Summary
In this episode of the Ecommerce Finance Podcast, Stephen Brown and Preston Alder discuss the critical aspects of budgeting and forecasting in ecommerce.They explore the importance of understanding cash flow, the phases of financial management, and the strategies for building effective budgets and forecasts.
They emphasize the need for accurate accounting and the flexibility required in planning to adapt to changing business conditions.
Ultimately, they highlight how a structured approach to budgeting and forecasting can lead to profitable growth and reduced stress in managing a business.
Takeaways
- Budgeting provides a clear picture of cash flow.
- Understanding cash flow is essential for daily decision-making.
- A structured budget helps in achieving profitable growth.
- Accurate financials are crucial for effective budgeting.
- Flexibility in planning allows for better adaptation to changes.
- The three phases of financial management are accounting, forecasting, and real-time measurement.
- Marketing and sales forecasts should be based on historical data.
- Cash flow forecasting is vital for inventory management.
- Regular reviews of budgets and forecasts help identify issues early.
- Building a budget requires collaboration across different business functions.
What We Cover:
00:00 Introduction to Budgeting and Forecasting
02:32 The Importance of Budgeting in Business
05:13 Understanding Cash Flow and Its Impact
07:39 The Three Phases of Financial Management
10:22 Building a Budget: The How and Who
12:55 Marketing and Sales Forecasting Strategies
15:35 The Role of Agencies in Marketing
18:17 Lessons Learned from Outsourcing Marketing
20:52 Forecasting for Growth: The 10 Million Dollar Brand
21:59 Annual Cash Flow Forecasting: Strategies and Scenarios
24:13 The Importance of Team Collaboration in Financial Planning
26:01 Navigating Cash Flow and Budgeting Challenges
28:31 The Role of Profitability in Business Growth
30:36 Planning vs. Plans: The Importance of Strategic Flexibility
35:11 The Impact of Profit Focus on Business Operations
Work with LedgerGurus
If you need help with your ecommerce accounting, reach out to us at LedgerGurus. We are an ecommerce-specialized accounting firm, and we give you accurate accounting so you have reliable numbers to base your budgeting and forecasting on and make good decisions with.
Transcript
Stephen Brown (00:00)
Welcome to the Ecommerce Finance Podcast. I’m your host, Stephen Brown, COO at LedgerGurus. In this episode, I have Preston Alder, CEO of Sole Toscana with me to discuss budgeting and forecasting. We’re going to answer what, why, how, who, and when about budgeting and forecasting. So Preston, thanks for joining us. Tell us a little bit about yourself.
Preston (00:20)
Yeah. Happy to be here today. Like you mentioned, I’m an owner-operator of Sole Toscana And, me and Stephen met back in, what was it? 2018 now. can’t. I can’t.
Stephen Brown (00:30)
It’s been a while. Yeah. Preston actually helped us start our marketing at LedgerGurus. Before that it was me, so he took it up in a big, big way.
Preston (00:39)
Yeah, I can’t believe it’s been that long, but, yeah, it was shortly after I graduated from college. it was a part-time gig as I was pursuing something else. And, yeah, I had done. Yeah. So I played golf in college and then pursued it, after college on some mini tours, basically like the minor leagues of golf. And, I wanted to kind of.
Stephen Brown (00:49)
Well, tell us what that something else was.
Grinding it out in Cheyenne, Wyoming.
Preston (01:04)
Yeah, everywhere. was a grind. great experience. I had dabbled in the online business world in college a little bit with some internships and part-time jobs. and so I wanted to keep that skill going while I was golfing and yeah, I met Stephen and Brittany in 2018.
Stephen Brown (01:20)
Brittany is my partner in LedgerGurus, also my wife.
Preston (01:25)
Great duo, love the Stephen and Brittany duo. Anyways, yeah. So learned a ton at LedgerGurus. I wasn’t planning on doing this, but as far as a plug for LedgerGurus, great company to work for, especially like the space that they gave me to learn and figure things out on my own was, is something I thrive in. Well, also giving me resources. So anyways, I learned a lot there.
When I was wrapping up golf, I bought a little online business that required the skills I had learned at LedgerGurus. That was a great experience. And I told Stephen and Brittany, hey, I’m going to probably buy another business.
