Why e-Commerce Brands Should Invest In Proper Accounting Records
February 2, 2021
Here’s a glimpse of what you’ll learn:
- Tyler Jefcoat’s advice to sellers on handling cash flow during the current COVID-19 crisis
- FBA orders versus merchant fulfilled orders from an accounting perspective
- The e-commerce accounting essentials that every third-party Amazon seller should have
- Tyler shares the short-term changes sellers have had to make due to shifting consumer preferences
- Tyler’s recommendations to brands looking to join—or exit—the Amazon marketplace
- How a business with only a few SKUs can diversify its financial risks
- Tyler talks about his background in e-commerce and what sellers should look for when hiring an e-commerce accountant
In this episode…
With shifting consumer preferences brought on by the COVID-19 pandemic and rapid growth in the technology space, now is the perfect time to make your move to e-commerce. However, selling on e-commerce platforms such as Amazon comes with its own set of challenges—namely, how to handle your finances.
Amazon sellers have to make the right financial decisions to ensure that they have enough cash flow to generate maximum profitability, expand their market reach, and meet customer demands. Because of this, good accounting systems are essential for brand owners looking to enter, or even exit, the Amazon marketplace. So, what do you need to know about e-commerce accounting as an Amazon seller?
In this episode of the Buy Box Experts podcast, James Thomson is joined by Tyler Jefcoat, the Founder and CEO of Seller Accountant, to discuss why e-commerce brands should invest in proper accounting systems. Together, they talk about the best strategies for cash flow and SKU level management, how the COVID-19 pandemic impacted sellers without proper accounting records, and Tyler’s advice to brands looking to join or exit the Amazon marketplace. Stay tuned.
Resources Mentioned in this episode
- Buy Box Experts
- Controlling Your Brand in the Age of Amazon: The Brand Executive’s Playbook For Winning Online by James Thomson and Whitney Gibson
- Seller Accountant
- Tyler Jefcoat on LinkedIn
- Disruptive Advertising
Sponsor for this episode…
Buy Box Experts applies decades of e-commerce experience to successfully manage their clients’ marketplace accounts. The Buy Box account managers specialize in combining an understanding of their clients’ business fundamentals and their in-depth expertise in the Amazon Marketplace.
The team works with marketplace technicians using a system of processes, proprietary software, and extensive channel experience to ensure your Amazon presence captures the opportunity in the marketplace–not only producing greater revenue and profits but also reducing or eliminating your business’ workload.
Buy Box Experts prides itself on being one of the few agencies with an SMB (small to medium-sized business) division and an Enterprise division. Buy Box does not commingle clients among divisions as each has unique needs and requirements for proper account management.
Learn more about Buy Box Experts at BuyBoxExperts.com.
Podcast Episode Transcripts:
Disclaimer: Transcripts were generated automatically and may contain inaccuracies and errors.
Welcome to the Buy Box Experts Podcast we bring to light the unique opportunities brands face in today’s e-commerce world.
James Thomson 0:18
Hi, I’m James Thomson, one of the hosts of the Buy Box Experts Podcast. I’m a partner with Buy Box Experts and the former business head of the selling on Amazon team at Amazon, as well as the first account manager for the Fulfillment by Amazon program. I’m the co-author of a couple of books on Amazon including the recent book, Controlling Your Brand in the Age of Amazon. Today’s episode is brought to you by Buy Box Experts. Buy Box Experts takes ambitious brands and makes them unbeatable. When you hire Buy Box Experts you receive the strategy optimization and marketing performance to succeed on Amazon. Go to buyboxexperts.com to learn more.
Before I introduce our guest today, I want to send a big shout out to the team at Disruptive Advertising. For off Amazon advertising, Disruptive Advertising offers the highest level of service in the digital marketing industry, focusing on driving traffic, converting traffic and enterprise analytics. Disruptive helps their clients increase their bottom line month after month. Check out disruptiveadvertising.com to learn more. Our guest today is Tyler Jefcoat, CEO of Seller Accountant, an accounting firm focused on helping out e-commerce sellers drive profitable results by taking their bookkeeping headaches away. Prior to this, Tyler co-founded and sold a health care company that grew to 100 employees in four years. And he has also been a banker and a Red Cross instructor. Tyler, welcome. And thank you for joining us today on the Buy Box Experts Podcast.
