The Silent Killer of Physical Goods Businesses | Nate Littlewood

Nate Littlewood, fractional CFO for e-commerce and CPG brands, unpacks why finance is often the missing layer in scaling a physical goods business. Many founders avoid their numbers due to cognitive dissonance—preferring the identity of a successful product creator over the reality of a cash-bleeding operation. Nate explains how to overcome this fear and turn financial statements into strategic allies. The conversation dives deep into the "silent killers" of physical goods growth, specifically the cash conversion cycle. When a business scales too fast without managing this cycle, incremental cash tied up in inventory can exceed generated profit, leading to a company that is simultaneously profitable but cash-flow bankrupt. He also highlights hidden profitability leaks, such as the gap between gross and net revenue and exorbitant financing costs driven by the fear of stocking out. Finally, Nate provides a framework for using finance proactively. By tracking core metrics like contribution margin and the current ratio, founders can transition from stressed, reactive operators to confident decision-makers. Finance shouldn't just be an end-of-month reporting chore; it should act as an "assistant decision maker" that guides strategic growth and prevents costly missteps.

Discussed in this episode

• Founders often avoid finance due to cognitive dissonance between their product's perceived success and the harsh reality of their financial statements.
• Contribution margin acts as the earnings engine room of a business, dictating how much overhead the company can safely carry.
• In bootstrapped physical goods businesses, finding a near-term pathway to profitability is a matter of life and death compared to VC-backed software models.
• The cash conversion cycle is the ultimate growth constraint because cash locked in inventory cannot be deployed for ads, hiring, or product development.
• Hyper-growth can actually bankrupt a profitable physical goods business if the cash required for future inventory outpaces the cash generated from current sales.
• Repeat purchase rate heavily influences a brand's financial math by eliminating the need to constantly buy new customers or bribe old ones to return.
• A low current ratio immediately reveals a founder who is distracted by short-term cash flow stress and angry vendor calls instead of focusing on strategic growth.
• Profitability often leaks significantly in the gap between gross and net revenue through coupons, returns, and shipping adjustments.

Episode highlights

1. 0:00 — The hardest sales job and the cash conversion cycle
2. 2:15 — Why founders avoid finance and experience cognitive dissonance
3. 5:30 — Defining the contribution margin engine room
4. 8:45 — The tension between growth and profitability for bootstrapped brands
5. 11:20 — How the cash conversion cycle dictates physical goods growth
6. 14:10 — The paradox of growing broke while remaining profitable
7. 18:00 — Key health metrics: Repeat purchase rate and current ratio
8. 21:40 — Discovering major profit leaks in gross vs. net revenue
9. 24:30 — The silent killers of excess inventory and financing costs
10. 28:00 — Shifting finance from a reactive chore to a strategic growth lever
11. 31:15 — Rapid fire: Profitability, growth hurdles, and revenue vs profit

Key takeaways

• Cash tied up in inventory starves your ability to scale.
• Cognitive dissonance makes founders ignore financial red flags to protect ego.
• Contribution margin dictates the overhead your business can actually support.
• Physical goods businesses can be profitable on paper but cash bankrupt.
• Gross vs. net revenue gaps are where e-commerce margins silently bleed.

Transcript

The biggest challenge that we see around The biggest challenge that we see around The biggest challenge that we see around growth and the rate of growth in the growth and the rate of growth in the growth and the rate of growth in the physical goods space comes from this physical goods space comes from this physical goods space comes from this thing called the the cash conversion thing called the the cash conversion thing called the the cash conversion cycle. I led sales once for a physical cycle. I led sales once for a physical cycle. I led sales once for a physical goods company and I often refer to it as goods company and I often refer to it as goods company and I often refer to it as the hardest sales job I ever had.

The the hardest sales job I ever had. The the hardest sales job I ever had. The problem with having a long cash problem with having a long cash problem with having a long cash conversion cycle is there's literally conversion cycle is there's literally conversion cycle is there's literally nothing else you can do with that cash nothing else you can do with that cash nothing else you can do with that cash while it's locked up in there. You can't while it's locked up in there.

You can't while it's locked up in there. You can't spend that money on ads. You can't spend spend that money on ads. You can't spend spend that money on ads.

You can't spend that money on hiring people. You can't that money on hiring people. You can't that money on hiring people. You can't invest that money in new product invest that money in new product invest that money in new product development.

Welcome back to another episode of the Welcome back to another episode of the Welcome back to another episode of the Bridge the Gap podcast powered by Bridge the Gap podcast powered by Bridge the Gap podcast powered by Revenue Reimagine. Today's guest is Nate Revenue Reimagine. Today's guest is Nate Revenue Reimagine. Today's guest is Nate Littlewood who's a fractional CFO and Littlewood who's a fractional CFO and Littlewood who's a fractional CFO and founder of Future Ready CFO who helps founder of Future Ready CFO who helps founder of Future Ready CFO who helps e-commerce and CPG founders turn e-commerce and CPG founders turn e-commerce and CPG founders turn financial chaos, I love that word, into financial chaos, I love that word, into financial chaos, I love that word, into clarity and confidence.

After building clarity and confidence. After building clarity and confidence. After building and scaling his own sevenf figureure and scaling his own sevenf figureure and scaling his own sevenf figureure e-commerce company and spending nearly a e-commerce company and spending nearly a e-commerce company and spending nearly a decade on Wall Street, he focuses now on decade on Wall Street, he focuses now on decade on Wall Street, he focuses now on helping founders understand their helping founders understand their helping founders understand their numbers so they can make better numbers so they can make better numbers so they can make better decisions. We're going to talk about decisions.

We're going to talk about decisions. We're going to talk about bridging the gap between growth and bridging the gap between growth and bridging the gap between growth and profitability, showing why finance is profitability, showing why finance is profitability, showing why finance is often the missing layer in properly often the missing layer in properly often the missing layer in properly scaling a business. Nate, welcome to the scaling a business. Nate, welcome to the scaling a business.

Nate, welcome to the show. show. show. >> Thank you, Adam.

Appreciate the intro >> Thank you, Adam. Appreciate the intro >> Thank you, Adam. Appreciate the intro and uh great to be with you guys today. and uh great to be with you guys today.

and uh great to be with you guys today. Nate, thanks for uh joining. I'm like Nate, thanks for uh joining. I'm like Nate, thanks for uh joining.

I'm like deep inside of this with a bunch of deep inside of this with a bunch of deep inside of this with a bunch of founders, so I look forward to this founders, so I look forward to this founders, so I look forward to this conversation. But I want to jump right conversation. But I want to jump right conversation. But I want to jump right into the fire and really find out why into the fire and really find out why into the fire and really find out why founders avoid finance.

So you work with founders avoid finance. So you work with founders avoid finance. So you work with a lot of founders who scaled but don't a lot of founders who scaled but don't a lot of founders who scaled but don't fully understand their numbers. Why does fully understand their numbers.

Why does fully understand their numbers. Why does this happen? this happen? this happen?

>> Yeah. Well, many reasons. I think one of >> Yeah. Well, many reasons.