Stephen Brown (02:05)
And we were like, Whoa, Whoa, Whoa. Like we, we had had this idea. Brittany started LedgerGurus and she said, boy, it’d be great to have a brand that we could learn from more intimately than like our customers. And when we heard that Preston was thinking about going down that path, we were like, Hey, why don’t we go in together? We could, we could probably get a bigger, bigger company than you could on your own and we can support you, but you run it. We’ll support you. So, Preston is the operator with his team. I act as the CFO and Brittany drops in and helps us on special projects from time to time.
Preston (02:39)
Yeah, it’s been a perfect partnership for, I think, the needs that we…
Stephen Brown (02:42)
And we bought the business in 2022, probably at the worst time to buy ecommerce businesses. We kind of knew what we were getting into, but nonetheless, we had some very hard learnings. So one of things I want to talk to Preston about and share with those that are listening is our experiences around budgeting and forecasting. I being playing the CFO role.
Preston (02:48)
Yeah
Stephen Brown (03:10)
I imposed this upon Preston. So I’m not sure what he’s going to say. So he might be like, why this has been a miserable experience. But I want to go through, I want to go through like, you know, five questions, like what is it that we do? Why, as in what are the benefits? What, why, why, why, why should we do it? How do we go about doing it? Who should be involved? And when we do, you know, what is the timing of this? So let me start with the what, since I was the one that imposed this upon you.
Preston (03:16)
You can always add it.
Stephen Brown (03:39)
We do three things and we didn’t actually do this out the gate. It’s kind of been an evolution, but we do an annual budget process. And really that is where we’ll come up with what we think we’re going to do and plug it into a model that tells us, Hey, this is what we think the outcome is going to be. So we’re really, um, we got profit religion in 2023 after burning a lot of cash in 2022. And so we use the budget as a projection of what we think is gonna happen. I then take that and I roll it over into an annual cash flow where we incorporate timing of cash, which is much different than a profit and loss prediction. And most importantly, we integrate a inventory purchase plan. And so we see where the peaks and valleys are around cash. We kind of know that, but it gives you kind of at a monthly basis. And then, tactically, we do a 13-week cash flow, and that gives us very precise insights on what we think we’re going to do. So that’s the what that we’ve done. And we’ve been doing that about two years, isn’t it? We didn’t do it right out the gate. I think we started budgeting pretty quickly, but I don’t think we did our cash flow right out the gate. We probably should have and would have been a lot smarter.
Preston (04:51)
Yeah. Yeah. If I remember it, maybe it’s been even less than that year and a half maybe that we really have utilized it.
Stephen Brown (04:57)
I think, yeah, so we’ve been about, I think we’ve done it for at least two cycles. So I want to ask you the why, because I know why we do this, but before I answer, for you, who’s operating the business, is there benefit to this? Why do you feel like we should do this?
Preston (05:13)
Yeah. First of all, it’s given me a clear picture of how the business works from a cash perspective. Cash is king, right? You hear that in school. And now that we’ve gotten into this, it’s been a real life application of understanding how true that is. So I kind of understand now how the cash flows through the business and the challenges that we have. And now as I’m making decisions every single day, on marketing efforts or, you know, different operations. Those numbers are driving the decisions because I understand them now. they drive decisions that I make every day, right. At a marketing level and operating level. and I know the impact of, of decisions that I make. I’m given these constraints now, right, as an operator of how to spend money and, I know when I’m getting out of those constraints, and there better be some really good strategic reasons if I’m spending more in certain areas than, than normally I shouldn’t. So anyways, it’s, it’s giving me a clear picture of how the business works. Number one and number two, it’s driving kind of decisions that I make daily.
Stephen Brown (06:21)
When I think of a budget or a projection, I have a friend who says, you do projections, not budgets. I’m like potato, potato. I think of a budget or a projection as basically I’m taking what I expect the business to do and my strategy and what the projected outcome will be. It’s never going to go according to plan, but I can guarantee you it’s easy to adjust if you have a plan.
And what we found in that first year is we just went, we bought the business and we just went and we spent and we executed and we spent and we were like, put more money in the business, put more money in the business. And almost not quite a year in, we were like, crap. Like this isn’t working. We’re running out of cash. And then we, we read profit first. We’ll have to do an episode on that. And we really said, no, we want to drive profit and this is how we do it.
