Counter-intuitive financial truths you can use today.
Using accounting as a useful business tool is harder than it sounds. Most of us don't really know what we should be looking at or how to interpret it.
In today's episode, you'll learn some counter-intuitive wisdom and financial truths you can start using immediately to accelerate you light years ahead of the competition.
Key Takeaways:
Our guest today is Jason Andrew, a chartered accountant, founder, and business advisor to high-growth businesses. His accounting firm, SBO.Financial, focuses on helping Ecommerce businesses with their numbers, ranging from bookkeeping and financial control to profit and cash flow maximisation strategies.
In 2019, Jason published an entrepreneurial accounting book, Stark Naked Numbers, which he describes as "the 4-hour work week of business finance."
Kurt Elster: Revenue is a vanity metric. That’s what our guest today hooked me with in an email when he reached out and said, “I would love to teach your listeners something new. I would love to teach them the essential financial metrics that every eCom founder,” that’s you, dear audience, “and manager should understand.” And we’ve had requests for discussing financial and bookkeeping topics in the past. We’ve recorded a little bit, but I think this episode is the one where we’re gonna nail it, because our guest today, Jason Andrew, has such a straightforward, and refreshing, and original, and a little funny approach to dealing with bookkeeping and accounting, because he’s got quite a bit of experience directly in helping eCommerce businesses with their numbers. Whether that’s bookkeeping, or financial control, or profit and cashflow maximization strategies.
And he’s the author of an entrepreneurial accounting book called Stark Naked Numbers, that has been called The 4-Hour Workweek of finance and business. That is high praise. Jason, thank you for joining us. Let’s start with… Tell me a little bit about your accounting firm, SBO Financial. Well, you get the plug in right there, and I also want to know, make the case for why we should listen to you.
Jason Andrew: Great. Well, firstly, thanks for letting me be a guest on the podcast, Kurt. So, SBO Financial, we’re an accounting firm, so I’m a chartered accountant based in Australia. A chartered accountant is equivalent of like a CPA in the US. So, what we do is we’re an accounting business or accounting firm, but we don’t do any taxes, okay? So, you’re probably out on a Sunday barbecue with your friends, when I mention to people that I’m an accountant, people think, “Oh, yeah, I haven’t done my tax return for like two years. Blah, blah, blah.” It’s like, “I haven’t done a tax return in about seven years. It’s okay.”
What we do in SBO is focus on the stuff that actually keeps you in business, and so that ranges from number one, getting on top of your numbers. Really understanding what your profit margins are, understanding what your balance sheet looks like, and offering tactics and strategies on how to maximize your cashflow and the profit in your business. So, that’s what the accounting firm does, so we work a lot with Shopify merchants globally, also agencies and tech startups. In terms of… sorry.
Kurt Elster: Yeah, go ahead.
Jason Andrew: So, in terms of why you should listen to me, now is more… If you’re not into your numbers right now in this economic environment, if you’re not looking at it, paying attention to the cashflow, or the profit margins, you’re going to be out of business, to be frank. You need to be on top of the numbers, especially in this environment, because as we know, cash is king. You need to be on top of them so you can… Yeah, just keep going and surviving so you can skate out the other side and really take advantage of the cycle when it turns in the future.
Kurt Elster: And especially in eCommerce, where cashflow is particularly problematic, because you have to… You’re holding onto inventory, which is a liability. But you gotta sell it, but you have to have the inventory on hand to sell, but then we also need to be putting cashflow toward purchasing new inventory down the road. In all businesses, bookkeeping, cashflow accounting is important. I think for eCommerce especially, unless you’re one of the lucky few who does mostly digital downloads or purely reselling, if you are manufacturing your own stuff, buying, and stocking your own inventory, it becomes especially important to your business.
And if you’re ignoring it, then it becomes this tremendous… It can become this tremendous liability very quickly. I want to know one thing. It’s interesting that you are an accountant who focuses on eCommerce businesses specifically. What drew you to that? How did you end up niching down on eCommerce?
Jason Andrew: eCommerce is a really interesting space for us as accountants, because we’re typically dealing with merchants or businesses who are doing a lot of volume, okay? So, you’re doing up to… Some of our clients do up to $100 million of revenue, and what’s fun about eCom businesses is that there are so many levers to tinker with, right? So, to look at maximizing profit, all you need to do… It’s amazing how many small adjustments you can make to your pricing, or volume, or AOV, or adjustments to your cash conversion cycle, how you can really make really small tweaks to the business and have dramatic, absolutely dramatic results to the bottom line and your cash at bank positions.
