I started my first eCommerce brand when I was 15. I always thought that as long as I knew how to do marketing, make products, run the operations, everything else will be fine. Finance could always get outsourced to whoever is willing to do the work or I can just use bookkeeping software. That was the biggest mistake I made in my career, believing that numbers could just be an afterthought.
As it turns out, obsessing over my profit and loss (P&L) statement could have saved me from making some costly mistakes.
There are three common mistakes that people make when it comes to their business finances.
Firstly, they often overestimate their revenue, forgetting to account for the refunds, exchanges, discounts, sales tax, and shipping revenue that can eat into their bottom line. It's important to remember that these seemingly small amounts can add up and have a significant impact on your finances. Always focus on net revenue, not gross.
Secondly, many people don't accurately calculate their cost of goods sold (COGS). Quantities and freight methods change with every purchase order, and most people aren't accounting for these fluctuations to average out the COGS. If you have storage in multiple countries, there are also tariffs to consider when calculating your COGS.
Finally, many people have no concept of their real-time cash flow, which can lead to scaling too fast or too slow. Scaling too fast without keeping a real-time pulse on cash flow can be dangerous, as inventory and hiring expenses can quickly add up. On the other hand, scaling too slow can leave you without backup cash if things don't go according to plan.
I'm speaking from experience here - I've made all of these mistakes in the past. Cash flow challenges can quickly spiral out of control, leaving you scrambling to find financing and potentially getting stuck in a cycle of revolving debt. Many brands only realize they have a cash flow issue when it's already too late.
This is often due to two big issues: books are not closed in real-time, usually only once a month, so problems are realized too late. Additionally, many brands don't have a full grasp on their costs without jumping through hoops.
With all the innovations in AI recently, I was excited to try a bookkeeping tool driven by AI. I was tired of chasing down invoices and categorizing them or trying to explain to a non-eCommerce bookkeeper what everything was.
Come Finaloop, a machine learning-based bookkeeping tool that also has a team of eCommerce finance experts so you get the best of both worlds. I saw it everywhere on Twitter, and I gave in after my friend Ron from Obvi kept raving about it.
I gave Finaloop a try a few months ago, and had a great time chatting with Lioran Pinchevski, CEO of Finaloop on what else they have in the roadmap. I’ll be honest, I didn’t expect it to do everything so fast.
They connect to every data source you would use to do your books and reconcile all your data sources in real-time, providing a level of accuracy that is hard to match. Their team of ecom finance experts are also there to review your books, identify opportunities, and answer any questions you have. I got completely accurate data in 24 hours.
If you're tired of feeling like you're in the dark when it comes to your finances, it's time to break up with your bookkeeper and give Finaloop a try. It could save you from making costly mistakes and help you keep a better pulse on your cash flow.
Finaloop is offering a special deal: Sign up here and get free catch-up from the beginning of the year (this means 4 months of financials completely free instead of the normal monthly fee). This offer is only valid if you sign up by May 8th.