I think one of >> Yeah. Well, many reasons. I think one of the most common reasons that I see come the most common reasons that I see come the most common reasons that I see come up is and this is especially true I up is and this is especially true I up is and this is especially true I think for founders that are very think for founders that are very think for founders that are very missionled purposeled is that there's missionled purposeled is that there's missionled purposeled is that there's this concept called cognitive dissonance this concept called cognitive dissonance this concept called cognitive dissonance which means that it's really hard for us which means that it's really hard for us which means that it's really hard for us humans to hold two different and and humans to hold two different and and humans to hold two different and and conflicting narratives in our head at conflicting narratives in our head at conflicting narratives in our head at the same time. It's a bit like, you the same time.

It's a bit like, you the same time. It's a bit like, you know, you couldn't walk around and know, you couldn't walk around and know, you couldn't walk around and saying, "Hey, I'm Dale. I'm a nice guy, saying, "Hey, I'm Dale. I'm a nice guy, saying, "Hey, I'm Dale.

I'm a nice guy, but I also murder puppies." Right? Like, but I also murder puppies." Right?

Like, but I also murder puppies." Right? Like, one of those things kind of has to be one of those things kind of has to be one of those things kind of has to be true. Like, if you murder puppies, you true.

Like, if you murder puppies, you true. Like, if you murder puppies, you can't really say that you're a nice guy. can't really say that you're a nice guy. can't really say that you're a nice guy.

>> How How do you know that he does that? >> Your secrets are exposed. Sorry, you're >> Your secrets are exposed. Sorry, you're >> Your secrets are exposed.

Sorry, you're right. If you murder puppies, you can't right. If you murder puppies, you can't right. If you murder puppies, you can't be a nice guy.

be a nice guy. be a nice guy. >> Exactly. So the the way this relates to >> Exactly.

So the the way this relates to >> Exactly. So the the way this relates to the question is that a lot of founders the question is that a lot of founders the question is that a lot of founders like to tell themselves they like to like to tell themselves they like to like to tell themselves they like to tell their friends and families that tell their friends and families that tell their friends and families that they've got this amazing company called they've got this amazing company called they've got this amazing company called product where you know putting this product where you know putting this product where you know putting this brilliant product or service out in the brilliant product or service out in the brilliant product or service out in the world. But sometimes the finances can world. But sometimes the finances can world.

But sometimes the finances can tell a very different story. And tell a very different story. And tell a very different story. And sometimes the finances for the exact sometimes the finances for the exact sometimes the finances for the exact same business at the same time might say same business at the same time might say same business at the same time might say uh well actually no that's not entirely uh well actually no that's not entirely uh well actually no that's not entirely true.

You kind of suck right now. um true. You kind of suck right now. um true.

You kind of suck right now. um you're not making any profit and you're you're not making any profit and you're you're not making any profit and you're bleeding cash, things actually look bleeding cash, things actually look bleeding cash, things actually look pretty terrible and it can be really pretty terrible and it can be really pretty terrible and it can be really confronting for a founder and business confronting for a founder and business confronting for a founder and business owner to, you know, have to house and owner to, you know, have to house and owner to, you know, have to house and accommodate these two different accommodate these two different accommodate these two different narratives. And so a big part of what I narratives. And so a big part of what I narratives.

And so a big part of what I try to do with my clients and through my try to do with my clients and through my try to do with my clients and through my work as a fractional CFO is to help them work as a fractional CFO is to help them work as a fractional CFO is to help them build a more productive and healthy build a more productive and healthy build a more productive and healthy relationship with their finances, relationship with their finances, relationship with their finances, overcome some of this initial fear and overcome some of this initial fear and overcome some of this initial fear and intimidation and eventually get people intimidation and eventually get people intimidation and eventually get people to the point where they can recognize to the point where they can recognize to the point where they can recognize and and you know treat their financial and and you know treat their financial and and you know treat their financial statements as a strategic ally that can statements as a strategic ally that can statements as a strategic ally that can actually help them scale their business actually help them scale their business actually help them scale their business smarter with less stress and um you know smarter with less stress and um you know smarter with less stress and um you know in a in a more careful and intentional in a in a more careful and intentional in a in a more careful and intentional way. way. way. >> You say sometimes, but I think you mean >> You say sometimes, but I think you mean >> You say sometimes, but I think you mean many times.

Um, many times. Um, many times. Um, >> most of the time, maybe. >> most of the time, maybe.

>> most of the time, maybe. >> Most of the time. I was going to go >> Most of the time. I was going to go >> Most of the time.

I was going to go there, but I I decided it would get come there, but I I decided it would get come there, but I I decided it would get come in the middle. Um, in the middle. Um, in the middle. Um, I I have So, I understand where where I I have So, I understand where where I I have So, I understand where where your cognit cognitive dissonance comes your cognit cognitive dissonance comes your cognit cognitive dissonance comes from.

I also believe it's because some from. I also believe it's because some from. I also believe it's because some of it they just don't know. Um, in fact, of it they just don't know.

Um, in fact, of it they just don't know. Um, in fact, they don't have the right processes in they don't have the right processes in they don't have the right processes in place to get the numbers to where they place to get the numbers to where they place to get the numbers to where they want to be. want to be. want to be.

>> They have a number in their head, >> They have a number in their head, >> They have a number in their head, whether it's from an investor, some whether it's from an investor, some whether it's from an investor, some other person they talk to, some other person they talk to, some other person they talk to, some pretended growth uh growth number that pretended growth uh growth number that pretended growth uh growth number that you need year-over-year. and they come you need year-over-year. and they come you need year-over-year. and they come from a top- down perspective versus like from a top- down perspective versus like from a top- down perspective versus like a bottoms up perspective where the where a bottoms up perspective where the where a bottoms up perspective where the where reality and the goals should come and reality and the goals should come and reality and the goals should come and meet together.

And I think meet together. And I think meet together. And I think >> they're afraid what the real picture is >> they're afraid what the real picture is >> they're afraid what the real picture is sometimes of if I sometimes of if I sometimes of if I acknowledge my financial situation or I acknowledge my financial situation or I acknowledge my financial situation or I acknowledge that my GRR is under 90% or acknowledge that my GRR is under 90% or acknowledge that my GRR is under 90% or getting to 85% but my NRR is going to getting to 85% but my NRR is going to getting to 85% but my NRR is going to 120. Like there's fundamental business 120.

Like there's fundamental business 120. Like there's fundamental business challenges in the in the business and it challenges in the in the business and it challenges in the in the business and it could be you know do I have the right could be you know do I have the right could be you know do I have the right people? does my product really not know people? does my product really not know people?

does my product really not know like do what my product's supposed to like do what my product's supposed to like do what my product's supposed to do? So they're afraid of that like as do? So they're afraid of that like as do? So they're afraid of that like as you unwind the string it could be like a you unwind the string it could be like a you unwind the string it could be like a very like you may not end up with a very like you may not end up with a very like you may not end up with a sweater.

So sweater. So sweater. So >> yeah. Yeah.

No, that's a good way of >> yeah. Yeah. No, that's a good way of >> yeah. Yeah.

No, that's a good way of putting it. I think you're absolutely putting it. I think you're absolutely putting it. I think you're absolutely right.

