E-commerce Cash Flow Masterclass

Welcome back to CFO Weekly, where we're talking with financial leaders about how to build efficiency in their teams, create time for strategy, and ultimately get results with your host, Megan Weis. Let's jump right in.

Megan - 00:00:30: Today my guest is Matt Putra. Matt helps the owners of e-commerce brands and agencies in the UK, US, and Canada scale their businesses with more cash and less stress. As a fractional CFO and an active e-commerce investor, Matt knows what it takes to both minimize risk and optimize for growth. Matt, thank you very much for being my guest on today's episode of CFO Weekly.

Matt - 00:00:55: Thank you so much for having me, Megan.

Megan - 00:00:57: Yeah, today we're going to be talking about the ideal financing structure for e-commerce brands and how to manage the cash flow for e-commerce businesses to preserve cash. I'm really looking forward to learning from you. So let's get started. First thing as always, let's start with you and your career journey and how you got to where you are today.

Matt - 00:01:17: Yeah, you got it. Yeah, my career has been a bit circuitous. I started off as a young adult, basically sweeping floors, I had like a metal recycling plant. I would say that I moved fairly quickly into a management role, which is where I learned that I love business. So I was there for almost years and then made a change, and I was a business analyst then at another small manufacturer. and from the business analyst role, implemented the ERP system, and then got into the accounting side of things. And then I switched my degree from finance to accounting. So I finished my degree, but I was about I switched to green. And when we were implementing this ERP with the data and financials and all these things, I started sort of to just see the power of data, the power of knowing accounting. One of the things we did was we changed how we were doing the coding. So I built a new sort of coding application using a total cost, basically like finding a way to allocate all business costs to machine hours. And in so doing, we ended up really understanding the cost to provide service. And what we ended up doing was coding less for jobs because we had a better understanding of how our work centers were costed, but we ended up winning more jobs. And so we filled up more capacity, made more money, increased gross margin like 20%, by increased net profit 20% year on year. So that was sort of when I fell in love with finance and accounting as a profession. And then from there, I went to an accounting firm. But then from then, I was CFO, picked up by a private equity group. And private equity group was where I ran everything. So audit, tax, insurance, literally everything the CFO would have to do. deals did about 15 million or so in deals, total project costs were like half a billion. So that was really great. And then when COVID happened, I got to stop commuting three hours a day from my home to downtown, which meant I had more time with my family and kids. And so I told, hey when COVID is over, I'm going to want to work more from home than I have before. They said, no, you have to go back to the office full-time. That was quite a point. So from there, I had been working with some e-commerce businesses, varying all set my desk. loved it and so then went full-time into being a production CFO for e-commerce.

Megan - 00:03:46: So, today you are with Eightx, correct?

Matt - 00:03:52: That's right, yeah.

Megan - 00:03:53: So tell me about Eightx and what it is that they do.

Matt - 00:03:56: Yeah, so I founded Eightx in about 2019, and then I moved over full-time in 2021. And what we do is we are fractional CFOs for e-commerce Companies, brands, and agencies. We help people scale with more cash and less stress. So basically what we're doing is solving the problems, taking the pain away for founders that are running their own finances that are unsure they're doing it correctly. We come in, we support, and we basically end up being your finance department. So you have a CFO, you'll have an Analyst and sometimes you'll have other supports around you like supply chain or data or whatever else you might need or provide. and we just help to make sure your planets just are locked down. A good plan. We do some risk management courses on the plan, but the goal is some people want to exit, some people want to legacy business, and our goal is to help you get what you want.

Megan - 00:04:55: And tell me how you came to focus on e-commerce businesses.

Matt - 00:04:59: Yeah, very accidental in some ways. I had a very good friend named Jordan West, who also has podcasts, and he had an e-commerce brand. And in 2019, he said, hey, I'm looking for help with modeling cash flow and kind of managing things and say, yeah, I can help with that. And so I did. And then he started a marketing agency shortly thereafter, focusing on e-commerce brands. and pull up growth marketing. Basically, I followed him into the space. He was just telling me how great the community is. I said, well if it's great, I'll join it too. I realized, of course, that leaching down makes it easier to get noticed. And so that's just what I did. I focused on e-commerce, followed Jordan, and have sort of been building this business based on e-commerce since then.

