love to hear from your perspective, like brands that you've worked with on the accounting side, Like what is Black Friday, how they season usually look like from a financial standpoint? Yeah, well, there's typically a lot of inflows of money, right? Like on that day, like, oh, look at the deposits. Look at where we're at. Look at all the sales. Look at everything. But again, back to your point, a lot of times that may not tell the full the full picture.

2:04Right. So I think clearly planning for heavy consumer demand times like, you know, Black Friday, like the end of the year. clearly that's awesome for any cpg direct consumer brand or anything like that because people are buying more so on q4 than than other times of the year but i think a big part to place to start at it is understanding and we talk about this all the time understanding your numbers by sales channel right to understand how much wiggle room you have with discounting and everything that kind of comes into play and so when i say knowing your numbers by sales channel I mean, with direct to consumer on your website via Shopify, what is your basically, what is your landed cost?

2:43What is your gross margin? What are your fulfillment costs, right? What is your contribution margin? What is your typical kind of advertising marketing spend, the average order volume? You need to know all that. Same thing on Amazon, everything like that because they all have different unit economics. So if you know that very precise and tuned in, then you're able to kind of tweak a little bit more or have more confidence in discounting to sell more, to get more in the hands of your customers.

3:06Brad Ebenhoeh:Yeah, I think those are huge. And I think those channel dynamics are so important. And I also love going into it with a particular goal. Like a lot, everyone wants to sell more product, but are you looking to acquire new customers to your brand who might have high frequency throughout the year? You might be willing to even break even or lose a little bit of money if you know that your lifetime value is four times that. If customers are buying primarily in holiday or once or twice a year for your type of product, then you need to make money on that sale. Otherwise, you're not going to get that back, right?

3:42100%, 100%. So yes, it really is a strategic understanding of what's going on, right? Because to your point, if you're trying to acquire a new customer, you're willing to kind of break even or lose a little bit on that. That's great, but then guess what? As soon as you sell them, then on that email, the next purchase, hey, you get 10 % off. So you know what the follow-up numbers are. So you start getting that customer bought in, but then at some point you're getting profitable with them and then they keep, you know, maybe they sign up for a monthly subscription. Cool. Great. Now I'm making this much money on that customer every month going forward.

4:11Right. So if that's the plan, great. But if you're, this is your one time of year where you're actually going to be profitable and make money to support the operations, let's say for key one, maybe your product for some reason, a key one isn't, let's say for example, you're a, I don't know, you make Christmas ornaments, right?

4:26Brad Ebenhoeh:Or Christmas cookie mixes or anything. Correct. Q1, it's going to be slow. Like, let's go make it happen and get everything in place to be profitable in Q4, right? Because that's going to really, you know, impact materially the entire year. You mentioned land at costs. One of the things I'm guilty of, I know a lot of other founders has been calculating COGS maybe one time or once a year and using those numbers to calculate profitability going into the new season. And so how do you recommend founders actually like what numbers should they go back and update and look at to make sure they understand all the landed costs because costs are always changing?

5:04Yeah. Yeah. So clearly it really matters if costs, if your costs are changing, right? So if you do a deep dive analysis in Q1 of this year and literally you're like, look, I'm still paying the exact same costs for my raw materials, my packaging, et cetera. Great, right? You may not need to do a deep dive, but you have fluctuating and fluctuation in costs. You're impacted by the tariffs. You're importing products. So some of those POs you're getting may be more expensive because they're on a airplane versus a boat. Then you need to recalculate all that and allocate all of those costs to the POs that you're receiving in those products, right?

5:37Having really good, accurate and precise landed cost numbers really helps you with everything we're talking about here, right? Landed cost numbers, then you understand all the cost of fulfilling in order for those products, right? By SKU, once you figure that out and then you figure out your advertising numbers, you can back into kind of where you're at from an actual, like, to try to be cash positive on all these items.