I mean a lot of the people a lot right. I mean a lot of the people a lot right. I mean a lot of the people a lot of time founders are just afraid of what of time founders are just afraid of what of time founders are just afraid of what the finances might tell them and afraid the finances might tell them and afraid the finances might tell them and afraid that it might say okay you think this is that it might say okay you think this is that it might say okay you think this is working but really it's not and working but really it's not and working but really it's not and >> and if I ignore the problem it's not a >> and if I ignore the problem it's not a >> and if I ignore the problem it's not a problem right problem right problem right >> yeah and we have have a tendency to just >> yeah and we have have a tendency to just >> yeah and we have have a tendency to just put our heads down work harder and say put our heads down work harder and say put our heads down work harder and say okay I'm going to grind grind grind okay I'm going to grind grind grind okay I'm going to grind grind grind hustle hustle hustle I'll try to grind hustle hustle hustle I'll try to grind hustle hustle hustle I'll try to grind and hustle my way out of you know and hustle my way out of you know and hustle my way out of you know whatever financial problem I'm I'm in whatever financial problem I'm I'm in whatever financial problem I'm I'm in and do more of the thing that makes us and do more of the thing that makes us and do more of the thing that makes us feel productive, but often that thing feel productive, but often that thing feel productive, but often that thing that makes us feel productive is not that makes us feel productive is not that makes us feel productive is not actually what the business needs you to actually what the business needs you to actually what the business needs you to do. And sometimes the business might do.

And sometimes the business might do. And sometimes the business might need you to do something different in need you to do something different in need you to do something different in order to get the financial outcomes that order to get the financial outcomes that order to get the financial outcomes that you really want it to be generating for you really want it to be generating for you really want it to be generating for you. you. you.

>> Yeah, there's a difference between >> Yeah, there's a difference between >> Yeah, there's a difference between productive and busy. productive and busy. productive and busy. >> Productive and busy.

I was just going to >> Productive and busy. I was just going to >> Productive and busy. I was just going to say the same thing. Yeah.

say the same thing. Yeah. say the same thing. Yeah.

>> So like they are busy but they're not >> So like they are busy but they're not >> So like they are busy but they're not productive. So we like to feel busy. productive. So we like to feel busy.

productive. So we like to feel busy. >> Yes. Yeah.

And if you if you just hide >> Yes. Yeah. And if you if you just hide >> Yes. Yeah.

And if you if you just hide the problem, it it doesn't exist. It's the problem, it it doesn't exist. It's the problem, it it doesn't exist. It's like it's like my kid, right?

Like if if like it's like my kid, right? Like if if like it's like my kid, right? Like if if I if I if I don't tell anyone I did bad I if I if I don't tell anyone I did bad I if I if I don't tell anyone I did bad on the test, I'm never going to get on the test, I'm never going to get on the test, I'm never going to get caught cuz I didn't really do bad on the caught cuz I didn't really do bad on the caught cuz I didn't really do bad on the test. test.

test. >> Yeah. That's not really how it works, >> Yeah. That's not really how it works, >> Yeah.

That's not really how it works, >> Nate. When you're when you're talking to >> Nate. When you're when you're talking to >> Nate. When you're when you're talking to founders, like there there's so many founders, like there there's so many founders, like there there's so many different numbers that founders focus different numbers that founders focus different numbers that founders focus on, right?

Or or should focus on. on, right? Or or should focus on. on, right?

Or or should focus on. >> What is the first number, like the real >> What is the first number, like the real >> What is the first number, like the real thing, the very first thing that every thing, the very first thing that every thing, the very first thing that every founder actually needs to really founder actually needs to really founder actually needs to really understand? understand? understand?

So, I think one of the first things I So, I think one of the first things I So, I think one of the first things I I'm a fractional CFO here. You're really I'm a fractional CFO here. You're really I'm a fractional CFO here. You're really putting me under pressure trying to putting me under pressure trying to putting me under pressure trying to distill it down to one.

But if you distill it down to one. But if you distill it down to one. But if you absolutely forced me to, I would absolutely forced me to, I would absolutely forced me to, I would probably say contribution margin uh probably say contribution margin uh probably say contribution margin uh which is essentially a a measure of which is essentially a a measure of which is essentially a a measure of gross profit after the cost of uh gross profit after the cost of uh gross profit after the cost of uh acquiring customers. And the way I acquiring customers.

And the way I acquiring customers. And the way I describe it to people is it's basically describe it to people is it's basically describe it to people is it's basically the the earnings engine room of your the the earnings engine room of your the the earnings engine room of your business. And the size and strength of business. And the size and strength of business.

And the size and strength of this engine room tells us how large of a this engine room tells us how large of a this engine room tells us how large of a burden in terms of overhead or indirect burden in terms of overhead or indirect burden in terms of overhead or indirect costs uh this vehicle that we call a costs uh this vehicle that we call a costs uh this vehicle that we call a business is actually able to to carry business is actually able to to carry business is actually able to to carry and maintain. Um it doesn't make any and maintain. Um it doesn't make any and maintain. Um it doesn't make any sense if we've got a you know $20,000 a sense if we've got a you know $20,000 a sense if we've got a you know $20,000 a month uh engine room with $50,000 a month uh engine room with $50,000 a month uh engine room with $50,000 a month of overheads, right?

that's going month of overheads, right? that's going month of overheads, right? that's going to be dragging us backwards. So, uh, if to be dragging us backwards.

So, uh, if to be dragging us backwards. So, uh, if you really you really you really >> what's a healthy number >> what's a healthy number >> what's a healthy number >> in terms of the the margin and the >> in terms of the the margin and the >> in terms of the the margin and the spread. spread. spread.

>> Yeah. >> Yeah. >> Yeah. >> Well, it depends a lot on the industry >> Well, it depends a lot on the industry >> Well, it depends a lot on the industry in the business and their, you know, in the business and their, you know, in the business and their, you know, distri distribution uh that they're distri distribution uh that they're distri distribution uh that they're using.

In the ecom space, I would using. In the ecom space, I would using. In the ecom space, I would generally like to see at least kind of generally like to see at least kind of generally like to see at least kind of 30% in terms of contribution margin. uh 30% in terms of contribution margin.

uh 30% in terms of contribution margin. uh 40% would be would be great. Um that 40% would be would be great. Um that 40% would be would be great.

Um that leaves you space for you know 20 25% leaves you space for you know 20 25% leaves you space for you know 20 25% overheads and still having a a overheads and still having a a overheads and still having a a respectable EBIT DAR margin at the end respectable EBIT DAR margin at the end respectable EBIT DAR margin at the end of the day. Um but for some businesses of the day. Um but for some businesses of the day. Um but for some businesses where you know their sales channels uh where you know their sales channels uh where you know their sales channels uh are a little bit different or the are a little bit different or the are a little bit different or the product's different or the you know if product's different or the you know if product's different or the you know if marketing and retention works marketing and retention works marketing and retention works differently then you know what is a good differently then you know what is a good differently then you know what is a good and respectable contribution margin can and respectable contribution margin can and respectable contribution margin can can kind of vary.

can kind of vary. can kind of vary. Okay, cool, Okay, cool, Okay, cool, >> cool, cool, cool. >> cool, cool, cool.