Megan - 00:05:44: And talk to us about how Eightx helps e-commerce businesses with cash flow management.

Matt - 00:05:50: Sure. The biggest thing that we do, the most important thing that we do is build you a forecast. And our forecasts are month by month, income statement, cash flow statement, and balance sheet, and they extend out for three years. That forms the basis of everything that we do. All of our advice, all of our recommendations come from there. What we do is we build it based on the trends that you shop by, quick look. So we just kind of dig into everything that you think we might want to know about your business. From there, we build the model. And our models are, most importantly, about to miss that we try to make them realistic. The big four Accounting Firms, build Financial Models for people, but what they do typically take someone's input, and then they just build them all from their input. What we do is we take our input, and we benchmark against the clients that we work with today and that we have worked in the past. We look at industry trends, we look at research, and so on, and we adjust the inputs to what we think would be more realistic. What you get is an office that's robust, it's not a dream, it's something that we think is achievable. Sometimes it ends up telling somebody, we've told somebody once that they're going to go back them the way the current model is working. Our job is to tell you the truth as much as we can. Sometimes it's uncomfortable, but it's all based on this financial forecast.

Megan - 00:07:18: And I'm just curious, what are some trends that you're seeing in e-commerce? I'm sure during COVID, it must have been quite booming times, but what are you seeing today?

Matt - 00:07:29: Yeah, was a wonderful year for a lot of people. 2022 was a little bit tougher, and I think 2023 has been even tougher than that. The rising cost of acquisition, which in 2020 was really bad, normalized a little bit in 2023. We're seeing some things normalize a little, so supply chain timing, some of those things are coming back to the mean, so to speak. Shipping costs are coming back to share normal. But I think the trends are that for a lot of businesses, in 2023 was very difficult, and so people are trying to recover from that, but it's just difficult. Like there are more advertisers than ever, more advertising money than ever driving up CPMs, driving up the cost of acquisition, which is the big struggle, right? Staffing has been hard. Those are the big, big things, I would say. But yeah, it's made it a lot tougher for e-commerce companies.

Megan - 00:08:22: And when it comes to managing cash flow for e-commerce businesses, what are some of the common mistakes you see businesses making?

Matt - 00:08:30: Yeah, mistake number one is loading up on fixed costs too early. So making the hires where you really need them, getting an office where you need it, anything where the cost is fixed, adding those costs, I would say that's the one. The number one mistake that I see is sort of the entrepreneurs are always up to us and we need them to be that. But there is an expectation that revenue will catch up to the cost that one adds. And oftentimes it takes longer for revenue to catch up than we think, which means our margins are pinched a bit longer than we think, which means our cash flow is a bit more than we think. And so I would say fixed costs, are the biggest one. I mean, the rule of thumb for e-commerce brands is that any fixed costs you add require four to five times revenue to cover it. And so just be careful. The other one is not actively managing cash flow, meaning most people don't have a forecast. And so have something. If you're not working with a CFO, just have something. Take your QuickBooks profit and loss and then just type in numbers to the right of it, what you think each month is going to do. Have some idea what your costs want to be. And before you make decisions, go into your forecast, whatever it is, simple, complex, whatever you want to do. Go in there and input the changes into the forecast and see what changes with profit and cash flow. That would be the number two thing. It's just not typically actively managed. Then the other would be overordering inventory. I would say is another one. Inventory, if inventory is not moving, you basically have stacks of cash sitting on a shelf. And so my recommendation for most people is to order less than they think they need. Be ruthless about cutting the skews that aren't performing. Yeah, because minimize the cash sitting on the shelf you can't use.

Megan - 00:10:19: And how is it that you determine the right balance between holding on to cash and investing in growth? I imagine that can't be easy.