6:01Brad Ebenhoeh:And here's where I think a lot of founders get tripped up on this. And we've talked about this before on the podcast, the difference between like FP &A, financial plan analysis and accounting. So there's a lot of founders who like to look at maybe their QuickBooks or look at the report from their accountant, but that doesn't really show the full picture of some of these like landed costs by order by sales channel, right? Like the accounting software doesn't always break that down. So building out those reports like outside of that, which is probably a little manual. Is that right? Like is the best way just basically in spreadsheet or Excel and inputting all that?

6:37Yeah, yeah. Typically, unless you're using like an inventory management system, you know, that has that detailed information that you can pull from. At the end of the day, though, it is funny because everything, like as much as the detail you have in QuickBooks or even an inventory system like SIN 7 or whatever, a lot of times you literally have Google Sheets or Excel up doing numbers and calculations and modeling, right? That's just kind of the day-to-day where we're at to figure that out. So yes, projecting that and putting that into place. Clearly, some of these platforms that you have in place, like if you use an inventory system with some of their AI tools and forecasting.

7:08There's a lot more kind of automation and leverage you can get from them. You just need to know what they're doing, what information they're building on. Is the actual baseline information accurate, right? Is that data that's in there accurate? Then you can make much better decisions and then have that precise information.

7:23Brad Ebenhoeh:How should brands approach forecasting demand for Black Friday and holiday promotions without overextending on inventory? Great question. There's so many variables that come into play here, right? Because you have the basic or the tenant kind of core variables of inventory ordering, right? Like, hey, what are my lead times, my reorder points, the order quantities or minimum reorder quantities from the vendors, the safety stock in case things delay or whatever. So you have to have all that in place already for each product or each raw material, whatever, right? But then as you get towards Black Friday or these events where you have kind and more, you know, higher, expected higher velocity, expected higher, you know, turn, how much more do I order, right?

8:05So then it goes into fact, number one, cash. Do you have the cash to support this? So one thing is some of these suppliers may even, you know, give you a discount on some of these products because you maybe you're buying more to support that year-end sales. Well, guess what? If you get a point or two or three, two and a half points off of a product to buy, then guess what? That could even, you know, correlate to your discounting, So you have to kind of understand what that looks like. But figuring out if you can get any discounts from them. A big decision you also need to make is, not a decision, but are my suppliers and my commands, are they reliable?

8:36Are they going to be able to provide me this information? The numbers, when I order 100 SKUs, do they always only give me 80 SKUs because something happens? You need to factor in kind of that unknown variable that comes into play. Do you have a warehouse and place to store this product if you have a ton of product? That kind of comes into play there as well. And then I think, you know, lastly, if you order a bunch and you expect this part to sell on Black Friday, it doesn't. What's your plan? Right. So you've got to have a plan as well. If it's like, hey, let's try to hit this out of the park.

9:07But if it doesn't, then what is our plan to get rid of this product? If it is CPG, typically there's shelf life. Right. So like there's shelf life. So it's there's a lot of factors that come into play. This is why inventory is so complex for a business and having a really focused approach and have as much information on hand to help make those decisions, whether it's landed costs, inventory quantities, all the variables from a purchasing variable I talked about, as well as like consumer sales price. Like what do we what's our go to market strategy from a marketing standpoint, sales standpoint, etc.

9:36It all needs to be kind of integrated strategically. Yeah.

9:39Brad Ebenhoeh:And I see, you know, I think what's so wild is that like, depending on any like new channels that you're on or new products that you're launching, like sales swings can be so great during this time, right? It's not a exponential, even linear look at last year. And I'm like, all right, last year we sold this much, we can make do 10 % more this year. I think brands have to understand those two sides of would I rather sell out of product and have customers you can't buy or have more product than needed and have the to get rid of that maybe through liquidation or elsewhere. It probably depends on like cash for your business and what your what your goals are within there.