And so, I think because there’s so many nuances and so many levers within the eCommerce business model, it’s just a really fun business model to play in, and has been really fun to tinker with and work with our clients, just because of the sheer size and the sheer volumes of what these companies do.
Kurt Elster: Yeah. 10 years ago, we were still doing WordPress development, and like really whatever web development I could get to keep the lights on. But the thing that drew me to eCommerce and eventually lead to us niching down exclusively on Shopify is exactly what you said. And for me it was like, okay, design became suddenly way less subjective when it was in service of these key performance indicators. And then they could have… These design changes could have dramatic effects on revenue because of that multiplying force of visitor, times conversion rate, times average order value, and then return customer rate gets involved, because it was absolutely fascinating and tickled the OCD business designer Venn diagram overlap in my brain.
So-
Jason Andrew: Yeah. 100% agree. I mean, all you need to do is put your business through it into a financial model, and really start to get granular with the levers and playing with the inputs, and you can really see how small, how big lever changes can make to your company. It’s really fun.
Kurt Elster: If I had to guess, I would think you have a spreadsheet saved maybe in Google Sheets where you have your models and you could plug in someone’s key performance indicators and look at it and very quickly go, “Okay, well, this is the one that’s gonna have the dramatic impact. This is what you should shoot for. This is what you should change.” Am I right?
Jason Andrew: So, I look at accounts in the same way that a digital marketer would look at Google Analytics, or a Shopify Plus account. So, that’s how I look at numbers, so typically, you’re 100%... So, to answer your question, yes. We have software which plugs in and helps us do back of the envelope economics, basically for us to get a very fast gauge of the financial performance and financial health of the company, but then yes, there are spreadsheets that we have in the background which help us easily tinker with certain assumptions to understand at a quick level or quick glance how we can really help improve the financial performance of a business. With very little effort, to be honest.
In a lot of cases, it’s some of these small, minor tweaks which again, as I said before, have massive results, but are not a huge [inaudible 0:07:10.1] at all.
Kurt Elster: I knew it. So, at the top of the show, I opened with this wonderful quote. Revenue is a vanity metric. And that resonated with me because I spend too much time on Twitter, and eCom, DTC Twitter, that’s a sticking point for a lot of people. Especially the Facebook marketing guys, where people share these incredible revenue numbers and they go, “Yeah, but who cares?” So, tell me why revenue is a vanity metric.
Jason Andrew: Okay, so a dollar is a dollar, right? So, one dollar of sales is the same in comparison to another. Most people would think that from face value, but to be honest, that’s a lie. Because not all revenue dollars are created equal, but all gross profit dollars are, okay? So, when I refer to gross profit dollars, that takes account to your revenue. It also factors the cost of goods that you’re selling. So, the truth is is that every business will have varying gross profit margins, and some will be higher than others, and typically for B2C eCommerce businesses, gross profit dollars, or gross profit margins after returns, shipping, freight, all of the above, and then the product itself, generally sit between 40 to 50% of sales, right? That’s a standard gross profit margin for a business.
Now, compare that to a SaaS company, like a software business which is kind of out of the realm of eCommerce altogether, they have gross profit margins of like 80 or 90%. Very, very different unit economics altogether. And so, to compare every business by their revenue is just completely wrong. And as I said before, it’s a vanity metric. I’ll use a different example. If I buy a product for $50 from my supplier in China, and I sell it to the market for $40, I can tell the world that yeah, I’m making a crapload of sales, because hey, I’m selling all these products, but I’m losing $10 on every sale. I have a negative gross profit margin. But it just doesn’t work like that, right? You actually have a terrible business model because you’re losing $10 on every sale that you make. It’s a bad business. It just doesn’t work.
And so, a lot of people I talk with, they think, “Oh, I’ve got this really low margin product. The objective here is to own the market. We’re gonna discount and we’re going to make our price point really low, because we’re gonna make up our losses with volume.” And my message to them is like, “Well, it just doesn’t work like that.” If you’re making negative gross margins, you can’t make losses up with volume. It just doesn’t work like that.
Kurt Elster: Yeah, they compound.