>> cool, cool, cool. >> So, we we talk a lot, not we talk a lot, >> So, we we talk a lot, not we talk a lot, >> So, we we talk a lot, not we talk a lot, but the industry talks a lot about but the industry talks a lot about but the industry talks a lot about growth versus profitability. And we all growth versus profitability. And we all growth versus profitability.

And we all know we went through this stage where it know we went through this stage where it know we went through this stage where it was growth at all costs, right? Forget was growth at all costs, right? Forget was growth at all costs, right? Forget profitability, just grow, grow, grow, profitability, just grow, grow, grow, profitability, just grow, grow, grow, grow, grow.

Um, and we saw how well that grow, grow. Um, and we saw how well that grow, grow. Um, and we saw how well that worked out. Um, and now we've kind of worked out.

Um, and now we've kind of worked out. Um, and now we've kind of shifted to profitability, but there's a shifted to profitability, but there's a shifted to profitability, but there's a tension and it's a healthy tension tension and it's a healthy tension tension and it's a healthy tension between growth and profitability, but between growth and profitability, but between growth and profitability, but definitely a tension. How do you definitely a tension. How do you definitely a tension.

How do you encourage founders to think about that encourage founders to think about that encourage founders to think about that trade-off? trade-off? trade-off? >> Well, most of the founders I work with >> Well, most of the founders I work with >> Well, most of the founders I work with are bootstrapped.

uh they have never had are bootstrapped. uh they have never had are bootstrapped. uh they have never had the benefit of sitting on millions of the benefit of sitting on millions of the benefit of sitting on millions of dollars worth of investor money which dollars worth of investor money which dollars worth of investor money which means that their ability to sustained a means that their ability to sustained a means that their ability to sustained a prolonged period of um loss making and prolonged period of um loss making and prolonged period of um loss making and you know spending more than what they're you know spending more than what they're you know spending more than what they're bringing in is very very limited. um you bringing in is very very limited.

um you bringing in is very very limited. um you know they might have put in a $200 or know they might have put in a $200 or know they might have put in a $200 or $300,000 of personal savings but that $300,000 of personal savings but that $300,000 of personal savings but that really doesn't buy you a huge amount of really doesn't buy you a huge amount of really doesn't buy you a huge amount of runway. So for most of the f folks that runway. So for most of the f folks that runway.

So for most of the f folks that I work with physical goods ecom largely I work with physical goods ecom largely I work with physical goods ecom largely bootstrapped there is you know being bootstrapped there is you know being bootstrapped there is you know being profitable or figuring out a near-term profitable or figuring out a near-term profitable or figuring out a near-term pathway to profitability is really life pathway to profitability is really life pathway to profitability is really life and death. if we don't do this then we and death. if we don't do this then we and death. if we don't do this then we will run out of capital and um you know will run out of capital and um you know will run out of capital and um you know that's going to be the end of the party.

that's going to be the end of the party. that's going to be the end of the party. So it's kind of inherent in terms of the So it's kind of inherent in terms of the So it's kind of inherent in terms of the way these business you know businesses way these business you know businesses way these business you know businesses are approaching their finances. It's are approaching their finances.

It's are approaching their finances. It's just a reality that they you know really just a reality that they you know really just a reality that they you know really can't afford afford to ignore uh at the can't afford afford to ignore uh at the can't afford afford to ignore uh at the moment. >> When does when does growth hurt a >> When does when does growth hurt a >> When does when does growth hurt a business instead of help a business business instead of help a business business instead of help a business though? Yeah, though?

Yeah, though? Yeah, >> because there there is a point where >> because there there is a point where >> because there there is a point where like it's too much, right? like it's too much, right? like it's too much, right?

>> It can be. Yes. So the biggest challenge >> It can be. Yes.

So the biggest challenge >> It can be. Yes. So the biggest challenge that we see around growth and the rate that we see around growth and the rate that we see around growth and the rate of growth in the physical good space of growth in the physical good space of growth in the physical good space comes from this thing called the the comes from this thing called the the comes from this thing called the the cash conversion cycle. Um should I take cash conversion cycle.

Um should I take cash conversion cycle. Um should I take a minute to touch on that or a minute to touch on that or a minute to touch on that or >> please? You think? Yeah.

>> please? You think? Yeah. >> please?

You think? Yeah. >> No. So there's the the cash conversion >> No.

So there's the the cash conversion >> No. So there's the the cash conversion cycle basically explains how long your cycle basically explains how long your cycle basically explains how long your business takes to take money invested business takes to take money invested business takes to take money invested into inventory to suppliers into cash or into inventory to suppliers into cash or into inventory to suppliers into cash or receipts from customers. Think of your receipts from customers. Think of your receipts from customers.

Think of your business like you know a little bit of business like you know a little bit of business like you know a little bit of like a pipe or a tube. You put money in like a pipe or a tube. You put money in like a pipe or a tube. You put money in one end in the form of you know buying one end in the form of you know buying one end in the form of you know buying inventory with suppliers.

Some time inventory with suppliers. Some time inventory with suppliers. Some time later it comes out the other end as later it comes out the other end as later it comes out the other end as payments from customers and then you can payments from customers and then you can payments from customers and then you can you know choose to reinvest it. The you know choose to reinvest it.

The you know choose to reinvest it. The problem with having a long cash problem with having a long cash problem with having a long cash conversion cycle is there's literally conversion cycle is there's literally conversion cycle is there's literally nothing else you can do with that cash nothing else you can do with that cash nothing else you can do with that cash while it's locked up in there. So, you while it's locked up in there. So, you while it's locked up in there.

So, you can't spend that money on ads. You can't can't spend that money on ads. You can't can't spend that money on ads. You can't spend that money on hiring people.

You spend that money on hiring people. You spend that money on hiring people. You can't invest that money in new product can't invest that money in new product can't invest that money in new product development. It's just stuck until it development.

It's just stuck until it development. It's just stuck until it comes out the the other end. Now, you comes out the the other end. Now, you comes out the the other end.

Now, you for very very fast growing businesses, for very very fast growing businesses, for very very fast growing businesses, we can get into a situation where the we can get into a situation where the we can get into a situation where the revenue is growing very quickly. For revenue is growing very quickly. For revenue is growing very quickly. For example, revenue might be growing 100% example, revenue might be growing 100% example, revenue might be growing 100% year on year.

If revenue is growing year on year. If revenue is growing year on year. If revenue is growing 100%, then cost of goods sold is also 100%, then cost of goods sold is also 100%, then cost of goods sold is also growing by 100% yearonear. And in order growing by 100% yearonear.

And in order growing by 100% yearonear. And in order to maintain a suitable level of to maintain a suitable level of to maintain a suitable level of inventory coverage, the amount that we inventory coverage, the amount that we inventory coverage, the amount that we invest in inventory is probably also invest in inventory is probably also invest in inventory is probably also growing at 100% yearon year. So growing at 100% yearon year. So growing at 100% yearon year.

So everything's scaling up very quickly. everything's scaling up very quickly. everything's scaling up very quickly. Now, if we have a long cash conversion Now, if we have a long cash conversion Now, if we have a long cash conversion cycle, it's quite easy to get ourselves cycle, it's quite easy to get ourselves cycle, it's quite easy to get ourselves in a situation where that incremental in a situation where that incremental in a situation where that incremental cash that we're needing to put into cash that we're needing to put into cash that we're needing to put into inventory actually exceeds the inventory actually exceeds the inventory actually exceeds the profitability that the business is profitability that the business is profitability that the business is generating.