Matt - 00:10:28: It is very tricky. Very, very tricky. Before 2021. Yeah, I was, it's all okay. Everything was coming at first, but, always been tricky because nobody wants to hang on to a grand worth of cash that just sits there and does nothing. However, every brand that I talked to and worked with would have benefited from grand cash sitting there doing nothing when they went through 2022 and into 2023. And so the way that I think about it now is it's all risk management. And so I between three to six months of operating expenses in cash, ideally, it's not always something that's possible in the short term, but that would be the goal. And it just makes you more resilient, more robust to surprises, I suppose. And so that's the rule of thumb, three to six months of operating expenses. And other than that, you'd want to invest for growth, I would say.

Megan - 00:11:26: And the next couple of questions are about suppliers and their relationships with them. So how is it that e-commerce businesses can negotiate effectively with suppliers to ensure that they're getting the best deal, while still maintaining the relationship with that supplier?

Matt - 00:11:43: Yeah, so yeah, first and foremost, it's about relationships, right? So you need to preserve your relationship. So obviously, you know, we're talking kindness and some transparency and having frank conversations about what we need to have them. There is another strategy that a good friend of mine, Kevin, sort of came up with. The content is called Nibbles. And what you're doing with Nibbles is you're asking your supplier for small things on a regular basis, so not big concessions. So for example, most people who order from China need to pay a 30% deposit to get the order moving and then 30% for the order ships. So a Nibble would be a supplier, could I pay a 25% deposit and 75% on shipping? Typically for a small request like that, you're gonna get a yes. you do that, execute that, maybe next quarter, then hey. supplier instead of before you ship, can I pay 50% for your ship and the remaining 25 when it lands on my shore? You might be like, yes, you might get a no, but you're getting the idea. asking for small things regularly rather than one big thing. So we could say that inspires, look, can I have terms? That's a huge departure from the 20, 30 70, deposit structure. And so then I would say, ask for small things, ask for things regularly, pay on time, communicate with them when you may not be able to pay on time. Communication is key. So just keep lines of communication open. and then try to understand what they want, to understand how they're managing risk. And so sometimes what you might do is you might get a letter of credit from your bank or a lender in which the bank guarantees your payment to the supplier. So the suppliers were willing to give you terms, things like that. all the good take, reputation really.

Megan - 00:13:35: And I'm just curious, do you see suppliers holding more power in the relationship?

Matt - 00:13:40: Typically.

Megan - 00:13:42: And how can you balance that?

Matt - 00:13:43: Have fun.

Megan - 00:13:44: If there is a way at all.

Matt - 00:13:46: Yeah. For the average business under 10 million. Yeah. You don't have a lot of power and you're never going to for most suppliers. If you make up, let's say you think you make up 8% or more of the supplier businesses kind of where you have a little more leverage, but most smaller businesses are going to be that for the biggest suppliers.

Megan - 00:14:06: I was just going to say, I'm sure that's where asking for small things multiple times comes in handy as opposed to asking for something really big.

Matt - 00:14:16: 100%. Absolutely. Yeah. And I mean, even with someone that you do have power over, you don't really want to muscle them around. Yeah. Because again, it goes back to the relationship too, right? So you should still, I mean, you can be a bit more aggressive, of course, but still just be careful, right? Because you do need them as much as any of you usually.

Megan - 00:14:33: And in your experience, what financing strategies have been most successful for e-commerce businesses? Businesses?