Tyler Jefcoat 1:45
Thanks, Jim. Glad to be here.
James Thomson 1:47
Let’s start by talking about cash flow. Because where can an Amazon seller be without cash flow? What recommendations do you have for brands dealing with shifting customer demand, potentially unused overhead labor challenges and all the likes caused by the COVID situation we’re all faced with today?
Tyler Jefcoat 2:06
Yeah, so COVID has created a great opportunity for our space right James. You and I have never been busier because our brands are thriving in the ecosystem. The market is rewarding nimble e-commerce direct to consumer brands right now and so grateful to be in the space. But I think if you know the beginning of your question was about cash flow then the number one constraint on our customers ability to get from where they are to where they want to scale is capital. Do I have enough working capital in my business and and so their handicap they see that it’s not just a normal Amazon, you have a year 30% growth? Wow, we’re gonna ride the wave This is that on steroids, because it’s the fact that all of a sudden, grandma’s buying on Amazon or or going to a direct consumer website. And so understanding where your cash is, you mentioned three or four anecdotes in there where it might be stuck in some unusual areas like overhead, and how to deploy that cash well, so that you don’t run out of inventory is just critical.
James Thomson 3:06
In q4, we see bottlenecks and Amazon’s ability to handle inbound FBA inventory, as well as outbound FBA shipments. Some sellers are starting to invest in support to do merchant fulfilled orders. I’m curious from an accounting perspective, do you think about FBA orders and merchant fulfilled orders in different ways? And should sellers Be prepared to do something different in their accounting to deal with the differences between those two types of fulfillment options?
Tyler Jefcoat 3:33
Yeah, I think from an accounting standpoint, FBA, you may hate Amazon’s API for lots of different reasons. But it’s actually really, really good inventory data. And so the biggest accounting challenge once you do anything that isn’t called FBA, is that you have to keep up with it like every element of your logistics operation. And therefore the accounting for that operation has to get more sophisticated, you have to have some way to track how many pallets and units are on the shelves of your warehouse or the three PL partners that you’ve selected. And so I guess that’s that’s the antidote, the antidote is just get ready, right? I mean, I think the Amazon world, especially after what we saw in the beginning of the year, with just increases and lead times, and now we’re in q4, it’s happening again, if you want to scale, you need to have a logistics operation that’s more sophisticated than ordered from China, go straight to FBA. But if you’re going to do that, be ready because that comes with a lot of headache. Now I’ve got to manage a lot more. And so yeah, I think that’s the biggest thing for us is you just need to have the system in place to be able to capture that new inventory data. So you’re not left with a huge gap in your understanding about where my stuff is.
James Thomson 4:42
Talk to me about situations where you have clients that have come to you that say now we have this merchant fulfilled capability. What are some of the typical challenges that you face in monitoring what’s going on around them now being able to support you with the necessary data?
Tyler Jefcoat 4:57
Yeah, so very few of our customers come to With a really nicely put together start to finish er p or like you can think about this like a theoretical, great online system. And there’s some good tools out there. I’m not saying there aren’t. But most sellers that are kind of in the sub $20 million range, which a lot of our clients struggle with. And so the core questions that we end up having for them are their kind of operational questions. Does your team know how to receive inventory? It’s like, do you have some kind of repository, a spreadsheet or something where you’re grabbing an order when it comes in? And you could answer the question at the end of a given month? How much stuff do I have? Right? I mean, those are kind of the four questions. operationally, the core question is, how much stuff do I have, because I need to make sure I don’t stock out and I can sell it financially, I need to know how much I owe for that stuff. And when I owe it, and so the data sets just get more complex. And so it just goes back to Alright, let’s flowchart the operation first, how do you order stuff? How do you receive it? When do you pay for it? And then let’s build some kind of a process to capture that so that you could, with some fidelity, answer that question, where’s my stuff? And how much does it isn’t worth that kind of thing?
James Thomson 6:10
So let’s talk a little bit more about where’s my stuff? It would seem to be common sense, the firms would know how much money they’re making. And yet, when I think of the 13 or 14 years I’ve spent working with online sellers, many of them don’t have accurate, timely data to track their financial performance, even companies doing 10 $15 million a year without scaring sellers. Tell me how do you encourage prospective clients to make the investment in proper accounting? And what does such accounting do to improve their ability to make even more money?