Jason Andrew: Yeah. Exactly. It makes it worse, right? And then we end up with companies like the Ubers of the world, or the Caspers of the world where they’re broken business models, quite frankly, and so it really requires everyone, particular in B2C eCommerce, where the economics are pretty straightforward. You can just sit down and do a back of the envelope kind of unit economics project and work out, “Well, what’s my product need to sell for? What’s my budgeted discount rate? What’s my return rate? What’s the cost of my sale?” And work out pretty quickly what profit you need to be making on each sale for you to be in business.
Kurt Elster: So, if revenue is a vanity metric, what are the big mistakes you see eCom founders making when they are looking at, analyzing, or just in general with their finances? Because I 100% agree with you on revenue being a vanity metric.
Jason Andrew: When I talk to a lot of founders who are probably not engaged in the numbers in the way that I think they should be, I generally ask them, the first question is, “So, what do you look at to help you understand the success of your business?” And nine times out of 10 they say that I look at my Shopify account, that tells me my sales, my AOV and that sort of stuff, and then they’ll talk, and I’ll say, “Well, what about the finances?” And they say, “I look at my bank account.” So, they’ll log into a bank account every day and they look at their cash at bank. Right?
Yes, I understand why people kind of rely on those two sources, because they are a source of truth for a lot of people, but the truth is that that is actually a really bad way of running your business, right? I’ll explain why. So, we already established that number one, revenue is a vanity metric, so looking at your Shopify account is not actually gonna tell you anything about your profit margins or your cashflow. It just tells you how many sales you made. And to be honest, even some people are actually relying on the gross profit margin reports within the Shopify account, which are actually wrong, because they’re not integrated to any accounting system or 3PLs, right?
So, the gross profit margin data in your Shopify account is actually not correct a lot of the time, and usually how that-
Kurt Elster: Yeah, isn’t it-
Jason Andrew: … actually gets in there, people just key it in at the beginning of the setup.
Kurt Elster: Yeah. I have yet to actually rely on or use that profit metric in Shopify analytics, truthfully, because I-
Jason Andrew: Yeah, and you shouldn’t.
Kurt Elster: I’m not the one who set it up, so I really… I have no way of knowing if it’s at all useful or trustworthy, because it’s literally, all right, you’ve got your sale price on every one of your products, your variants, whatever it is, and you also then have cost of goods sold you type in there, and then that’s it. And like, what are the chances that anyone actually maintains this thing over time? So, like okay, it’s a benchmark or a guideline, but I have yet to actually pay attention to it for the reasons you outlined.
Jason Andrew: Yeah. It’s wrong. It’s wrong all the time, right? And as you know, your product mix changes, your cost of sales changes, that cost of sales, whoever input that information there in the first place didn’t factor any 3PL costs, so it’s not even real. So, people looking at that information, which is wrong altogether, and then the other part is that they look at their bank account. So, look at… Okay, well, I have X amount of cash in the bank. Well, that’s nice, but that cash isn’t yours. It’s your supplier’s that you owe money for, it’s probably you owe money to the IRS, or the tax office for sales tax, et cetera, so looking at your bank balance and looking a Shopify reports is not a good way to run the finance function of your business. You need to have an accounting system, right? So, whether that’s a QuickBooks, or a Xero, you need to have a system, because your accounting system should be the source of truth, and that should be exactly where all the back end data of your finance function should sit, and you should be looking at these reports more frequently, I think, than your Shopify reports, to be honest.
Kurt Elster: And when you say you should be looking at these reports, what reports should I be looking at? Like I use Bench, but I’m running an agency, and we also have apps, it’s very different than what an eCommerce merchant has to deal with, and much simpler. And even then, I still can get overwhelmed trying to find what I’m looking for. And that’s with Bench, which is really simple relative to a QuickBooks, which his a more advanced tool.
So, what reports would you recommend if I’m an eCom merchant I should be looking at?
Jason Andrew: Yeah, so what I would recommend is rather than looking, thinking about rather than looking at just reports as a catch all, because you can tailor reports in any way that you want, I find that maybe talking about presenting financial metrics rather than reports is a better way of conveying information. Because numbers do tell a story, right? And if you don’t know, a lot of people, a lot of founders find accounting and financial statements very confusing. No one ever taught us how to read a balance sheet at school, or maybe at the start the business. Most of my clients still don’t know how to understand a balance sheet. That’s okay, because I’m not there to teach them how to read a balance sheet. My role is to teach them how to understand their numbers, okay?