Matt - 00:14:40: Yeah, so the structure that I like the most, which is the hardest to put in place, I'll give you, and then I'll give you some alternate images. So the structure I like the most is where, first of all, you need to understand your working capital base. What that means is sort of your current assets, inventory, prepaid, accounts, suitable, cash, and other current assets, minus your current liabilities, which is your base of the year, APIs, some Credit Cards, and things like that. What is the average dollar figure throughout a typical year? That would be your working capital base. I like finance. about maybe 70% of that work, maybe 50% of that working capital base with a term loan from a bank. So this is one way you're gonna go to, if you're in the US SBA or your bank in Canada, it would be BDC, the UK, the events, the expert development, Wales, and there's other stuff in the UK side as well, Britain side as well. And so you're gonna ask them for a term loan for three to five-year term ideally, and they're gonna give you a loan for 6% of that number of the working capital base, and you're gonna pay it down over five years when the term is almost up, you're gonna get a new one and roll the money into another term loan. Now that's that part. So the next thing you're gonna do is you're gonna try to get a line of credit. Now you could talk to Wayfair, you can talk to, Wayfire has a very big enterprise product for companies over two days in sales. They're a good option for that. You could talk to, again, your bank, it's an ideal place for a line of credit. you're going to get a line of credit. A line of credit helps you manage the bucks in your workspace. So let's say where you have to stock up before a sales season, your line of credit will help you do that. And you'll look at them, you know, you're going to finance. So again, you're going to 30% of this is kind of finance with just your operating cash retained earnings. And this bump you're going to finance with your line of credit. Next thing you're going to have a place is like a Shopify, Clearco, Waverly. Kick further one of these things you're just gonna have at the ready. And those are from managing the extreme spikes in the ordering patterns that you have, the working capital base inventory needs that you have. And so there's a very big order, a very big deposit. You have to get in, get out. big payment as a child, I would be best handled by a big payment to get your supplier to ship. So that's 70% after the deposit. You can use that, but you don't want to use that for something that's going to take six months to get here because you'll have paid off the loan before the end of six months. So yeah, so you have your term loan, which is 60% of your work base. line of credit that sits on 6 top. And daily, maybe it would cover 20% wherein capital base. And then you have your Shopify at the ready. PayPal is a good one. Actually, if you can get it, we bought it there, if you can get PayPal, APRs on those are much better than Shopify, it usually requires critical also. So those three things are the ideal and now why?

Megan - 00:17:42: Yeah.

Matt - 00:17:43: So why? Yeah, big one. Now, I saw a LinkedIn their day, somebody from Toronto had a card or a line of credit with Jeeves. Jeeves turned their credit to zero availability overnight without warning, they had the mispayments. And so that is what happens when you have a line of credit. Line of credit is a demand loan, meaning that the bank can shut off your access to it at any point that they wish. They can also demand repayment. Now most banks don't demand repayment, but they can shut it off. And so most people prefer to have a line of credit in place of this term loan. But if you do that and the economy changes, your bank can limit your access to those funds. Well, that is why we have a term loan managing your base of working capital. because the base is there always, and so the money should be there always, not something that you have six months and pay back already. So that's why you have a term low because it limits your risk of exposure to bank action. Then you have a line of credit for those bumps because it's just helpful to have something that you draw down on, then you pay back as you're kind of the C-zone, so the business is salient for and so on. And then Shopify is just that somewhere you can see the money that you could pull if you really have to. But again, I want to emphasize that if you can find a term low from somewhere, definitely use that as part of your strategy. It's just longer-term money, the payments are better, and there's less risk of bank action kind of giving you some problems. And for e-commerce brands, a good term low provider right now is Sellers FIE. We have been doing term loans from 12 to 18 months, which is on the longer side for e-commerce last week. Obviously, you can do SBA or Canada's BDC, a Business Development Bank in Canada, a development bank in Wales, or the Australian or UK counterparts. Those would be a really great place to get a term loan from. If you have a very good relationship with the bank and you've been profitable for a couple of years, you can go straight to your bank and get a better-term loan, even then these government agencies be prepared to offer personal guarantees. That's the ideal structure.

Megan - 00:19:53: And what are some of the biggest challenges that e-commerce businesses face when it comes to financing?

Matt - 00:20:00: Sure. I mean, honestly, I think a lot of people haven't been profitable or around for very long. So those are the two big ones when it comes to financing, right? I mean, and that would be specifically the term loan piece. It's hard to get a term loan if you're not around very long or you haven't been profitable very long or you're not profitable, right? Because the bank's giving money for a number of years. So you have to imagine that they need to believe you're going to be around in three years. And so that's been difficult for people to prove. The other thing is it's really the economy right now. Money was very easy to access and even for but most part for the first half at least. And then the economy has changed. There's now, lenders are very conservative. Even some of the most cavalier e-commerce lenders that are out there have become incredibly conservative. And so it's all about profit. It's all about your economics. It's all about customer economics. And those are the things one needs to prove to a bank. You just know how to manage these things. Even if you're not profitable now, there's a way out to be profitable in the very short term, not 12 months, like three to six months. And that would be the biggest struggle that exists to date in getting financing.