Tyler Jefcoat 6:41
I was shocked when I got into this industry to learn that the hardest question for most of our brand owners to answer is Did I make money last month? That is a surprisingly shockingly difficult question to answer. And it’s so important. And so you know, in a world where you have access to real time data from Shopify and Amazon, you can’t afford to wait on your accounting system. To give you all the good news and bad news, you have to have a dashboard that’s giving you more real time data, I’m not going to wait on cash. At the same time, it’s never been more important for your accounting system to validate those assumptions. Because whatever dashboarding tool you’re going to use, like think about it, I’m going to decide whether to increase ad spend or decrease it today, or whether to get more aggressive or less aggressive on one product versus another whether to do a coupon, I’m going to use a set of assumptions to make those tactical day by day decisions, I need to be able to now compare those assumptions to actual validated financials. In other words, a real accounting system that is counted every dollar so that I can learn as quickly as possible whether I’m using the right decision matrix, I know that that’s a complicated way of saying I got to make really quick battlefield decisions. But I’ve got to have that kind of overhead surveillance, the real accounting system that shows me if my tactical decisions are pointing the right direction, or they’re not. And so for that reason, it is absolutely crucial to not just have financials, you’re not just have them be up to date, but have them be accrual, which means I’m matching the sales data with the costing data every single month, and just as importantly, the advertising data so that I can really answer the question, did I make money last month.
James Thomson 8:17
So if we think of a seller’s catalog, as being a whole series of different groups of twos, your war, your war example, you know, different platoons that you have, right, individual pnls at the SKU level, it is in many ways, almost a pipe dream for sellers, if they haven’t been doing proper account level accounting to then disaggregate information down to the individual skill level. They’re making decisions about advertising or promotions or coupons at the SKU level. How do you help companies go from account level visibility down to the individual SKU level so that they can rationalize? Should I be investing more on this SKU versus that SKU?
Tyler Jefcoat 9:00
Yeah, so I think you’re talking about the two, the macro and the micro are both really important. And I as an entrepreneur, most entrepreneurs that I know, and I would put myself into this category tend to have kind of the rosiest possible view of how things will go for a particular product line or business idea. And so we need objective truth to measure our assumptions against. And we need to understand our portfolios on a portfolio macro level, which is why you have to have a profit and loss statement that captures your entire sales by sales channel that captures your actual cost of goods sold, and your actual macro advertising dollars. So that you can see like, for instance, here could be a great example, if I’ve run a bunch of SKU level analyses. And they show really profitable, really profitable, really profitable, but then I look at the macro picture of my p&l, and that’s like not profitable, then I know that there’s something seriously wrong about the way I’m measuring the profitability for each product. And so again, It kind of goes back to that you got to do both. It is not realistic, at least I hadn’t found a tool so far, that is automatically going to give you a really great SKU by SKU p&l, because you’ve got a source of truth in terms of advertising data, which is normally your sales channel. And you have a source of truth for your costing data, which is normally some completely different system, as we talked about earlier, that a lot of people don’t even have that system. And so you got to have the macro. And then you still need to do the work at least quarterly to do a skew level profitability analysis to answer the question, How much can I afford to spend advertising skew a, to get it to move and still be happy with the profitability? And how does that profitability fit into my strategy? Am I selling a consumable where I can afford to take a short term loss? And if I’m not, I need to make money. I’m not Amazon, I don’t get to spend 15 years building positive cash flow, I gotta make money in the business and I need to do it quickly.
James Thomson 10:53
So talk to me about what are some of the e-commerce accounting essentials that every third party seller should have in place today. And let’s move beyond the obvious stuff. I’m curious more about things that hey, I got an accountant, I got a bookkeeper. And yet, there’s reports that come out of Amazon that people may not be looking at, what are some of your thoughts there around, get the basics in place, but here are some things that you may not have visibility on that you should be focused on?