So, what we do is rather instead of overwhelm people with reports, we try to basically deal with very simple dashboards, and just outlining key financial metrics. And so, the financial metrics that I encourage everyone in this call or everyone that’s listening to be measuring with a hawk eye for the eCommerce business are the following. There’s five key metrics. So, the first one we spoke about was gross profit margin, so gross profit dollars and gross profit margins. This is more important than your revenue, okay? As we said once before, gross profit dollars are the things that will keep you in business. Revenue is a vanity metric. Okay? So, margins and dollars for gross profit is the first one.
The other two, which are the hidden metrics of profitability or hidden killers of profitability are return rates and discounting, right? I hate discounting as a customer acquisition tool or a tactic. Others, like growth marketers like to use it as a lever to get customers in, and yeah, and just continue to again, make top line sales, but don’t pay any attention to the margins, and so discounting or pricing, generally pricing is the most powerful lever in your company to maximize profit, right? Because for every 10% of price that you increase to your prices, to your products, that’s 10% going straight to your bottom line, because your costs don’t change. Yeah, you’ll be just generating more profit.
The same thing happens but in reverse when you discount, right? You knock 10% off the sales price, you are riding your profit by 10%, by that exact percentage, right? So, it’s a really destructive labor and I hate discounting. There are places where it sits and we can talk about that later, but yeah, I’m against it.
Return rates are the same thing. If you’re in high, like… fashion goods, return rates can be up to 50%, and again, that can really kill your business, because it’s not only handling of the refunds, et cetera, but think of all the stock that you have to get, and then repackage, it’s all those indirect labor associated with having to repackage and resell those items that are eventually returned. And even, like some companies can’t even resell the returned items, so… Mattress companies, for example. Casper, they can’t resell a mattress. You can’t re-box a mattress. What happens is that stock is dead. And someone returns that stock, it ends up at the Salvation Army, or Red Cross, or a charity, or it ends up in landfill.
Kurt Elster: Oh, geez.
Jason Andrew: It’s a massive cost of business. Yeah, and that’s the truth. So, discounting and return rates are killers.
And so, the two last metrics I encourage everyone to look at are more cashflow-related metrics. So, the first one is what I call the cash conversion cycle, and what that basically measures is your working capital. So, for those in the room who don’t know what working capital means, basically working capital is the accounts in your balance sheet where your cash is hiding, okay? Now, for eCommerce businesses, all of you will have all your cash hiding in stock, right? It’s that money that’s sitting in your warehouse or sitting in your garage that is just sitting there doing nothing, okay? Think about… There’s some businesses… Let’s say you carry $500,000 of stock at any one point in time. Just picture $500,000 of cash, real dollars, sitting in the garage, sitting there doing nothing, right? It’s not a good return of money, of stock just sitting there depreciating, deteriorating, getting old. And so, what the cash conversion cycle does is basically tries to quantify the amount of stock that you have. It also factors your accounts receivables, so if you sell wholesale to other retailers, your product, it basically quantifies those metrics into days, right?
So, rather than thinking about, “I have $500,000 worth of stock in my garage,” that could be a small amount of stock relative to your sales, because you could be doing a high-volume business. But rather than thinking about dollars, you think about days. So, you think, so instead of saying $500,000 of stock, you might say, “I have 14 days of stock sitting in my warehouse.” So, the objective is to get those days as low as possible, which means that you’re reducing your cash conversion cycle, so you’re essentially converting your profit into cash faster, which then you can use that cash to deploy back into growth and grow, grow, grow.
So, Tim Cook, the current CEO of Apple, when Steve Jobs passed away, everyone was wondering why Tim Cook was the guy to take over Apple, right? They’re almost polar opposites in terms of personality type and leadership style. Jobs was kind of a creative visionary, swung from the heels and could really inspire people. Tim Cook was more the operations guy, who was the COO of Apple at the time, and it was a very, very different thing. And everyone was thinking, “Well, why is Tim Cook the guy to replace Jobs?”