So, you've got this cash generating. So, you've got this cash generating. So, you've got this cash strain into inventory that's more than strain into inventory that's more than strain into inventory that's more than the cash that's being um generated from the cash that's being um generated from the cash that's being um generated from every product you sell. And because every product you sell.

And because every product you sell. And because you're having to invest this cash in you're having to invest this cash in you're having to invest this cash in advance, like you have to usually have advance, like you have to usually have advance, like you have to usually have the inventory on your, you know, your the inventory on your, you know, your the inventory on your, you know, your warehouse floor months before you sell warehouse floor months before you sell warehouse floor months before you sell it, you kind of get into this backwards it, you kind of get into this backwards it, you kind of get into this backwards situation where the money is flowing out situation where the money is flowing out situation where the money is flowing out the door at a much quicker rate than the door at a much quicker rate than the door at a much quicker rate than it's coming in. And so, you know, we can it's coming in. And so, you know, we can it's coming in.

And so, you know, we can run into situations with these fast run into situations with these fast run into situations with these fast growing consumer goods business if the growing consumer goods business if the growing consumer goods business if the cash conversion cycle is not managed cash conversion cycle is not managed cash conversion cycle is not managed well where they can actually grow broke. well where they can actually grow broke. well where they can actually grow broke. They could be simultaneously They could be simultaneously They could be simultaneously profitable and cash cash flow broke or profitable and cash cash flow broke or profitable and cash cash flow broke or bankrupt at the same time.

Here's bankrupt at the same time. Here's bankrupt at the same time. Here's something I keep seeing with sales teams something I keep seeing with sales teams something I keep seeing with sales teams I work with. Generic sequences don't I work with.

Generic sequences don't I work with. Generic sequences don't work anymore. We've all gotten so good work anymore. We've all gotten so good work anymore.

We've all gotten so good at turning out the noise that even your at turning out the noise that even your at turning out the noise that even your own buyers are ignoring you. The problem own buyers are ignoring you. The problem own buyers are ignoring you. The problem isn't your reps, it's that your isn't your reps, it's that your isn't your reps, it's that your sequences are static and your signals sequences are static and your signals sequences are static and your signals are somewhere else entirely.

That's why are somewhere else entirely. That's why are somewhere else entirely. That's why our clients use Nooks. And the thing our clients use Nooks.

And the thing our clients use Nooks. And the thing that stuck with me is that their that stuck with me is that their that stuck with me is that their sequences actually stay fresh because sequences actually stay fresh because sequences actually stay fresh because the signals update them automatically. the signals update them automatically. the signals update them automatically.

Right buyer, right moment with no manual Right buyer, right moment with no manual Right buyer, right moment with no manual babysitting. If your outbound feels like babysitting. If your outbound feels like babysitting. If your outbound feels like it's shouting into a void, go check them it's shouting into a void, go check them it's shouting into a void, go check them out at nooks.

ai. AI back slashbridgeidge out at nooks.ai. AI back slashbridgeidge out at nooks.

ai. AI back slashbridgeidge the gap. >> That's I can definitely see that with >> That's I can definitely see that with >> That's I can definitely see that with physical goods. You have so much physical goods.

You have so much physical goods. You have so much inventory and you have to go create new inventory and you have to go create new inventory and you have to go create new ones. ones. ones.

>> Um >> Um >> Um >> I le I led sales once for a physical >> I le I led sales once for a physical >> I le I led sales once for a physical goods company and I often refer to it as goods company and I often refer to it as goods company and I often refer to it as the hardest sales job I ever had. Um the hardest sales job I ever had. Um the hardest sales job I ever had. Um yeah because yeah because yeah because >> because you're with software it's much >> because you're with software it's much >> because you're with software it's much easier in my opinion, right?

like I'm easier in my opinion, right? like I'm easier in my opinion, right? like I'm selling you a software. You log in, you selling you a software.

You log in, you selling you a software. You log in, you use it, you know, you you sign the use it, you know, you you sign the use it, you know, you you sign the subscription agreement, we turn you on. subscription agreement, we turn you on. subscription agreement, we turn you on.

All is well with the world. I collect my All is well with the world. I collect my All is well with the world. I collect my money and there's no problems.

money and there's no problems. money and there's no problems. >> Yeah. >> Yeah.

>> Yeah. >> With the physical goods, you you are >> With the physical goods, you you are >> With the physical goods, you you are dealing with certainly margins. Number dealing with certainly margins. Number dealing with certainly margins.

Number one, that could consistently be one, that could consistently be one, that could consistently be changing. Uh these were personalized changing. Uh these were personalized changing. Uh these were personalized goods in like the corporate swag space.

goods in like the corporate swag space. goods in like the corporate swag space. So I now you have to order the good. I So I now you have to order the good.

I So I now you have to order the good. I have to make sure it's in stock. I have have to make sure it's in stock. I have have to make sure it's in stock.

I have to get it from point A to point B. I to get it from point A to point B. I to get it from point A to point B. I have to make sure that we could put your have to make sure that we could put your have to make sure that we could put your logo on it.

that I then have to get it logo on it. that I then have to get it logo on it. that I then have to get it from point B to you at point C. All at a from point B to you at point C.

All at a from point B to you at point C. All at a cost-effective rate that I'm still cost-effective rate that I'm still cost-effective rate that I'm still making money. And PS, after you told me making money. And PS, after you told me making money.

And PS, after you told me you wanted you wanted you wanted >> 500 of these needles, when I go to place >> 500 of these needles, when I go to place >> 500 of these needles, when I go to place the order, because I of course am not the order, because I of course am not the order, because I of course am not stocking these because that's silly and stocking these because that's silly and stocking these because that's silly and I'd be paying to keep them on the shelf. I'd be paying to keep them on the shelf. I'd be paying to keep them on the shelf. You place the order, you pay me, and You place the order, you pay me, and You place the order, you pay me, and then oops, they're out.

They only have then oops, they're out. They only have then oops, they're out. They only have 272. 272.

272. >> Yeah. >> Yeah. >> Yeah.

>> It was It was very one of the more >> It was It was very one of the more >> It was It was very one of the more difficult sales roles I've ever had. difficult sales roles I've ever had. difficult sales roles I've ever had. >> Yeah.

Yeah. I bet. or the customer >> Yeah. Yeah.

I bet. or the customer >> Yeah. Yeah. I bet.

or the customer changes their mind and says they only changes their mind and says they only changes their mind and says they only want 400 and now you're stuck with the want 400 and now you're stuck with the want 400 and now you're stuck with the other 100. But yeah, you're right. It's other 100. But yeah, you're right.