Tyler Jefcoat 11:22
Yeah, so the price of admission, things, you want to be compliant, you want to have a real p&l, you want to not have commingled personal expenses, like let’s just throw that aside, everyone’s gonna be doing that. Yeah, I think when you’re looking at all the rich data that you can get out of Amazon, I’m a big fan, I like to, I like kind of playing with the fee Preview Report every once in a while, that’s one of the reports that can help me kind of build a poor man’s unit economics analysis for each of the basins for our clients. So that’s within the fulfillment reports called the fee preview. Um, another one that I really like is some of the ending inventory, the monthly inventory report that comes out of fulfillment, that tends to be pretty good data, that Amazon, I think they’re released on the fifth of each month is going to say, Hey, you know, at the end of December, here are the actual units you had with it within our fulfillment network all over the place. And, you know, I like keeping an eye on the business reports, because it gives me good, it’s not anecdotal information, it’s real financial information. But what the seller has to remember is that that business reporting section of Amazon, there, those are not settled sales. And so this is another phenomenon we saw back in April, James is, a lot of customers pulled the trigger in April. But because of those delays in FBA, outbound shipping, the client didn’t actually get the product until May. But some of those clients got fed up and canceled the order. And so you can get a false positive. If you look at a Business Report, or a date range, it doesn’t capture that undoing of the sale, if somebody were to go back and cancel it. And so at the end of the day, that settlement payment kind of flat file, that deep unified, detailed transaction report has to be gospel that’s the that’s the report within Amazon Seller Central, that I should be able to as a guy who does assessments for your for your values, I should be able to pull your unified transaction report in to the penny validate your p&l, at least in terms of sales refunds and FBA fees.
James Thomson 13:18
So let’s talk about some of the shifting consumer preferences that happened well, we’ve all been locked down. Consumers are changing the way they allocate various parts of their wallet and moving disproportionate dollars to online channels. So talk to me about what are some of the short term changes that you’ve seen your clients have to make in order to deal with these changing consumer preferences?
Tyler Jefcoat 13:40
And this is not just like eating more ice cream because we’re stuck at home like not that kind of thing, but just not know so I got an accounting shape. Tell me about getting into accounting shape, though Yeah, it’s not the Peloton. This is the answer. This one is actually not a Peloton. It’s weird. You thought it was. But yeah, so I think the ball is moving very, very quickly. Right now, the macro is that everyone’s moving to e-commerce, it’s a great time to be in commerce in the e-commerce space. But the need to make good decisions quickly has actually never been where it is right now. Because of the sophistication of the aggregator pool of buyers coming into the play in our sandbox. We as third party sellers are having to understand and make decisions based on our data more quickly, and more precisely than we ever had before. And we’re doing it in a market where we’re growing more quickly than we ever have and are having to respond to customer demand more quickly. And so it all points back to okay this is a cool wave we’re on it we’re pumped to be here. We need to have control over our businesses we need to understand and obviously from the accountant boy speak here. I need to know where my money is so that I can make good decisions to allow me to raise cash and to allow me to generate maximum profitability and therefore enterprise value as well.
James Thomson 14:59
Brands and sellers have seen their sales take off during COVID. Being able to afford growth is often pretty challenging. And so any redacted stories you can tell me around situations where clients had to get their act together had to start to rationalize what they were doing so that they could get out of bad parts of their business and get back into better parts of the business, they cash to help drive the growth where it made most sense.
Tyler Jefcoat 15:27
Yeah, give you the sad story and the happy story. So in the sad story client that had 1.2 million in EBIT and operating profit in 2017. And they had a new gigantic product line that was going to be perfect for the pandemic as the spring hit. Yep, they didn’t have any money on the balance sheet. I mean, there’s no cash in the business. And they didn’t have an intelligent way to fund their POS. And so they, instead of having a bunch of million dollar months in sales, they were really hamstrung to the point of almost being bankrupt, they survived, they’re going to be fine. But that was poor cash planning. They didn’t have the substance to help them get to the finish line, the way they want to get the happy side of it is we’ve had clients that have either been able to leverage the really nice SBA programs that came out here in the spring, you know, that’s kind of been a lifeline for clients that were looking to write their balance sheet and want to get better debt or have more funding, right? That coupled with the fact that I think they’re just more investment in debt partners on the market available to our clients. Now. I’ve seen lots of them. Do you know what actually one of the best things that happened was Amazon, kind of having a crummy April, I mean, things were so bad from a logistics standpoint, in April, that we’re able to coach almost all of our clients and say, July to say, we need to get ahead of this thing for q4, we need to be prepared, let’s go ahead and secure our funding in June July, let’s go ahead and make sure that we’re a couple of weeks ahead in our supply chain, so that we are not going to be the victims of what we know is going to happen, which is that Amazon’s gonna get crammed again, they’re gonna have supply chain issues, probably going to have COVID issues, let’s not choose to be a victim a second time because it would be our fault.