And the truth is just Tim Cook just knows how to run a business, right? So, Tim Cook joined Apple back in the nineties and his job was supply chain management. And so, his focus was on inventory days. Let’s really fix up Apple’s manufacturing process, their supply chain, and one of the key metrics they focused on was optimizing that cash conversion cycle. And there is a direct correlation to your cashflow, right? There’s a reason why Apple has one of the stronger balance sheet, and the highest amount of cash in the balance sheet globally of any company. It’s because they focus on these types of metrics. So, that’s the cash conversion cycle in a nutshell.
And the fifth and final metric is free cashflow. So, again, we spoke about revenue being a vanity metric. There’s a quote that I like to say with a lot of founders is that revenue is a vanity metric. Profit is vanity, but cash is reality. And know that cash… You can’t pay bills with profit. You can’t pay bills with revenue. You need cash to pay the bills, right? So, free cashflow is a metric which actually looks at your profit, but also factors that working capital that I mentioned before, and what free cashflow is, it’s a metric that is used by a lot of investment bankers, a lot of venture capitalists, to really understand the company’s ability to generate positive cash, and actually understand how efficient it is in its cash utilization.
Kurt Elster: You know, it’s funny. I actually… I have an MBA, and I was so bad at accounting, other than like the most basic stuff, and I’m sure we talked about it, and I blanked it out from my mind, but cash conversion cycle really seems 100% entirely new to me, and I’m Googling it right now and I’m like, “Oh my God. This makes so much sense.” This is like the missing piece for a lot of merchants.
Jason Andrew: Yes.
Kurt Elster: This is really a major key in figuring out what the health of your business finance is, especially when you’re dealing with moving inventory. And you’ve got wholesale and returns. There’s a lot of factors in there, and it’s like maddening to try and figure out and get a pulse on, and you just gave us the metric for it. Cash conversion cycle. That’s gotta be… Like, so many people probably just breathed a sigh of relief knowing that.
Jason Andrew: Every business needs to measure their cash conversion cycle, right? It is the… It’s a new term for a lot of people, I will admit, but it… Because frankly, let’s just go back to the principles, right? Profit is not the same as cash, right? I hope everyone understands the difference, and I said before where your cash is hiding is that thing called working capital, and your cash conversion cycle measures your efficiency of your working capital. So, yeah, if there’s one thing that everyone could take from this episode, is Google cash conversion cycle and try to calculate it for your business, because you’ll quickly identify exactly how you can improve your cash immediately, basically.
Kurt Elster: I love it. I love it! I want to step back a little bit, because you had touched on discounting, and your dislike of discounting, but you said, “Hey, I think there’s a few times when you should discount and there are some things you could do instead.” Would you run those past me?
Jason Andrew: So, there is actually a… So, let’s just talk about the theory of discounting, right? So, the idea behind discounting is that if I… Let’s just say my product, I’ll say my product has a markup of $100 a unit, right? So, I sell my widget, hundred bucks, and people think, “Oh yeah, it’s a good widget.” People buy it. And then the founder or the growth marketers think, “What if we reduce the price of the widget, what if we discount by 10%?” So, instead of selling to the market for say a hundred bucks, maybe we just sell it for 90 bucks. Give it $10 off as a discount. Let’s see what happens.
And now, the traditional theory of economics would suggest that you would sell more units, right? Because simple supply and demand curve says I reduce my price, I will sell more volume, okay? That’s just simple economics 101. And so, that’s why people decide to discount, is like, “Well, I can discount my product. It means that more people, in theory, should be out there to look at my product and buy it, and I’ll get more sales.” Right?
And so, yes, traditional economic theory would indicate that. Yes. But to understand if you’re discounting profitably, because the idea is that if you do discount, say 10%, there is actually a formula. There is actually a spreadsheet which I can share with you guys in the show notes, which actually tells you for every 1% that you discount, how many extra units or how much extra volume you need to sell in your business, right? So, my issue with discounting is… Sorry, go back.
If you can discount by 10% and show that you are growing your turnover, but higher, and actually increasing your overall gross profit dollars generated to the company, then yes, discounting is an effective tactic, because you’re actually generating more profit through that discounting tactic. My issue, my hang up with discounting is that no one ever does the math or the economics around discounting. Everyone just assumes that, “Well, if I discount it by 10%, I will sell more,” and the truth is that yeah, you will potentially from a revenue perspective, but you probably won’t or may not from a gross profit perspective or profit perspective. So, again, going back to revenue as a vanity metric, people are looking at the wrong things and probably not thinking about discounts in the right way.