It's other 100. But yeah, you're right. It's um it's really really difficult in terms um it's really really difficult in terms um it's really really difficult in terms of of of how far in advance you have to plan in how far in advance you have to plan in how far in advance you have to plan in terms of making inventory decisions. terms of making inventory decisions.

terms of making inventory decisions. often how little information you have to often how little information you have to often how little information you have to base those planning decisions on top of base those planning decisions on top of base those planning decisions on top of and especially for earlier stage and especially for earlier stage and especially for earlier stage businesses which I deal a lot of how businesses which I deal a lot of how businesses which I deal a lot of how unpracticed they are at actually unpracticed they are at actually unpracticed they are at actually creating the revenue and sales needed to creating the revenue and sales needed to creating the revenue and sales needed to move that industry move that inventory move that industry move that inventory move that industry move that inventory that's going to be landing four or five that's going to be landing four or five that's going to be landing four or five months from now right like when we are months from now right like when we are months from now right like when we are still working on figuring out our still working on figuring out our still working on figuring out our customer acquisition machine and dialing customer acquisition machine and dialing customer acquisition machine and dialing in the ad accounts and figuring out what in the ad accounts and figuring out what in the ad accounts and figuring out what does and does not work from a customer does and does not work from a customer does and does not work from a customer acquisition perspective. Um the stuff acquisition perspective. Um the stuff acquisition perspective.

Um the stuff can break really really quickly, right? can break really really quickly, right? can break really really quickly, right? We have one or two good months and We have one or two good months and We have one or two good months and suddenly we think okay we've you know suddenly we think okay we've you know suddenly we think okay we've you know mastered meta but you know a month later mastered meta but you know a month later mastered meta but you know a month later it all falls apart.

CS have gone through it all falls apart. CS have gone through it all falls apart. CS have gone through the roof and it's like okay we now the roof and it's like okay we now the roof and it's like okay we now cannot afford or we are unable to cannot afford or we are unable to cannot afford or we are unable to acquire the number of customers that we acquire the number of customers that we acquire the number of customers that we need to move that inventory that we've need to move that inventory that we've need to move that inventory that we've just you know ordered and is going to be just you know ordered and is going to be just you know ordered and is going to be landing four months from now. So it's uh landing four months from now.

So it's uh landing four months from now. So it's uh yeah it's a really really difficult game >> if you're a founder and I guess I'll >> if you're a founder and I guess I'll >> if you're a founder and I guess I'll look at it from the physical goods look at it from the physical goods look at it from the physical goods center there. How do you actually know center there. How do you actually know center there.

How do you actually know if your business is healthy? if your business is healthy? if your business is healthy? >> So some of the metrics that I like to >> So some of the metrics that I like to >> So some of the metrics that I like to look at to establish the healthiness of look at to establish the healthiness of look at to establish the healthiness of these business would be repeat purchase these business would be repeat purchase these business would be repeat purchase rate.

I want to look at repeat purchase rate. I want to look at repeat purchase rate. I want to look at repeat purchase rate relative to the rest of the in rate relative to the rest of the in rate relative to the rest of the in industry. So, as an example, there might industry.

So, as an example, there might industry. So, as an example, there might be, you know, a home wares brand that be, you know, a home wares brand that be, you know, a home wares brand that only has a, you know, a 10% repeat only has a, you know, a 10% repeat only has a, you know, a 10% repeat purchase rate. That might sound low, but purchase rate. That might sound low, but purchase rate.

That might sound low, but for c certain types of homegoods, that's for c certain types of homegoods, that's for c certain types of homegoods, that's actually extremely healthy. At the same actually extremely healthy. At the same actually extremely healthy. At the same time, you might have a food and beverage time, you might have a food and beverage time, you might have a food and beverage brand who have a 200% repeat purchase brand who have a 200% repeat purchase brand who have a 200% repeat purchase rate.

That might sound high but again rate. That might sound high but again rate. That might sound high but again for certain categories certain products for certain categories certain products for certain categories certain products um that could in fact be low. So we need um that could in fact be low.

So we need um that could in fact be low. So we need to understand what the repeat purchase to understand what the repeat purchase to understand what the repeat purchase rates are and this tells us you know how rates are and this tells us you know how rates are and this tells us you know how well is the product actually resonating well is the product actually resonating well is the product actually resonating with the customers and what is the with the customers and what is the with the customers and what is the likelihood that people are actually likelihood that people are actually likelihood that people are actually going to come back absent us tapping going to come back absent us tapping going to come back absent us tapping them on the shoulder via Meta or Google them on the shoulder via Meta or Google them on the shoulder via Meta or Google or wherever else and asking them to come or wherever else and asking them to come or wherever else and asking them to come back. um products or or services or back. um products or or services or back.

um products or or services or businesses that have a high repeat businesses that have a high repeat businesses that have a high repeat purchase rate, it just makes everything purchase rate, it just makes everything purchase rate, it just makes everything so much easier in terms of the financial so much easier in terms of the financial so much easier in terms of the financial math. Um when you don't have to pay to, math. Um when you don't have to pay to, math. Um when you don't have to pay to, you know, either acquire new customers you know, either acquire new customers you know, either acquire new customers all the time or basically bribe old all the time or basically bribe old all the time or basically bribe old customers to come back again.

So, I'd customers to come back again. So, I'd customers to come back again. So, I'd look at that. Um, I I as a CFO, I mean, look at that.

Um, I I as a CFO, I mean, look at that. Um, I I as a CFO, I mean, I I don't really uh encourage my I I don't really uh encourage my I I don't really uh encourage my founders to spend much as much time on founders to spend much as much time on founders to spend much as much time on this, but as a CFO, I really like a this, but as a CFO, I really like a this, but as a CFO, I really like a ratio called the current ratio, which is ratio called the current ratio, which is ratio called the current ratio, which is current assets divided by current current assets divided by current current assets divided by current liabilities. Uh, so your current assets liabilities. Uh, so your current assets liabilities.

Uh, so your current assets is cash and inventory. Liabilities is is cash and inventory. Liabilities is is cash and inventory. Liabilities is accounts payable and and current portion accounts payable and and current portion accounts payable and and current portion of your debt.

The reason that I look at of your debt. The reason that I look at of your debt. The reason that I look at that very early on when I start engaging that very early on when I start engaging that very early on when I start engaging with a new company is it gives me a very with a new company is it gives me a very with a new company is it gives me a very very uh accurate insight into what the very uh accurate insight into what the very uh accurate insight into what the founders's world is like. When you have founders's world is like.

When you have founders's world is like. When you have a low current ratio, you know, a low current ratio, you know, a low current ratio, you know, significantly below one, it tells me significantly below one, it tells me significantly below one, it tells me that the founders probably constantly that the founders probably constantly that the founders probably constantly stressed about cash flow and they're stressed about cash flow and they're stressed about cash flow and they're probably spending a lot of time juggling probably spending a lot of time juggling probably spending a lot of time juggling invoices and payables and, you know, invoices and payables and, you know, invoices and payables and, you know, dealing with annoyed suppliers and dealing with annoyed suppliers and dealing with annoyed suppliers and vendors going, "Where's my money?" vendors going, "Where's my money?" vendors going, "Where's my money?"

And when a founder is doing that, it And when a founder is doing that, it And when a founder is doing that, it means that their eye is not really on means that their eye is not really on means that their eye is not really on the ball in terms of growth. And so the ball in terms of growth. And so the ball in terms of growth. And so they're dealing with a lot of financial they're dealing with a lot of financial they're dealing with a lot of financial distress and all the distractions that distress and all the distractions that distress and all the distractions that come with it.