Preston (07:03)
Yeah. And then this is kind of getting off subject a little bit, but I’m using Triple Whale to forecast our financials on a daily, weekly, monthly basis. giving us a general idea of how I’m doing right from week to week, month to month. and that all comes back to the budget. Like I know when I’m getting off or if I’m somewhat on track and I can, like you’re saying I can make adjustments, right, even on a weekly monthly basis. And then we’re checking the cashflow, our cashflow projections and actuals. It’s what once a week we check that, right? And I kind of know where we’re at because of Triple Whale, but that gives me a real data of where we’re at with cashflow. And I’m using both of those to make decisions.
Stephen Brown (07:39)
Yeah. Yeah. Yep.
Well, I see like three phases with this. We’ve kind of developed three phases and a lot of companies, they don’t even get past phase one. In fact, some of them don’t even get to phase one. Phase one is good accounting because it’s hard to budget and project without understanding where you’ve been. it’s almost like a virtual circle. So we use our accounting to determine where we are and that informs our budgets and forecasts.
And then the budgets and forecasts inform how you use your analytics, which in this case is Triple Whale. And then we validate that with accounting. So it kind of goes round and round. So we’re constantly adjusting. And I feel like this three phase approach to accounting, forecasting, real time measurement and execution, it’s been a really good cycle for us.
Preston (08:47)
And I feel like over time we’ve gotten tighter on our, our forecasts and actuals, right? At first we were, I think we were wildly off like every month and then slowly it’s kind of come together. And now I think we’re getting within like five to 10%, right. our, and then you can make really good decisions.
Stephen Brown (08:55)
Yeah. Yeah. Yeah. Yeah. And I think that the cashflow part of it, you know, so that’s the budgeting. We’re, we’re executing a plan. The cashflow for me, it’s, it serves two purposes. It’s, I mean, the main one is what, what is the cash cycle going to be? But like last year we went and we were, we were looking at an inventory purchase strategy and we, we layered in a couple of different scenarios to say, what’s the cash impact going to be? Do we have the credit facilities to do that?
And then the 13 week cashflow is that tactical, okay, we’re going to need to tap into credit at this point. So we use kind of the 12 month cashflow to say, how much do we think we’re going to need and when we’re going to need it. And we use the 13 week to actually make those, make that execution on lending because we’ve got this business going, it’s growing fast. And if you’re growing fast, unless you’re wickedly profitable, you’re usually going to have to find a way to pay for inventory outside of profits.
Preston (09:59)
Yeah. And I think that’s where, least for me, and we’ve realized the biggest challenge with an inventory business is we are paying for this inventory that we’re not even selling for months, right? We’re making payments on that way in front. And then when you add on our growth, like you mentioned, you’re making a big bet on the future and buying up this inventory. And so, yeah, we have to know like, okay, how much cash are we going to need based on our budgeting, which is now getting pretty accurate? We’re going to be this far short and we have to figure out, you know, our best options to, fund it, which, yeah, Stephen’s been awesome at, and I think for inventory businesses is crucial, right? At the end of the day.
Stephen Brown (10:39)
Yeah, for sure. I don’t know how we would live without all three of these things. Particularly, mean, the ones that we use the most are the budget and the 13 week, but the annual cashflow kind of helps us as we’re starting the year. We’ll get into the when. But yeah, I don’t know how we would run this thing without those three components.
Preston (10:52)
Yeah. And I just, I just had this thought, I think last year when we did our annual forecast and we saw, we’re good. We have like quite a bit of growth forecasted. I think that’s when you went out and started looking for funding options, which was crucial for this year and moving into next year. Like now we have those options available. So.
Stephen Brown (11:09)
Yep. Yeah. Yeah.
And I see a lot of brands that don’t do these things and they find a way through. But for us, think the, we’ve been able to grow significantly. What was our growth in 2024? 40 % ish. And we increased our profitability significantly at the same time, which if you can do both of those, you know, it’s like walking and chewing gum at the same time. It’s, it’s awesome, but it’s allowed us to drive growth.
Preston (11:31)
Yeah, was about, yeah, almost 40%. 38, 39, yeah.
Stephen Brown (11:46)
intelligently, and as well as stay focused on profitability.
Preston (11:51)
It would have been much more stressful if we didn’t have those funding options with the growth, for sure.
Stephen Brown (11:56)
Yep. And we wouldn’t know how much we need if we hadn’t gone through this exercise. So let’s talk about the how, but before you do that, I want to talk a little bit about our sponsor, is LedgerGurus. If you’re interested in budgeting and forecasting and need help, LedgerGurus are experts in ecommerce and can help you with your budget and cashflow forecasts. Head over to ledgergurus.com and see how their team can help you level up your business today. That’s L-E-D-G-E-R-G-U-R-U-S.com.