10:18right yeah 100 and i mean sometimes it's i think you know this comes from me even i'm an accountant man but an entrepreneur but i'm still like a little conservative it's like well do we shoot over the moon and have to liquidate or do we maybe conserve it a little bit and this is again just my perspective then just don't discount as much right like just provide a good opportunity or a good product but maybe not discount as much to try to sell everything right so you know it's a very interesting conversation and it all depends upon and I don't think anything any decision ever is right it's just the situation where you're at what you're selling your current cash position your current company position right is this the last ditch effort to kind of turn things around because you've had a struggle the last 9 12 18 months well then maybe you're going to shoot for the moon right and then you try to figure out if you can do that yeah I think there's two other

11:07Brad Ebenhoeh:things I was just talking to um another one of my friends Allie Ball on a podcast and talking through like is your product a q4 product or not right and it's like if you are selling maybe like smoothie mixes in the frozen sector maybe like a freeze-dried one like yes people still might have a smoothie if it's part of their workout routine in the fall but people are thinking cookies all day dinners family get-togethers gatherings and like your product might not be like the thing that's top of mind for people so it could not be worth investing in lots of extra inventory and promotions for something you have to almost like pay people to buy because they're not paying for it versus something that's like in demand that people are searching for specifically for that season and they're going to buy something whether it's your product or a competitor.

11:53100 % and it's funny I was that brought me up back even to like this is kind of off topic a little bit but matching expenses to your seasonality right so essentially for example a big expense throughout the year or like a big annual expense for small businesses is insurance expense right Right. So Matt, if you are a Q4 product or that's your kind of highest time when people buy, have your big, you know, expenses come in January. Right. Because then you should have sufficient cash versus doing it in summertime versus if you're selling ice cream and ice cream shop. Don't have your big expenses come out December or January when you're going to have your lowest sales.

12:31Right. So it even kind of goes very similar to that as you need to understand your business and the variability of the ups and downs. What's your product market fit, if there is any seasonality that comes into play there?

12:42Brad Ebenhoeh:And you're talking through just like those annual maybe business expenses or contracts with vendors or things like that that you want to like space out at different times of the year? Yeah. Thinking about like when you're saying those big costs, you don't want those to hit at one time. I mean, you're thinking like the like maybe software or insurance costs and maybe it's due one time a year working with them and saying, hey, can you charge this in a cash flow like strong period versus a cash flow week period? Correct. Correct. How do I do that? Or even if you have to like change the premium dates, renewal dates, or even if you're like, hey, I'm going to like kind of pay for this monthly and then you're five months in and then you maybe pay the last seven months in bulk in January.

13:20Right. So it's just it's managing your cash. It goes back down to managing cash when you need to kind of manage cash. It's easier to kind of manage things, especially if you have a lot of variability in what's in your bank account.

13:31Brad Ebenhoeh:Yeah, let's talk a little bit about like cash flow within there. Because I know it can be a huge stressor. What are some of the strategies to ensure that brands don't run dry during those heavy promotion months? It's planning your entire year on that. So if you are a Q4 brand and you're like, hey, you know, November, December is where I'm going to have 40 % of my revenues for the year in those two months. then everything should be mapped around that, right? You should be planning cash outflows, buying inventory in preparation for that. And you should have a plan of, hey, I need to earmark or set aside X number of cash a month or a week throughout the other times of the year to save for that in order to have an, you know, to buy inventories at this date, or I need to make sure my credit card balances at a zero because I need to use it, right?

14:15So number one, it's having a plan and understanding what your annual kind of cash flow cycle is. That's number one. Number two is always say this, go back to it is when you don't need cash and don't need money is when you actually need to go out and look for a loan, line of credit, credit cards, et cetera, that you can use. Right. So the financers, the bankers, they're going to basically not provide you money like when your last ditch effort to do something. Right. And when you're desperate, because then they're or if they do something desperate, you're going to get a high interest rate. But but a lot of times, you know, they're conservative in nature, so they're not going to like lend to you or whatever.