So, there are two ways that discounting does work. So, the first one is it’s okay to sell your product at cost or a small profit if you are trying to sell old stock. Okay, so going back to that cash conversion cycle, what we find is that a lot of inventory-based businesses, a lot of retailers are holding way too much stock. They have bloated stock balances, and so we get them to basically do a Pareto Principle analysis on their stock of their SKUs, and work out okay, everyone kind of in their gut feel knows what the top 20% of their SKUs are that generate the most, highest volume, the highest gross profit dollars to the company, and they turn the fastest. But there’s always laggards, right? There’s always these crap SKUs that just sit in a warehouse that haven’t sold anything in a few months. They’re the ones you need to sell, right? You need to get them out of your warehouse to realize that cashflow and make more space for the stock that does sell, right?
And so, discounting old stock or discounting stock that doesn’t move is a legit strategy, because the objective there is to realize cashflow, not realize margin. Okay, so that’s when discounting can be used effectively or for the right reason. And then, so the second reason I mentioned before is if you can prove that you’re growing your average order value or overall gross profit dollars by discounting, because you can show and actually true up the relationship between the price and volume kind of equation, well then yes, that is profitable discounting. Again, my issue with that is not many people actually do the math or run the numbers to actually calculate what is the benchmark volume I need to sell at whatever percent discount I offer to the customer.
So, they’re the very two kind of short-term ways to think about discounting, but I think they’re very financial driven, so I’m talking about eCommerce, I’m an accountant, but there’s a lot of marketers and probably yourself, Kurt, who are thinking, “Well, discounting always also has intangible consequences to your company, like brand erosion.” You don’t want to be that guy who just has everything on sale, because it trains your consumers to not buy from you now, but they’ll wait for the next Black Friday, Cyber Monday, or the Boxing Day, or whatever excuse to have a sale, right? So, you’re training your customers to only buy from you when you’ve got something to offer, which is a really bad way of doing business when you think about it, because no one wants to be that guy.
Kurt Elster: Right. You don’t want to get trapped into that, the discounting prison, where you have to… Exactly what you said. Your customers know, “I can buy this now at full price, or if I can just wait, they will eventually put it on sale.” And so, they’re like… They’ll sit on your newsletter and they’ll just wait, and then the sale comes, you do a flash sale, like for this kind of audience, you run a flash sale and then you do just utterly dramatic numbers. But the moment you’re not running that sale, suddenly tings kind of fall off a cliff.
All right, so that was discounting. Have we talked about the financial challenges that merchants face, in that… I know you touched on it a little bit in terms of cashflow, when accounting for all these other things, like accounts receivable on wholesale, and purchasing future goods, and return rate, et cetera.
Jason Andrew: Yeah, so I think those metrics really sum up the financial challenges that we see a lot of clients face. I think I’ll kind of recap on the message there, is that looking at your business from a revenue perspective, or looking at your bank balance in your bank account is not a good way to run your finances, right? And so, I think the biggest financial challenge… Well, the biggest challenge that we see with merchants is going back to their inventory. So, a lot of, as you said before, a lot of these[inaudible 0:29:31.0] have all of your cash in stock, right? So, really getting intimate with the SKUs that you hold, and really understanding that cash conversion cycle which I mentioned earlier, probably clears up a lot of the air with respect to how to improve the cash, because you can be a profitable business, but you could be really cash poor, and that’s exactly one of the issues.
And the other part which we haven’t really touched on was just financial literacy generally. So, you’re an MBA, Kurt. I’m sure you learned accounting 101 at XYZed University, is that right to assume?
Kurt Elster: Yes. Yes. I did attend XYZed University in Chicago.
Jason Andrew: And was that accounting class applicable to your business? Were you in business at the time? Or how did you… Or was it just full of case studies? Yeah. I’m really curious to understand how you’re able to apply accounting to your real life circumstances.
Kurt Elster: Sure. So, in college, it was very much like, “This is practical accounting, bookkeeping type stuff.” And in that I truly, I really struggled with, of like suddenly I felt dumb. I’m like, “Am I bad at math? What happened here?” And then in the MBA program, that was a much saner approach for me, because it was less technical and it was much more about like, “All right, you need to understand these concepts so that when these numbers are put in front of you, you don’t just stare at them blankly.” Like they have a meaning, you have to understand what went into calculating them before you can understand and appreciate these numbers.”