All right, let’s talk about the hap
Preston (12:25)
Real quick, having LedgerGurus support Sole Toscana, like I think I take it for granted sometimes, but the accurate financials that we have to plug into like our, budgeting and forecasting and, know, just, I think about the cogs sometimes and how accurate, I can just trust all those numbers when we’re making decisions. I don’t have to like second guess, what the numbers are. it’s, yeah, it’s been amazing to have LedgerGurus as part of, as part of the Sole Toscana team. So yeah.
Stephen Brown (12:55)
Thanks, Preston. Let’s talk about how. Let’s talk about how we go about this process. We’re not going to get into bits and bytes and bring up a spreadsheet because I have a fairly complex model that I do with every customer that I work on. typically what we’re doing is we are building, well, let’s start with the budget. The budget is, I like to use the budget or the 12 month projection as the basis for everything else. Some things are easy.
And some things are hard and we’re going to get kind of the how and the who in this one. So the things that are easier is all of our fixed expenses. kind of know what we’re spending for software and for payroll. We’re fairly lean. We’re a virtual business, but even if we had like property, that’s pretty straightforward because you know what your rent’s going to be. So I do a lot of the fixed expenses. I will also go in and do the cost of goods sold because we have good accounting that makes it fairly easy. I tend to use more of a percentage of income approach, which has worked for us because we’re fairly consistent on our cost of goods sold. I’ll use a percentage of income on the fulfillment because we found that it is more or less a percentage of income. There is some variance, but for budgeting and forecasting that has been accurate. I’m trying to think what else, what else do I do that you don’t Preston?
Preston (14:18)
And you’re just basically you’re going in and looking at P &Ls for trailing months and pulling those.
Stephen Brown (14:23)
Yeah, I’m looking at his historical and looking at those ratios to drive those things. The hard part, and this is where finance can’t do the budgeting forecasting alone is the marketing and the sales. And that’s where I really lean on you Preston, who’s doing that stuff to build that. So tell us a little bit about how you go about building in, building out a marketing and sales plan or forecast.
Preston (14:51)
Yeah, so I think every business is gonna be a little bit unique, but what I’ve found is, okay, look at two different revenue numbers. I’m looking at one, our returning customer revenue, and then number two, our new customer revenue. Our returning customer revenue can be forecasted really accurately based on our acquisition of new customers in the past 12 months, looking at cohorts, kind of the growth. We know the growth of our cohorts over time. So using some of those, yeah, the historical data, can forecast our returning customer revenue pretty accurately. Then you get into new customer revenue. That one’s a little bit more difficult, right? I’m looking at how efficient has our ad spend been, not just
For all customers, but specifically our new customer return on ad spend, right? I have a good idea of where we’ve been with our new customer ROAS and kind of the trend. And I’m looking at year over year data, all of those things. And so I’m saying, okay, based on our new customer ROAS, how much we’re planning to spend in our budget each month, this should be our new customer revenue for each month. At a high level, those are the two things I’m looking at. Then you’re taking your marketing efforts, right? And this is kind of easier on like a quarterly basis, monthly basis, but you’re looking at, okay, what am I planning to do with marketing this next month? How does that compare to what we did last year in the same month? And I can kind of make adjustments, right? On how I think that will impact both returning customer revenue and new customer revenue. yeah, I think we’ve really like dialed that in probably what Stephen in the last like six months, we’ve gotten pretty accurate in that approach. Yeah.
Stephen Brown (16:39)
It’s a continuous process. Know whenever you’re doing budgeting and forecasting, the best way to start is just to start. And then you’re going to make some stupid mistakes. we did not appreciate the holiday calendar this last year until we hit it. And we’re like, our November, December projections are all messed up because Black Friday, Cyber Monday, we didn’t account for that bled over across the month. so I think, you know, there’s a couple of things that I’ve seen.
You do better over time. Better understanding like the cycle, the time of the year, know, what’s gonna work, what’s not gonna work. I think better understanding campaigns and how those are going to impact sales. know, there are those out there that are like, you should build out a daily plan. I don’t think we’re at that level yet. I mean, how granular are you at this point?