14:50But if you're looking good and let's say you have a killer Q4, get your financials done, get your taxes done, Q1, get out to the bank and try to get a line of credit immediately that then helps support this. So it's being proactive. It's literally having a plan in place, being proactive, managing cash week over week, having a 13-week rolling cash flow that you see every week to understand where, like, what is my cash going to be at the end of this 13 weeks based upon actual expenses and estimated revenues and update that each week, right? So it's having just that consistent visibility to it is going to really help out into that and then make sure clearly your inventory costs are accurate, just costs are accurate, everything to map into there and then understand your terms.

15:28Right. So even outside of that, you know, especially for the suppliers or co-men or people that you all are working with, let's go at them and see if you can have terms extended or whatever. Right. Or, hey, can we extend terms to 120 days? And if I pay you at 90, I'll give you a percent off or something or excuse me, I'll pay you an extra percent or, you know, whatever. Negotiate with them in some capacity to see if, you know, you can help out. And it doesn't hurt to ask, especially for those relationships that you have a long term situation with them.

15:54Brad Ebenhoeh:Yeah, I love that whole point around negotiating doing the strong points of your business. I think, like you just said, right, like with ingredient suppliers, if you had a great key for whatever that time period is in the year for you, like that's a time to say like, hey, look, we're buying more than we've ever done before. We're spending more money with you. Can we extend our terms because of this growth? Right. And they're like, your orders are getting bigger instead of decreasing or staying the same. Like, yes, that's the partnership we want to invest in. and like lines of credits is for most of them almost all right like typically you only pay against the line on money that you've drawn from it and so even if you get it in January but don't really use it until August September right you're getting the best rates without paying any of the fees correct and it even goes down to you know having in case you need to run something for payroll or you know a customer pays you like it's just good to have and I know it's it's hard for a brand new company to get it.

16:49But it's the point of building up to that point, right in being a professional business. And after you get to year one, then year two, what are my improvement points? Do I know my numbers? Do I go and make a relationship with a local banker, or maybe a local bank, a regional banker going to just go bank with Chase and expect them to do something, go to a local bank or shake some hands and try to figure out what you can do and how you can get something. Listen to these podcasts. You know, Keith Kohler had a great podcast last weekend, just kind of with somebody else on, you know, just kind of the market and numbers and financing.

17:19Like understand the full spectrum and make yourself smarter to help you make better decisions. And then use partners and consultants and advisors that can help you out.

17:29Brad Ebenhoeh:Any other opportunities or pitfalls that you've seen for brands who do Q4 really well that you recommend people look into or emulate or any other kind of thoughts or strategies? I mean, the rest of the stuff is more on like the marketing side and how they do that, which is not my my expertise. Mine is more on the accounting, finance, cash inventory, which I think we talked about in general. It's just being proactive and being professional and getting being strategic and executing week over week on your business. It's going to set you up for the most success for me for a Q4. And get planning now if you haven't already.

18:05Brad Ebenhoeh:And I always tell brands too great. Like if things don't feel right, if you're maybe going to transition your brands, you don't feel like you have to force in Q4 sales. If that's just going to distract you or cause other headache. I know I've been guilty of last minute planning, setting off all these ads and trying to do a discount, some last minute email marketing and generating just like a handful of sales. I was like, it probably would have been worthwhile to step back, think strategically about Q1, right? The beginning of the next year to do it. And I think that's the other thing. I think a lot of better for you brands that actually see a lot of growth in January, February, if you are taking advantage of the new year, new you kind of vibes and maybe planning for that as your one of your big times of the year.

18:48Brad Ebenhoeh:I 100 % agree. Awesome. Brad, thanks so much for being on today. As always, if you are looking for help with your accounting and especially from someone who really understands CPG, get in touch with Brad and the Blay team to help your brand. Thanks so much. Thanks, Jordan. You rock.