James Thomson 17:09
So I love the fact that you know, clients are using this opportunity as a learning experience. Even if you put COVID aside, there are still going to be some unresolved issues that you would like to see some of your brands work through, when it comes to accounting and keeping track of their numbers. Share with me. Now what does accounting 201301 look like? Where are you trying to train your clients to do more and be more sophisticated with the numbers? They’ve got their macro view in place? Great, good, you know, they can pay the appropriate amount of taxes. Talk to me about some of these unresolved issues. And why are they? Why are they that much harder to solve? Why do we need a professional like you to come in and help train train clients on this kind of stuff?
Tyler Jefcoat 17:53
Yeah, I think the frontier right now is measuring not just product profitability, but measuring the velocity of that product. So the answer to your question is, what’s the problem? The problem is that inventory data is really, really hard to work with, it’s just a pain in the rear to deal with. The opportunity is for sellers who are developing new products to not just think, Okay, this is the product that’s going to leave me with a 30%. Post advertising gross profit. Yep. But to think: Can I turn this inventory in twice a year? Or is it four times a year? In other words, my working capital, will my dollar that I put into this inventory? Am I taking it a step further to say Am I happier with the opportunity cost of choosing a over b or b over a, and not just thinking about profitability in its own vortex or vacuum, but thinking about cash velocity? So how quickly and so I would call it an annualized return on inventory investment? If I have to spend $1 to secure a pin that’s in my hand? How many times can I turn that dollar each year? And every time I turn it, how much profit do I make? And so you’re it’s a more robust definition of, of the profitability of an e-commerce brand than just saying, Oh, my account balance is going up, or Oh, my p&l says I have a little bit of profit. But now I have a million dollars in inventory on my balance sheet. So understanding both vectors is important.
James Thomson 19:19
What you’re suggesting is that there may be situations where it makes sense to take a lower margin product that you can turn more often. And that’s okay, rather than saying, look, I make so much profit when I finally do sell this other product, being able to make that kind of decision around where you’re gonna put the dollars. You know, certainly that makes a lot of sense. Can you share a little bit with me in terms of, you know, what are some of the unexpected opportunities that all these COVID related changes and changes in customer preference have created where your clients have been able to run in a direction very, very different than they expected? Because they’ve got good numbers in place because they’ve done some of the legwork around Looking at those levers and figuring out how to make important but sometimes difficult decisions?
Tyler Jefcoat 20:05
It’s a good question. It’s almost counterintuitive, but I think our best companies this year, James, have actually used the rising tide to stay focused. So it’s almost like you would think the market is exploding. Let me launch seven different sales channels or launch a new product line. But that actually isn’t what I’ve observed. Both talking to the aggregators, and talking to the sellers themselves that are making most the most money right now is they’re actually saying, Wait a minute, I’m going to use this as an opportunity to, to assume a de risking of the Amazon Marketplace in a sense that I don’t feel like I need a shotgun approach. So approach one would be a shotgun, I’ve made a bit of money, let me launch as many small things as I can approach it, let me double triple down. And I think the pandemic has given some of the best brands out there. The exhale to say, I can trust this market is stronger than it’s ever been. Let me get good at it before I start solving new problems. And those are the guys that are killing it right now. Let me double triple down on what’s working, right, do it at scale, and do it with sophistication, do it with data sets, more so than let’s take these few extra dollars we’ve made and let’s launch seven different marketplaces or seven different brands, that kind of thing.