Preston (17:33)
Yeah, so at a marketing level, each month, I have like a daily plan every month ahead, but I did like a quarterly, I was doing like quarterly marketing plans. Like, okay, we’re going to do this campaign, you know, mother’s day campaign in May. These are going to be the dates. So I had, I had our main campaigns built out. I actually, did an annual plan last year and plugged in our main campaigns and then each quarter kind of dialed in like exact dates. So then it was getting more weekly.
And then each month, that’s where I get probably more on like a daily basis is like a month ahead. so, and I’ve, and I’ve gotten tighter on that over time. Like I’ve, I’ve been able to, yeah, build those out in a better way over time.
Stephen Brown (18:17)
Now, let me ask you a lot of brands, they are using outsource marketing. We went down that path initially, and it just, it just wasn’t working for us. We’re a smaller brand at this point, but we’re growing very quickly. How would you change your approach if you were leveraging more agencies in terms of the, the helping with creative and, maybe the, the ad campaigns, what would you do differently if you weren’t doing as much of the work, like talk through that.
Preston (18:45)
Yeah, yeah, totally. So for sure, I think when you’re involving more people, your planning just has to be better and more dialed in because there’s communication back and forth, right? So like a few months ago, we went out and got a freelancer for our creative on our ads. Like we needed more creative juice. Wasn’t necessarily my skill. I had kind of been doing it. But now because of that, like I have to have a better plan in place.
A month ahead, two months ahead because I am coming up with the creative concepts that I give her. Then it takes a week or so to get those back. Right. And then I have to plug them into our ads account and, into our structure there. So yeah, I just think the more people you have involved in, like if you’re working with agencies, like especially multiple agencies, your plan just has to be more dialed in in advance to work with them. Right.
Stephen Brown (19:39)
Do you feel like it’s a mistake? mean, we’re small. We kind of did it out of necessity, but we’re growing fast. so Preston wants to spend more because he can. Do you think it’s a mistake or a good thing to throw marketing over the wall as a consumer products brand selling online?
Preston (19:54)
Yeah. So, I think early on, when we were trying to rely on agencies who didn’t completely understand our brand and business. And I didn’t at that point. I think it was a huge mistake, but having me dive in, learn, how to do ads and media buying and, and like, it helped me understand the business better and our brand. Like that was a huge, think super important for where we are today.
And now I know, like we were spending a lot at first to outsource everything, right? With our ads and marketing or a lot of it. But now I have some skills that I’ve learned and I know where we can plug in much smaller expenses to give me the juice that I need to like work with the vision that I now have and understanding I have. So, so we, we get a lot more out of our agency spend now than we did before. And I know what.
type of agencies and people to look for, right? But I wouldn’t have known that if I didn’t dive in and learn it myself and realize where my weaknesses were, right?
Stephen Brown (20:52)
So how? We’re not there yet, but if you fast forward, how do you feel like your approach would change if you were a 10 million dollar plus brand?
Preston (21:08)
Yeah, think fundamentally the budgeting approach would be the same.
Stephen Brown (21:12)
Just more people involve different people doing different things.
Preston (21:14)
Yeah, I’d have to probably do it further in advance more communication between different people But I would hope as it depends how involved I am with the operations at that point But I would hope I’m involved enough that I could still do a lot of the build out on the forecasting But yeah, I may need to rely a little bit more on other people or just there’s gonna be more data at that point that I have to sift through and figure out but
Stephen Brown (21:40)
So let’s talk about the second and third part of the what, which is the annual cash flow forecast and then the 13 week. On the annual cash flow forecast, a lot of it is finance, accounting work, understanding the timing of cash flow. The big thing that we do you come up with a couple of scenarios for.
inventory purchase schedules base. that gets derived, if I’m not mistaken, that gets derived from marketing sales plan.
Preston (22:01)
Yeah. Yep, yeah, I’m working back from our revenue plan to get to inventory numbers and forecasts, yep.
Stephen Brown (22:16)
So we come up with a couple scenarios, how we could do this many orders and this time frame. And then we plug that into the machine to see what’s going to happen. Do we have the credit facilities? What are the pros and cons of more orders or less orders? I think that gives us the constraints for.
Can we do more orders or less orders or bigger orders? What’s the dynamic? And that’s usually a function of cash and logistics. We’re also looking at our manufacturers and what the nuances of them are. And then we usually stick to an approach, an order strategy, and then we roll into our 13 week cashflow, which is giving us that tactical insight. And I’m doing like a hundred percent of that, but we’re discussing it together. So I’m doing the calculations on the 13 week. We go over it. We make some tweaks or what are we going to do here? What about this? Okay. It looks like we’re needed to draw kind of staying aware. How did we do against plan? Okay. Do we need to adjust? Yeah.