So, when I see a situation come with it. So, when I see a situation come with it. So, when I see a situation like that, it's like, okay, let me help like that, it's like, okay, let me help like that, it's like, okay, let me help you fix this near-term cash flow you fix this near-term cash flow you fix this near-term cash flow situation, get you to a point where we situation, get you to a point where we situation, get you to a point where we have a healthy uh current ratio because have a healthy uh current ratio because have a healthy uh current ratio because if I can help you with near-term if I can help you with near-term if I can help you with near-term liquidity, and you don't have to be liquidity, and you don't have to be liquidity, and you don't have to be fielding calls from suppliers and fielding calls from suppliers and fielding calls from suppliers and vendors all the time, then you can vendors all the time, then you can vendors all the time, then you can actually go back to doing what you're actually go back to doing what you're actually go back to doing what you're supposed to do, which is managing the supposed to do, which is managing the supposed to do, which is managing the team and growing the business. So, I I team and growing the business.

So, I I team and growing the business. So, I I really like that as a lens into the really like that as a lens into the really like that as a lens into the founders world. Um, in terms of other founders world. Um, in terms of other founders world.

Um, in terms of other ratios though, we mentioned contribution ratios though, we mentioned contribution ratios though, we mentioned contribution margin already. Um, EBITD margin is one margin already. Um, EBITD margin is one margin already. Um, EBITD margin is one that I would spend a lot of time on as that I would spend a lot of time on as that I would spend a lot of time on as well.

Um, and for physical goods well. Um, and for physical goods well. Um, and for physical goods companies, uh, the cash conversion cycle companies, uh, the cash conversion cycle companies, uh, the cash conversion cycle that just tells me how efficiently this that just tells me how efficiently this that just tells me how efficiently this business is using the cash that it has business is using the cash that it has business is using the cash that it has its as at its disposal. As I mentioned its as at its disposal.

As I mentioned its as at its disposal. As I mentioned earlier, most of my clients are earlier, most of my clients are earlier, most of my clients are bootstrapped. So cash is not an abundant bootstrapped. So cash is not an abundant bootstrapped.

So cash is not an abundant resource. So the businesses that can resource. So the businesses that can resource. So the businesses that can utilize that cash uh efficiently and can utilize that cash uh efficiently and can utilize that cash uh efficiently and can turn it over quickly are usually at a turn it over quickly are usually at a turn it over quickly are usually at a very very strong competitive advantage.

>> Go ahead, Dell. No, >> Go ahead, Dell. No, >> Go ahead, Dell. No, >> I was just >> I was just >> I was just >> I thought we were both Yeah, go ahead.

I >> I thought we were both Yeah, go ahead. I >> I thought we were both Yeah, go ahead. I was curious as you were talking through was curious as you were talking through was curious as you were talking through some of those some of those some of those um ratios and pieces like where where um ratios and pieces like where where um ratios and pieces like where where can we be finding the leaks? Like where can we be finding the leaks?

Like where can we be finding the leaks? Like where can they find the leaks as they're going can they find the leaks as they're going can they find the leaks as they're going through that process? And secondly to through that process? And secondly to through that process?

And secondly to that, what's the fastest way to improve that, what's the fastest way to improve that, what's the fastest way to improve that cash flow without raising capital? >> So the leaks can occur anywhere. Um the >> So the leaks can occur anywhere. Um the >> So the leaks can occur anywhere.

Um the financial problems and leaks in a financial problems and leaks in a financial problems and leaks in a business are often a function of the business are often a function of the business are often a function of the things that the founder is overindexing things that the founder is overindexing things that the founder is overindexing on and by definition under indexing on. on and by definition under indexing on. on and by definition under indexing on. What I mean by that is I can often tell What I mean by that is I can often tell What I mean by that is I can often tell a little bit about a founders's a little bit about a founders's a little bit about a founders's personality just by looking at their personality just by looking at their personality just by looking at their financial statements.

And one of you can financial statements. And one of you can financial statements. And one of you can one of the most classic ways to do this one of the most classic ways to do this one of the most classic ways to do this is looking at a metric that I call like is looking at a metric that I call like is looking at a metric that I call like revenue per skew. revenue per skew.

revenue per skew. >> So this is how much revenue or sales >> So this is how much revenue or sales >> So this is how much revenue or sales we're generating from every widget that we're generating from every widget that we're generating from every widget that we have in our catalog. And when I see a we have in our catalog. And when I see a we have in our catalog.

And when I see a very uh low revenue per skew, it tells very uh low revenue per skew, it tells very uh low revenue per skew, it tells me that that founder is probably a me that that founder is probably a me that that founder is probably a designer creator. They're the subject designer creator. They're the subject designer creator. They're the subject matter expert.

They like producing stuff matter expert. They like producing stuff matter expert. They like producing stuff and they often fall into the trap of and they often fall into the trap of and they often fall into the trap of thinking, "Oh, the reason that I don't thinking, "Oh, the reason that I don't thinking, "Oh, the reason that I don't have more sales is because I don't have have more sales is because I don't have have more sales is because I don't have more stuff to sell. So, let's make I'll more stuff to sell.

So, let's make I'll more stuff to sell. So, let's make I'll make some more options and variants and make some more options and variants and make some more options and variants and then I'll have more customers and then then I'll have more customers and then then I'll have more customers and then I'll have more revenue." Um, so that's, I'll have more revenue." Um, so that's, I'll have more revenue."

Um, so that's, you know, one one example. There are a you know, one one example. There are a you know, one one example. There are a few other telltale signs, but some of few other telltale signs, but some of few other telltale signs, but some of the the more common places in an the the more common places in an the the more common places in an e-commerce business that I see uh profit e-commerce business that I see uh profit e-commerce business that I see uh profit leaking would be the gap between gross leaking would be the gap between gross leaking would be the gap between gross revenue and net revenue.

So gross revenue and net revenue. So gross revenue and net revenue. So gross revenue is basically, you know, a revenue is basically, you know, a revenue is basically, you know, a function of a average order value. It's function of a average order value.

It's function of a average order value. It's like, you know, what the customer is like, you know, what the customer is like, you know, what the customer is actually paying at checkout. But then actually paying at checkout. But then actually paying at checkout.

But then you have a few adjustments to that which you have a few adjustments to that which you have a few adjustments to that which is things like coupons and discounts, is things like coupons and discounts, is things like coupons and discounts, returns, you've got shipping revenue, returns, you've got shipping revenue, returns, you've got shipping revenue, which you know may or may not exist which you know may or may not exist which you know may or may not exist depending on your shipping policy. depending on your shipping policy. depending on your shipping policy. Obviously, if you're giving people free Obviously, if you're giving people free Obviously, if you're giving people free shipping, you've got $0 in shipping shipping, you've got $0 in shipping shipping, you've got $0 in shipping revenue.

But anyway, I I uh have seen revenue. But anyway, I I uh have seen revenue. But anyway, I I uh have seen businesses losing as much as 25% of businesses losing as much as 25% of businesses losing as much as 25% of their revenue um between gross and net. their revenue um between gross and net.

their revenue um between gross and net. The average for the e-commerce industry The average for the e-commerce industry The average for the e-commerce industry is about 13% that we would, you know, is about 13% that we would, you know, is about 13% that we would, you know, give away in, you know, welcome offers, give away in, you know, welcome offers, give away in, you know, welcome offers, 15% coupons, like refunds, returns, that 15% coupons, like refunds, returns, that 15% coupons, like refunds, returns, that sort of stuff. So, you know, 25% is a sort of stuff. So, you know, 25% is a sort of stuff.