Megan - 00:21:17: I should have asked this before, but where did the name Eightx come from?

Matt - 00:21:21: Yeah, I've always had a hard time. They can give a name for business, even in business school. And one day I read it, oh, there's an old Japanese quote called, um, also times stand up deep. And as an homage to entrepreneurship, I thought it was, it's a little cheesy, but as an homage to entrepreneurship, I thought that would be a name because it's not a prayer to be all many times. And you would just have to keep showing up and typically that's the way just be there long enough.

Megan - 00:21:47: I love that. So let's go back to cash flow again. When it comes to managing cash flow, what key metrics should ecommerce businesses be monitoring? What is it that they should be looking at on a daily or weekly basis?

Matt - 00:22:01: 100%. So the easiest one, first and foremost, is net cash flow. So just how much cash is the business producing? And the way to do this is just to look at your bank notes from one week to the next, what's the difference, and put that on a Google sheet, look at it every single week, have your VA or somebody in the business, put that on a Google sheet and send it to you every week. Very easy. And the next thing I'd like to look at is sort of operating cash flow. Now, if they have regular bookkeeping being done, they should be able to get a handle on this. Operating cash flow is what the business uses cash for, excluding things like lending, paying back the loans, buying equipment, or those kinds of things. And it's a measure of, is the core, are the core operations of your business producing cash or taking cash away? And so I would love people to look at that number. Again, that's one you can all look at every month when your bookkeeper's done. Look at net capital in a week, and look at operating cash at the end of the month. And one more that I'd love people to look at is the cash conversion cycle. It's just a measure of if you pay your supplier today, how long is it gonna take you to collect the cash from your customers? Typically it's 60 to 120 days. It's a very wide range, but retail is like days usually. And so if you can reduce that number, every quarter reduce it by one or two days, you're gonna be swimming in cash in a few quarters.

Megan - 00:23:29: And it seems the last few years have been tumultuous between COVID and now the economy. How can businesses forecast the future when the future seems nearly impossible to predict?

Matt - 00:23:41: Man, that is such a good question. The way to do it is to do the forecast, but you have to do a number of forecasts just the way you handle an uncertain future. What you do and what we do is you make the best-case, worst-case, and base-case scenarios. Base case means this is just what you really think is going to happen. The best case is what if some things go your way? The worst case is what if a bunch of things don't go your way? So she goes up, black matter doesn't do as well as you want it, things like that. And ideally, the reality is caught between those scenarios somewhere. Now you have to build them such that reality should be caught. But if it is, you can then look at a range of scenarios and think of ways to manage each one. You can also decide on investment based on scenarios. So what I mean by that is we were working with a client in Wales and we had these best, worst, without base case set up. The reason we did them was, of course, because you have to when things are uncertain. But also they had an R&D plan in which they wanted to spend grand developing a new product. But we needed to know what the business was going to do. So we made these three scenarios. Every month, what we did is we checked which of these scenarios is coming true. For the first month, it was a base case. Then it started looking like the best case. And so we knew that if this was either between the base or the best, that we could spend the grand on R&D. And we decided that after I believe it was five or six months of allowing the business to run as normal and seeing which case was happening, then we would decide to make the investment or not. And so you can use these scenarios to look at timing what's actually happening. And if your worst case is really bad, like really, like see you run out of money in your worst case. Well, now you know that there's something to be worked on. It's a risk management piece. And so basically the fix is you can't use just one forecast. You have these three to five options, and you have to build a realistic plan, like chicken little work in some ways. And you need to, before these scenarios happen, you need to have planning in place to manage them. and that's the way you do it. You just have to be kind of ready for everything, anything rather, very risk-based, risk-based kind of management, I think is the key right now.

Megan - 00:26:03: Great advice. And having made it to the role of CFO, it seems like you really structured your career in a way that fits your life. What advice do you have for other CFOs out there or aspiring CFOs? How do you get to the role of CFO?