Preston (23:24)
This is what I’m seeing on the marketing level. I think we need to adjust here. Yeah.
Stephen Brown (23:30)
So we’ve already kind of talked about the next two things. So the who and then we’ll get to the when, but the who is really clear. I mean, if you’re a savvy person, you could probably do this all yourself, right?
Preston (23:40)
Yeah. I mean, but the model you’ve built, like that, that took time, right? To build out that model. And it was a lot of work.
Stephen Brown (23:44)
Yeah. Yeah, so you could do it if you have a strong financial or accounting background, you could do it all yourself, but you don’t usually see the skill sets to do it all in one person or in one group. So usually I’m doing kind of the modeling and the stuff that’s easy to forecast. You’re doing you being marketing. If we’re a bigger company, it might be multiple people.
If you had an inventory planning team or some sort of a supply chain team, they might be involved with the inventory thing, but we’re all coming together. We’re bringing, right now it’s easy because it’s just me and you. If we had more people involved, it might be a couple more people around a table where we’re looking at each component, but they’re all interrelated.
And I don’t think in reality, I don’t think, you know, if you’re outsourcing your marketing, you, you may need to work with an outsource CMO on the marketing plan, building that out. If you, you know, had a supply chain person that maybe each piece kind of feeds together.
Preston (24:48)
Yeah. it’s easy with just two people. kind of have a good grasp on everything that’s happening. and for me, yeah, we can see how it’s going to get more complicated. And here’s what I’ll say. In addition is like, marketing is so important to the business right now and the growth and the profit, like the efficient marketing efficiency.
Stephen Brown (24:53)
But we can see how it’s gonna get more complicated.
Preston (25:08)
You know, impact so much of, of the business. I think if I, if I didn’t have you and that the LedgerGurus team that, you know, gives us the numbers, but I don’t know if I, I would, I know it’s super important. know forecasting and budgeting and all that and cashflow is super crucial to the business, but I don’t think I would have built that. I would have been spending so much time on marketing and prioritize that.
And probably done very simplistic forecasting and budgeting. but now looking back, like, because we’ve done that and we’ve gotten good at it, it has impacted me so much in marketing and operations. I don’t think we would be close to where we’re at today without the budgeting and forecasting that I probably wouldn’t have done without you guys. Right.
Stephen Brown (26:01)
Well, what I’ve seen working with other companies is most people, and if you’re listening to this, there’s a good chance you have some sort of a cashflow forecast. You very quickly realize you need that. So I see that everybody has their cashflow spreadsheets and their inventory forecast spreadsheets because…
Preston (26:12)
Needed. How accurate would you say that, like on average, when you see a seven, eight figure brand, how accurate is it? And is it really like driving good decisions?
Stephen Brown (26:26)
I’ve seen some pretty good cashflow forecasts. What I don’t usually see is budget projections. So people, have to do the cashflow because you have to, you’re like, I’m running out of cash. Okay, I got a cashflow. I got to go get some facilities. They’ll do stupid things like Shopify loans or Amazon loans, because that’s what they know about. And that’s a whole different conversation. But for me, what’s missing is the strategic, how do we not just grow?
And how do we cover cash needs? But how do we grow profitably? And I think that’s hard to do without a multi-month, a 12-month forecast. And that provides like rails on how we’re going to execute our strategy. It doesn’t go according to plan. So I don’t see that enough. And then I…
Preston (27:10)
Hmm. So, so lacking,
You see these companies using cashflow because they have to, but they, because they’re not plugging it into a budget and working against that, the profitability struggles with the growth.
Stephen Brown (27:15)
They have to.
And part of the reason they don’t have that is if you don’t, know, to bring it back to accounting, if you don’t have good accounting, you don’t even know. It’s so much harder to do. You don’t even know if you’re profitable sometimes. We have a lot of customers come to us just asking like, I don’t know if I’m profitable because on a cash basis, it’s really messy and accrual accounting is hard, especially for ecommerce. And so you kind of have to start there to be able to do the budgeting. You don’t necessarily have to have that to do the cashflow forecasting. You can kind of.
Preston (27:38)
Crazy.
Stephen Brown (27:53)
Tease that out. And so that’s why I see that a lot of times. But I think they’re missing it when they don’t do all of the components because the budget is we want to achieve an outcome of growth and of profit.