So, it was much more practical. The MBA version I felt was more practical, but probably also more basic than like the college business program, which was like, “All right, you’re just basically gonna take the intro classes that the accounting kids take.” Oh, man, did that mess me up.
Jason Andrew: Yeah. I 100% agree, so a lot of the founders that we work with, they’ve got MBAs or got a bachelor’s, or [inaudible 0:31:42.4] degree. Some of them don’t. Some of them are more your typical, dropped out of high school, started a business type entrepreneurs, but the key theme across all of them is financial literacy, right? And I don’t know how the American education system is, but even when it comes to your personal finances, when I was in high school, no one taught us what credit cards were. No one really taught us what compound interest really meant from that perspective. How do you save money? What’s a budget? All these what are now very essential items to run our life and our household were not taught to us in school, right?
And so, these people, myself included, we then start businesses and you’re not taught what a budget is, or how to balance the books, and then you start a business, and then you buy stock, and then you employ people, and you’re suddenly responsible for all of these things, and no one actually ever taught you how to actually think about your numbers in a way that is practical and relevant to help you build a business, right? And so, my life’s mission is really to improve the financial literacy gap of entrepreneurs, because it’s such a needed thing, especially for founders, because I see so many people who think they’ve got a really great business, because again, they’re looking at the wrong things. They look at the revenue metrics, they look at the cash at the bank, or they look at themselves in the Forbes top 100 entrepreneurs this year, or the media publications.
And you can see this culture at the moment… Well, up until now, but for the last 10 years it’s like the metrics of success for a lot of entrepreneurs was how much capital you raised and how many employees you’ve got, and if you’re not the front page of XYZed or TechCrunch or any of these media publications, you’re not successful. And I think that’s absolutely garbage, because everyone has their own definition of success, and to me, success is having a profitable business that produces great cashflow, that funds the lifestyle that you want as an entrepreneur. So, not all of us started a business to take over the world and be the world’s biggest mega brand. A lot of us in the room, probably yourself included, Kurt, is to build a business that we’re proud of, that does really good work, service our customers, serves a need in the market, and ultimately pays for the lifestyle that we deserve, right?
Kurt Elster: 100%. You’re speaking my language.
Jason Andrew: So, I think we need to change the narrative what entrepreneurship is, and I truly believe it’s just about understanding some of the financial concepts in your business will help to dispel some value metrics and get people really back to grips with what is actually important to the business, which is making a profit, making a cashflow, and this is more important now than ever. In this economic environment, right? Cash is king as everyone knows. Cashflow will keep you in business. Your revenue won’t, right?
Having cash in the bank is what will help you survive through economic uncertainty for the next six, 12, 18 months, whatever it might be, without a doubt.
Kurt Elster: I realize that was you on your soapbox, but the passion came through, and I 100% agree with the message. It is so easy to get caught up in like seeing all these huge, successful mega brands acquired for insane sums of money. But you always have to remind yourself, like that’s largely the result of PR efforts. There are plenty of hugely successful businesses that just quietly operate, and you will never, ever hear about or realize are these tremendous businesses. That’s my favorite, is when a business I never thought twice about, I find out through the grapevine just does incredible numbers and serves just to someone’s lifestyle and family.
I suspect some of this comes up in your book. Tell me about your book, Stark Naked Numbers.
Jason Andrew: So, Stark Naked Numbers I wrote, only published early last year. And again, the goal of why I wrote Stark Naked Numbers was I felt that a lot of entrepreneurs and founders probably don’t engage with their finances in a way that I think they should. Go to your local bookstore and you look at the top 10 or top 100 business section, bestsellers of the business section, right? So, you’ve got books about if you want to learn about marketing, you’ve got the guys like Seth Godin. You want to learn about leadership, there’s guys like Simon Sinek and there’s Jim Collins, Good to Great. There’s all these really great books on basically ever facet of business that you want to learn about if you want to upskill yourself. I read a lot of books.