James Thomson 21:15
So, companies are doing really well on Amazon. I’m going to give you a little bit different situation, even Well, before lockdown. We at Buy Box Experts, ran into a lot of brands that wanted to stay away from Amazon. And at no point did they have any interest in the channel? Well, by the time in the March rolled around, it became pretty apparent. That’s where consumers were shopping, at least here in the US. given what we know about the process of getting onto Amazon and starting to use their data, what advice would you give to brands? If they finally begrudgingly say, Okay, it’s time for me to have an active Amazon channel strategy? What advice would you give to them around starting to incorporate and learn about all that information that Amazon provides for from a financial and accounting perspective?
Tyler Jefcoat 22:04
So there’s two things that popped in my head when you said that one is, I think if you’re a legacy brand, and you’ve continued to hold out, it’s probably time to go ahead and get on Amazon and control your listings and control your brand. I don’t think you can hold out too much longer. I don’t think the fear of Amazon being the monster they are, I don’t think that’s enough of a fear. It’s not a it’s it is no longer a valid argument for not getting aggressive and intentionally Amazon brand marketplace, because if you’re not doing it, somebody else is. The second thing I would say is the larger the company, we were talking to a publicly traded company here a few weeks ago that has actually done what I think is the right move, which is go ahead and set up a subsidiary LLC for your Amazon Marketplace. They’ve been screaming, they’ve been all one p they’ve been all vendor central want to launch a number of their very, very large portfolio into Amazon third party. And so two things they’ve done really well. One is to find someone like Buy Box Experts that knows what they’re doing, right? You know, you need to, if this is not your strength, if you’re a manufacturer, find someone that understands the marketplace and double down there. And two, you probably are going to set up a separate set, set up a second set of books just for this little side entity, that’s maybe something where Seller Accountant can help you but it’s all about, I’m going to need to learn a completely different business model. And I need to make sure I have maximum, I can’t afford to let my Amazon business be a rounding error that I just, you know, this is what a lot of large brands do. They’ll just take those little deposits from Amazon and just book them, you know, they’re using an enterprise level NetSuite. I’m not worried about it. This is a tiny percentage of my total brand. That’s not managing your brand, you’re gonna have to be more intentional to get the data set for the Amazon Marketplace. And it’s time to probably get aggressive on that.
James Thomson 23:47
Let’s shift gears. Tyler, I want to talk with you. You’ve mentioned these aggregators a little bit, I want to talk about the rapid increase in interest among investors to buy FBA businesses. Private label brands on Amazon are becoming a hot commodity. What guidance would you give to those types of firms, many of whom, you know, may well be your clients today. What guidance to give to them as they think about going down that path towards getting ready to sell their business to an investor like an aggregator?
Tyler Jefcoat 24:15
Yes, I think the best counsel I’ll give to a brand owner that’s considering because we’re all getting phone calls now. Right? I mean, this is a really interesting moment in the marketplace. It’s just fascinating. As a finance guy, it’s really interesting. One thing I would say is you don’t have to sell I think there are going to be some of the aggregator partners, they’re going to call you and say, you know, take it or leave it one stop shopping, you’ve got 48 hours or whatever it might be alright, I would be very slow to buy into that. I think I don’t I would not be inclined to sell with any kind of fear matrix happening in my head. There’s no, I don’t believe there’s any trouble with the economics of your business model going forward. I would be very inclined to either get the number I want or hold tight. The second thing I’ve learned is if you are looking to get bought again Get your financials in order where you can tell a clean, clear, believable story to those investors. And give yourself as much leverage as you can in that negotiation. So you can get a price that makes you happy. I think there’s probably two things. There’s one, you don’t need to be stressed out about this. It could allow you to accelerate your goals. If you’re looking to get out in the next couple years, have your ducks in a row be organized, especially financially, and don’t feel like a minority guy. I feel like you have some, some negotiating power in that room. Because the successful, especially a brand that’s you know, reached 800,000 to a million to 2 million in profit each year that that coveted Amazon native brand is a hot commodity, right? Oh, yeah, I am very slow to unload unless you’re pretty happy with the deal.
James Thomson 25:50
I’ve been involved working on due diligence with some of these brands. And it amazes me that so many of these companies are literally building their business on one or two, maybe three SKU that that’s fundamentally what where the sales come from is a very, very small number of products. From an accounting perspective, that makes life a little easier. But it’s also really scary when you see the lack of diversification from a single channel to three SKUs. That’s your business tomorrow morning, you know, an earthquake happens. Lightning crashes, there’s no business left. And so the process of how do you take on what you think of business that does not have a lot of pylons? It’s based on one or two little things that have done very well? How do you diversify risk from accounting and financial perspective so that somebody says, this is a fundamentally sound business? Where if I buy into this business, I don’t have to worry every single moment that the thing is gonna blow up?