Preston (28:06)
I almost think of the budget as like, it’s a P and L forecast, right? Like, yeah. And cause then I’m, I’m using like past data to plug into Triple Whale That gives me like almost a daily weekly projection of our P and L, which is probably like, I don’t know how many companies have that, but, but that wouldn’t be like nowhere near possible without the budget and P and L.
Stephen Brown (28:10)
It’s a P &L forecast, yeah.
Good. Yeah. Good, profit and loss in ecommerce. we rarely see them with a new customer, even among seven and eight figure brands will come in and it’s a, it’s a mess because there’s so much complexity. But without that, that historical information, it’s hard to come up with a budget. And the budget is what we use to determine profit, how we’re, how we’re going to achieve a profitable outcome or a growth outcome. and I think pre COVID bust. So there was the COVID peak.
Preston (28:32)
Thank
Stephen Brown (28:59)
It was really easy to just be like, grow, grow, grow, grow. Maybe I’m not profitable, but I’m growing. You know, I’m taking some money out. And I think what you and I came to is like, no, we don’t want to just grow. We want to, we want to put some money into our pockets. We want to have a business that’s valuable as we’re growing. And when you, when you decide to go down that path, it changes your relationship with accounting and finance.
Because you realize like this isn’t just nice to have to throw out the accountant at the end of the year for taxes. This is how we achieve an outcome.
Preston (29:35)
Yeah. Yeah. I feel like, and before we became profit focused, the stress on the business, just running it daily and thinking about it was, it was super high. And as we became profit focused and gained a real understanding of what was happening and our, but just the change in the, like the business was no longer.
Stephen Brown (29:47)
Yeah.
Preston (29:58)
I mean, it’s still running a business. There’s stress, there’s stuff that pushes you, it’s yeah, curve balls, but it’s manageable. And, and it feels like we have control. I feel like there’s control of the business and, and you can be more strategic. You can, there’s so much and it’s just, yeah, it’s less stressful.
Stephen Brown (30:02)
Yep, curve balls.
Well, there’s a quote that I’ve, see, I’ve been a big budgeter for a long time. I’ve imposed it on every business that I’ve led. And there’s a quote that I always use. It’s from Dwight Eisenhower. And it says, In preparing for battle, I have always found that plans are useless, but planning is indispensable.
Or another way to say it plans are nothing planning is everything. And the reason why I think this makes sense is nothing goes according to plan. But if you’ve gone through a planning process, you know how to adjust. you, you’re not just reacting. You’re like, okay, what if we do this differently? You know, we have a framework for decision-making that we’ve used. And then I think it’s also helpful as we wrapped up 2024, we’ve done a preliminary analysis on how it went.
And we’re like, Hey, where did we get off? And what was it about our assumptions or approach that were off and how do we apply those learnings into the next year? And like I said, I see a lot of seven and eight figure brands that I’ve worked with that will have components of this, but they don’t embrace it. It’s expensive. Let’s be honest. Doing this takes time or money, right? If you’re going to use somebody like myself, it’s going to take money for me to build you a model.
And to maintain that model. But, you know, is the investment worth it? My experience has always been yes.
Preston (31:39)
Yeah. And you made a good point in there, looking back at 2024 and where we were off a little bit and making adjustments. feel like, um, in general, having the budget and the forecast and the cashflow and, uh, reviewing those frequently, we see where we’re off very quickly and we see where the struggles in the business, like where we need to make improvements, right?
Stephen Brown (32:00)
Yeah.
Preston (32:05)
That I feel like otherwise you wouldn’t catch until it’s too late or there’s it’s really messy, right?
Stephen Brown (32:11)
Or opportunities will come up. We, we analyzed a couple of opportunities last year. We’ve got a framework for how to layer in that decision-making process. can remember multiple situations where we were looking at, we go down this path and do we do it now? And what is the, what is the cost and what do we think the benefit is? And what do we think reality? And we used this kind of framework for decision-making, this financial framework as a way to make better decisions versus I think a lot of people.
We’ll just be like, Phil’s right, go do it. And sometimes that works. think you, that’s where that, that entrepreneurial magic is. But at some point it gets too complicated to just go off of your gut. There’s, there’s kind of an informed analysis that you have to do. So let’s talk about the when. So we are working on our 2025 forecasts and budgets. So we usually do get that going at the end of the previous year.