Matt - 00:26:19: Yeah, shake it. In a lot of ways I am lucky, but I was probably, I was 27 when I decided I was gonna be a CFO. And I was 32 when it happened. And the way that I mean, it's not all just what I did. I mean, there's some luck, but anyway, the way that I did it was, it was first firing CFOs. That was my goal. That's what I wanted to do. So every job I looked at was, how is this going to get me closer to that role? And I picked working at small companies over large companies because, in a small company, you get to touch everything. Often you get to work side by side, and already you're a CEO, you get to just touch more parts of the business. And so where this really took off for me was that manufacturer where I was a business Analyst, basically speaking, for those who are waiting to see that, but basically with that small manufacturer, him as a business analyst, he learned the ERP, realized that it was all this data. So then I just did stuff on my own time. I would, during the day, I would be doing my rotation and training, and change management. At night, I would be opening my computer, digging into the ERP, looking at data, all these things, and just trying to build this discordant application that I built, didn't build it at work, built on my own time, and then showed up with it one day, and the boss liked it. And so the key is having a portfolio of successes. When you want to go to your next job, have lots of things that you've done that you can point to, that you've done, that you've helped the business succeed in some way. And as you look to move vertically, you need that. And so I would say for most people, you have a day job, sure. Whatever your day job is, if you want to be an executive, you should probably be doing side projects that no one's asked you to do that are high impact. And then one day just show up to work on a project and impress people or impress the boss. When you do that, again, you're just kind of proving how motivated you are. Well, again, that would be much success. The MLT writes these down. This is what I did. This is how much profit we made. This is how long it took. And these are all really important things to say in your interviews when you're looking for a vertical move. Otherwise, as a CFO, embrace uncertainty, embrace ambiguity, and be able to understand all the aspects of a business, not just finances. And then other than that, it's all relationships. So. Learn how to build relationships quickly. Learn how to build trust and keep it. Learn how to communicate. That's what's fine. See, I mean look, it's a tough job, especially right now, in any business, and I don't know, we're desperately needed. that to be part of the community of CFOs.

Megan - 00:28:59: Yeah, that's awesome advice. Thank you very much for sharing. So last question, what is it that gets you out of bed in the morning? What keeps you motivated and loving what you do?

Matt - 00:29:10: I would say I love having an impact on the people I work with. I don't think that I work for businesses, I work for small business owners. And so meeting the people, the clients that I work with, they're not a name, they're a logo, it's like a person. And so for me, that's always been a motivator, I've always been a people person, I've always cared about people. And so, yeah. I love positively impacting some of life, which you can do, right? You can take the stress away if you build these three scenarios and you can tell them how to manage them. It does, you can see the stress fall off their shoulders. I love helping people manage problems, fix things. I mean, that for me is why I built this business. and why the team that we have today is aligned around the same goal as well. We're all about the people that own the businesses and helping their lives. That's the main thing. And of course, at the root of it all is my family, right? My wife and my kids, I have poor kids. And so providing for them and having a life that we enjoy is hugely motivating.

Megan - 00:30:13: I love that. Matt, thank you so much for being my guest today.

Matt - 00:30:17: This was wonderful, thank you, Megan.

Megan - 00:30:19: Yeah, I've really enjoyed speaking with you, and thank you for finding the time to be here with us today and sharing all of your experience and knowledge. And I wish you and Eightx all the best.

Matt - 00:30:29: Thank you. You too.

Megan - 00:30:30: And to all of our listeners, please tune in next week. And until then, take care.

If you're ready to boost efficiency and streamline your accounting processes at significant cost savings, it's time to talk with Personiv. Their people-powered solutions have transformed the delivery of back-office tasks and general accounting functions for decades, partnering with clients to provide everything from accounts payable to payroll services. See what Personiv can do for you by visiting personiv.com.

You've been listening to CFO Weekly, presented by Personiv. Please subscribe wherever you get your podcasts to hear all of our episodes. Want to learn more? Check out personiv.com. Thanks for listening.