Tyler Jefcoat 26:57
Yeah, what kind of views are in phases? So, you know, the simple answer is you need to have a coherent strategy for your brand, and you need to constantly be moving toward that strategy. But the way I would view it kind of in phases is I have to find a profitable path to revenue, I’m going to be building I might, and I might even encourage you to have just a handful of SKUs as you’re starting. Test a few, keep even fewer tests a few more, keep even fewer. And, But to your point, you know, I would love to have not two hero SKUs, but 20, solid SKUs, right, or like our business where I don’t have any one SKU, that’s more than 10% of my business. Now, depending on your brand, I’m also and this is something I’m even hearing from the investors. If I have two fairly similar, let’s call them $2 billion deals, and one of them has, you know, 700 variants, and one of them has 25, you’re going to get more brand value for the consolidated, simpler 25 charge. But if you add a third option, it was a single SKU. You know, again, your buyer pool just changes because the kind of company that can buy a $2 million company with a single product, and not radically have a huge risk factor would have to be one of these aggregators, all of a sudden your buyer pool is really, really narrow. And so I just think the bigger picture is let’s get on a whiteboard and decide what is my brand strategy? What is the perfect blend of having the right variants, the right, if I’m selling the gold? How do I sell the silver version of the How do I make sure I have a coordinated brand strategy. The other thing I’ll mention, because for some of the aggregators a minute ago, is there is some benefit in having a problem set or a customer set that you address. So I think there was some prevailing wisdom A few years ago, to just throw products on a private label, I’m just gonna go, I’m gonna sell cups, and I’m gonna sell this, I’m gonna sell camping gear myself, shoot, I’m gonna do everything. It’s much more important now to make sure that your brand elements line up, where you can point to a clear vision to the future. And just know that the marketplace is rewarding that the fact that I know how to address a 38 year old mom of three that does this and my products align with her needs, is you almost have to start thinking like Procter & Gamble, like what are the consumer products companies doing strategically to make sure that their products are, are just have a coherent strategy. And so I think that’s just getting more and more important. So you know, whether you have one SKU or 30 doesn’t make a huge accounting difference, you know, if you have 3000, that’s a real pain, right? But I think what’s more important is what is my strategy? What do I want this thing to go? And if I only have two SKUs, and I’m at 2 million a year in revenue, probably time to launch a few variants to try to see if I can diversify the risk a little bit. Yeah, right.
James Thomson 29:48
So during my introduction of you know, I talked about some of the different types of life experiences you’ve had prior to doing Seller Accountant, to tell me a little bit about your early days working with people e-commerce brands. And was there a point where you realized you’re good at helping online brands do what they do?
Tyler Jefcoat 30:08
Yes, I was kind of an eBay nerd, even in college 20 years ago and building a guitar like buying the parts myself. And so I’ve been really fascinated with e-commerce from the beginning. But my first entrepreneurial venture was as a healthcare company, we were in a really different space, lots of human resources, lots of people, lots of bodies, and I was grateful to get to exit that business. And, you know, what I wanted to do is I wanted to coach CEOs, I really am passionate about this idea of helping a small to medium sized business compete in this marketplace with juggernauts. There’s such a skew of power towards a Shopify, Amazon Target, Walmart kind of brand set. And so what I realized is this entrepreneur needs a higher level of Financial Intelligence in order to compete in the sandbox they’re choosing to compete in, and I saw there being an opportunity there for myself that was, so to answer your question, I happen to be an accountant. My NBA focus is in finance. But to be honest with you, Mike, Mike, my superpower is speaking entrepreneur with a complex number of things right, and so grateful that I have a team that does good in the bookkeeping, we do a pretty good CFO service. But at the end of the day, it’s how do I, as a $5 million brand, operate successfully in a sandbox that has $500 million funds competing with me? And so that’s what kind of gets me just
James Thomson 31:29
as you realized there was a client or client situation where you said, Yeah, I’m in the role I need. I got what I need here to do this full time. This is fun. Was there? Was there a moment that happened for you or a series of moments?