Preston (32:41)
Yeah.
Stephen Brown (33:06)
We tend to wrap it up. think for a consumer products business that is very tied to the typical cycle of end of year being a peak, January, unless you’re like a winter product, January tends to be slow. So it’s a good time to finish up your plans. But we usually, want some level of guidance in January, but January, we tend to keep it simple on the execution front.
And so we’ll spend the first few weeks of January finalizing our strategies. And then I’d say monthly, we are revisiting our sales and marketing forecasts, making adjustments for the next month, sometimes two to three months at a time. We, I think we did a fairly
Preston (33:49)
Especially if we have an inventory order we need to finalize, right? You have to, yeah.
Stephen Brown (33:52)
Yeah, we’ll dial that in. Or if we see if we’re starting to get off track, I see usually plans will start to vary by the middle of the year. And you need to do like a mid-year adjustment, one way the other. It’s like, we’re doing better than we thought, we’re doing worse than we thought. And so sometimes it’s good to do a mid-year adjustment to account for whatever direction of variance there is. And then I think on a weekly basis, we’re talking about cash every week. We’re just taking a look.
Here’s what here was where we are. Here’s what the 13 week forecast shows. Here’s where the issues are. Okay, this is what we’re going to do. And if the issues are related to
Something like we’re not executing according to strategy. We’ll go back and be like, Hey, what’s, what’s not working? How do we adjust the plan?
Preston (34:37)
Yeah. And that weekly cashflow check, sometimes it’s like five minutes, right? It’s like, okay, here’s where we’re at. Everything is looking good. We’re on track.
Stephen Brown (34:41)
Yeah.
Especially if we’re ahead of plan on sales because more sales usually equals more cash, but too many sales could equal, oh, we need to get ahead on our inventory plan or inventory purchase plan because we’re, you know, we’re getting ahead of ourselves. So either way, if you’re doing really doing better than planned, doing worse than planned, there’s going to be impacts either way that you need to adjust to quicker than usual.
Preston (34:48)
Yeah.
Stephen Brown (35:11)
So there we have it. Hopefully this has been helpful. Final thoughts, Preston, on budgeting and forecasting.
Preston (35:17)
Yeah. for Sole Toscana think it’s been, first of all, becoming profit focused as, as when we realized we needed to focus on budgeting and forecasting. but, yeah, I think for Sole Toscana it’s been crucial to the business and not only having like good growth, but like you mentioned, profitable growth.
And just the stress levels that have decreased and the benefits we’ve seen have been huge on so many levels. So yeah, it’s something I will never go without in my business ventures.
Stephen Brown (35:49)
And for me, I think if you want to achieve an outcome, you need to have some sort of a plan. winging it works only so far. Let’s just put it that way. Winging your way to success. I’ve seen some people that have had a lot of luck and if you’re in a good market,
you can get away with a lot. But when things get tough, that being deliberate about your approach becomes more important than ever. And then I think as you do that, I think it allows for better execution in a good market.
Preston (36:17)
Yeah. I think I saw friends over the last, I don’t know, decade or so in ecommerce who some of them were part of that luck, right? They got in at the right time, right product. Things went well and things have gotten harder in ecommerce the last few years. And I think it’s those who built the right skills and had the right foundation in place, right? That got through that. Others who didn’t. And if you do it the right way, then you, yeah, you can get through the hard times and capitalize on the good times. Right. So, yeah, I think I’ve, I’ve definitely seen that and you guys probably at a bigger level with more, more clients. So, yeah.
Stephen Brown (36:57)
Yes.
All right, well, let’s call that a wrap on this episode. If you need some help, reach out to LedgerGurus. And if you want to engage with us on the socials, feel free to do so. We’ll catch you on the next episode.
Preston (37:10)
I don’t think we even said what Sole Toscana sells. If you need some good skin care, this is actually a new, our new product, the hand cream made on our Italian farm in Italy. But yeah, the products are certified organic by an EU organization. Great products. It’s a great gift for, and honestly, like males love the product. It’s the brand is made for, for women, but both women and men love the products.
Stephen Brown (37:14)
Yeah.
Preston (37:35)
Yeah, really good stuff.
Stephen Brown (37:37)
Yeah, we’ll have to do a plot the next time we do it up. we’ll have to talk about actually what we sell. So get some nice organic Italian skincare. That’s soletoscana.com All right, catch you next time.
Preston (37:47)
Amazing. Thanks, Stephen.