But when it came to finance and learning about your numbers, there was one real book that many people went to, so Profit First by Mike Michalowicz is probably the book that a lot of entrepreneurs read. I’m sure that it’s been probably spoken about in this podcast. I don’t know if you guys have come across Profit First, but it’s come up a lot. The problem with Profit First is it’s not a book in accounting. It’s actually more on how to manage your cashflow. So, basically I was inspired by Profit First to write Stark Naked Numbers, to really bridge the gap and make accounting really simple, and easy, and practical, which is more importantly, practical for business owners, entrepreneurs, to really understand numbers and apply that to their business.
And so, I wrote it… Yeah, to basically improve the financial literacy of entrepreneurs, and it’s full of tactics and case studies on how everyday founders like you and I can actually apply tactics used by some of the world’s largest companies, and CFOs, and revered investors, to their own business, and actually see meaningful results. So yeah.
Kurt Elster: Where can I get it? I want it.
Jason Andrew: It’s available on Amazon.com, so if you just Google… Actually, the website starknakednumbers.com, or you can just jump on Amazon and search Stark Naked Numbers and it’ll be there, so it’s available on Kindle or paperback, as well.
Kurt Elster: Very good. And now that we’re wrapping things up, where could people go to learn more about you?
Jason Andrew: Me personally, I’m most active on LinkedIn, so if you search Jason Andrew on LinkedIn, I make it my mission to post kind of relevant information on financial literacy, metrics, just trying to demystify numbers for businesses. We do lots of case studies, as well, so last month we did a financial teardown of Casper when they IPO’d, so just looking at the unit economics of that company. Yeah, so find me on LinkedIn is probably the best way, or you can check out our website, as well. SBO.financial, which is my accounting firm. We also have a lot of case studies, blogs, and actually lots of free calculators for founders to use to help them understand questions like, “How do I profitably discount?” So, that’s a thing on there.
We also have things like how do you conduct a cost-benefit analysis and whether you should or when to engage a 3PL versus doing your own fulfillment, things like that. So, check out our website, as well. SBO.financial.
Kurt Elster: These are really tremendous resources. It is very clever to take a traditional, boring seeming profession like accounting, and then once you apply it to a specific niche and audience, suddenly it opens up all these opportunities for really fabulous content, and tools, and resources, and then that rapidly… You become an authority in that space. So, I greatly admire what you’ve built here, and I’ve got those links in the show notes for people, so they can find it quickly.
Jason Andrew: Right. Thank you, Kurt. I mean, I said before, my life’s mission is to make accounting interesting. I actually think accounting is… It should be like the most sexiest thing in business, right? Because it shows you how much money you make. If you understand your numbers and you understand the tactics and the levers to pull in your company, that is real cash, and you implement them successfully, that is real cash landing in your bank account. There’s nothing cooler than fixing a business and actually putting in effort, and actually creating more money for yourself. I think that’s such a great way to do it, and engaging with your numbers is one step to doing that.
Kurt Elster: And the final question I want to ask you, as long as I got you here, you rattled off a whole bunch of books, and obviously you wrote what is essentially a business book, so I’m assuming you’ve read a lot of business books. What’s your favorite business book? Other than your own, of course.
Jason Andrew: I’m a massive fan of Seth Godin. I did the altMBA and have a lot of respect for him as a personality, but also the community that he has developed over his entire career, which is simply incredible. But my favorite book is by Seth Godin, and it is All Entrepreneurs Are Liars, which he’s actually retitled to All Marketers Are Liars, and… Have you read that book, Kurt?
Kurt Elster: No, I haven’t.
Jason Andrew: It’s an amazing book on marketing. It’s probably the best marketing book you’ll ever read.
Kurt Elster: What’s the title one more time? So I can make sure I get this right.
Jason Andrew: It’s called All Marketers Are Liars.
Kurt Elster: All Marketers Are Liars. All right, I will order it for myself, and then I’m also gonna include the link in the show notes. Here we go. Got it. Seth Godin’s All Marketers Are Liars. Cool. All right, this has been really good and engaging. I appreciate it. One key action item. People are going to pull the headphones out of their ears and then do what?
Jason Andrew: Stop looking at your Shopify account to understand the health of your business. Look at your QuickBooks, or your Bench, or your Xero, and go ahead and actually Google cash conversion cycle and actually calculate that for yourself. And yeah, that’s probably the one thing I would do. The first thing I would do. Yeah, for sure.
Kurt Elster: Excellent. All right. Thank you. I gotta go order All Marketers Are Liars.
Jason Andrew: Brilliant. Thank you, Kurt.