Tyler Jefcoat 31:47
Yeah, so let me say I was a little bit more ready, fire, aim, which was like what an accountant is ready fire aim. But I took my family camping, retired for three days, and have a buddy of mine that owns a owns a large was the founder of a large software company called Seller Labs, that services, Amazon sellers, and I was just talking to him, he’s like, you know, there are other problems that these guys have. And I just was like, Yes, that’s exactly what it is. I just spent, you know, during the CEO transition from me to the new leadership team, I was the de facto bookkeeper for this firm that I was exiting in QuickBooks Online. My controller likes her jobs really important. That’s kind of cool. And so to be honest with you, I think you’re giving me too much credit, I think what I did was I said, I’m gonna dive in full force, my first three phone calls or to the three largest competitors in the space, and just said, Hey, guys, I love what you’re doing, I’m going to be respectfully trying to create a model that really focuses more on the intelligence and financial coaching side of this business. And we’re gonna solve a bookkeeping headache. And so that’s kind of what we did. And, and I think about two months in I was validated, it took me two months to find someone to pay me money, it’s like, I’ll shine your shoes, I’ll do your laundry, like, give me a bit of money, right. But once we found a model that worked, we saw a transformative impact on these small businesses very early on from we’ve had some companies that were able to go from one to 5 million to 20 million to 50 million in consecutive years here, because of good decision making based on good financial data.
James Thomson 33:17
So you’ve hit on something that took me a while to realize, but the accountant that works for the small business is not necessarily the accountant that works with an e-commerce, small business, and the vernacular and the types of things that need to be looked at in the e-commerce space, versus your traditional accountant who’s just helping with doing inventory counts on the on the shelves. Tell me a little bit about what sellers should be looking for when they’re looking for an accountant that specifically has e-commerce capabilities and e-commerce insights.
Tyler Jefcoat 33:54
Yeah, so there’s really there’s two sides let me first of all there are there you need a good CPA that understands how to file your taxes based on all the business interest and income that you have as a family and in my mind is going to be hard for that CPA to be baked into an industry specific model like Seller Accountant’s that’s just my opinion. That’s the reason we don’t offer Tax Services it’s because I think you should have somebody that understands your real estate portfolio in your husband’s pharmacy job or whatever it is that’s happening in your family sharp four, but but most of those same CPAs that are great at making your tax stuff work every year. absolutely hate e-commerce don’t have any idea how to help you with inventory related issues, sales, tax issues, multi channel issues. And so I think if you’re looking for your controller wing or your bookkeeping wing, it’s important to come across somebody who understands how to deal with those Amazon flat files. I mean, that’s that’s really funny. I look at those now I’m like, well, that’s pretty easy. You know, check that Amazon flat file and I can I can give you a due diligence run on on any number of months. That’s not easy. That’s a disgusting data set and most accountants in the world would have would avoid it with a with a 30 foot pole. And so finding someone who the more complex the accounting, the more important is to have somebody that does it all day every day and understands the quirks of it. And obviously, the inventory part of it costing is so critical. You can have such an easy false positive, I think I’m making money, I think I’m making money only to realize I didn’t capture my cost of goods sold correctly, and I was losing money after advertising. That’s a sickening feeling for an entrepreneur. And so that’s why you can’t afford to go with the kind of, you know, easiest, just cash basis. Let’s just figure it out later. You really have to have good accounting, and I am unaware of any major CPA firms that are great at e-commerce accounting, and so I’m grateful for it. It’s a spot where we can step.
James Thomson 35:40
Yeah, absolutely. Absolutely. Tyler, I want to thank you for joining us today on the Buy Box Experts Podcast. For those of you who are interested in learning more about Seller Accountant, please visit selleraccountant.com. And now to finish today’s podcast, I’d like to share some final thoughts. For third party sellers to be successful on Amazon, a critical lever will be soliciting feedback from customers. We at Buy Box Experts are really big fans of the team at eComEngine and it’s tools that help Amazon sellers to simplify the process of messaging customers on Amazon orders. To learn more, go to ecomengine.com. And with that, I want to thank you for listening today and I look forward to joining you next time on the Buy Box Experts Podcast.
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