So, you know, 25% is a big deal. And to put that into context big deal. And to put that into context big deal. And to put that into context for you, like the average ecom business for you, like the average ecom business for you, like the average ecom business really only generates an EBIT DAR margin really only generates an EBIT DAR margin really only generates an EBIT DAR margin of about 8 to 10%.

So, if you're giving of about 8 to 10%. So, if you're giving of about 8 to 10%. So, if you're giving away 25% of the top line, that's like away 25% of the top line, that's like away 25% of the top line, that's like three times the average EBIT D margin three times the average EBIT D margin three times the average EBIT D margin for a business like that. It's it's for a business like that.

It's it's for a business like that. It's it's huge. Um, another area where I see a lot huge. Um, another area where I see a lot huge.

Um, another area where I see a lot of leakage is in financing costs of leakage is in financing costs of leakage is in financing costs and this is usually because of biases and this is usually because of biases and this is usually because of biases that we have towards overinvesting in that we have towards overinvesting in that we have towards overinvesting in inventory. inventory. inventory. The reason that founders tend to do that The reason that founders tend to do that The reason that founders tend to do that is the process of underinvesting in is the process of underinvesting in is the process of underinvesting in inventory is really really frustrating.

inventory is really really frustrating. inventory is really really frustrating. Right? any founder who's running a Right?

any founder who's running a Right? any founder who's running a physical goods store and has experienced physical goods store and has experienced physical goods store and has experienced the stockout situation and they've dealt the stockout situation and they've dealt the stockout situation and they've dealt with customer service emails going WTF with customer service emails going WTF with customer service emails going WTF like where's the thing I want to buy it like where's the thing I want to buy it like where's the thing I want to buy it like it's it's annoying it's like well like it's it's annoying it's like well like it's it's annoying it's like well what's the point of doing this if I what's the point of doing this if I what's the point of doing this if I don't have stock in don't have stock in don't have stock in you know the the the consequences of a you know the the the consequences of a you know the the the consequences of a stock outage really slap you on the face stock outage really slap you on the face stock outage really slap you on the face so any founder that is has experienced so any founder that is has experienced so any founder that is has experienced that is likely to overcompensate that is likely to overcompensate that is likely to overcompensate by ordering more inventory Now, the by ordering more inventory Now, the by ordering more inventory Now, the problem with ordering more inventory is problem with ordering more inventory is problem with ordering more inventory is that there are costs involved, too. But that there are costs involved, too. But that there are costs involved, too.

But they're silent killers. And these silent they're silent killers. And these silent they're silent killers. And these silent killers of excess inventory are things killers of excess inventory are things killers of excess inventory are things like product obsolescence risk, right?

like product obsolescence risk, right? like product obsolescence risk, right? They might just, you know, go go bad. They might just, you know, go go bad.

They might just, you know, go go bad. They could go out of code or or maybe They could go out of code or or maybe They could go out of code or or maybe the products become obsolete. You become the products become obsolete. You become the products become obsolete.

You become far less nimble and it takes you a lot far less nimble and it takes you a lot far less nimble and it takes you a lot longer to implement change. So, if a longer to implement change. So, if a longer to implement change. So, if a customer gives you some feedback and customer gives you some feedback and customer gives you some feedback and you're sitting on 9 months of inventory, you're sitting on 9 months of inventory, you're sitting on 9 months of inventory, it's going to be at least 10 months it's going to be at least 10 months it's going to be at least 10 months before you can incorporate that feedback before you can incorporate that feedback before you can incorporate that feedback and ship an updated version.

Uh, you're and ship an updated version. Uh, you're and ship an updated version. Uh, you're going to be paying more for warehousing going to be paying more for warehousing going to be paying more for warehousing fees. And, you know, all of all of this fees.

And, you know, all of all of this fees. And, you know, all of all of this additional inventory is likely to have additional inventory is likely to have additional inventory is likely to have been financed with a whole lot of debt. been financed with a whole lot of debt. been financed with a whole lot of debt.

And all of this extra debt is, you know, And all of this extra debt is, you know, And all of this extra debt is, you know, obviously eating away at the interest obviously eating away at the interest obviously eating away at the interest line of your income statement. So yeah, line of your income statement. So yeah, line of your income statement. So yeah, I would say those are the the main two I would say those are the the main two I would say those are the the main two places that I see sevenf figure ecom places that I see sevenf figure ecom places that I see sevenf figure ecom businesses leaking profitability is that businesses leaking profitability is that businesses leaking profitability is that net to gross spread.

Uh and also at the net to gross spread. Uh and also at the net to gross spread. Uh and also at the interest level. interest level.

interest level. >> Yeah, it's it's so different than the >> Yeah, it's it's so different than the >> Yeah, it's it's so different than the software world. Um which is why I found software world. Um which is why I found software world.

Um which is why I found it so fascinating when when you're not it so fascinating when when you're not it so fascinating when when you're not just talking about oh you know we have a just talking about oh you know we have a just talking about oh you know we have a product and we have 90% margins like product and we have 90% margins like product and we have 90% margins like there's so many more things that come there's so many more things that come there's so many more things that come into play. Nate, last question before we into play. Nate, last question before we into play. Nate, last question before we go to rapidfire.

It's important to when go to rapidfire. It's important to when go to rapidfire. It's important to when you're looking at finance of making you're looking at finance of making you're looking at finance of making finance more of a growth lever um than finance more of a growth lever um than finance more of a growth lever um than something reactive. How do you coach something reactive.

How do you coach something reactive. How do you coach founders to look at finance as a founders to look at finance as a founders to look at finance as a strategic growth lever versus a reactive strategic growth lever versus a reactive strategic growth lever versus a reactive function? function? function?

So, I do it basically by showing them So, I do it basically by showing them So, I do it basically by showing them how to utilize finances to make how to utilize finances to make how to utilize finances to make decisions easier. Right? Most of the decisions easier. Right?

Most of the decisions easier. Right? Most of the founders that I cross paths with have founders that I cross paths with have founders that I cross paths with have gotten themselves to a few million gotten themselves to a few million gotten themselves to a few million dollars in sale by trusting their gut, dollars in sale by trusting their gut, dollars in sale by trusting their gut, their intuition, and you know, just their intuition, and you know, just their intuition, and you know, just doing what they think is right. But the doing what they think is right.

But the doing what they think is right. But the further you scale, the larger the number further you scale, the larger the number further you scale, the larger the number of zeros that we have hanging off over of zeros that we have hanging off over of zeros that we have hanging off over the the the back of these decisions. Um, the the the back of these decisions. Um, the the the back of these decisions.

Um, let's face it, the margins and spreads let's face it, the margins and spreads let's face it, the margins and spreads in this industry can be pretty tight and in this industry can be pretty tight and in this industry can be pretty tight and you're very, very quickly going to run you're very, very quickly going to run you're very, very quickly going to run into situations where gut instinct and into situations where gut instinct and into situations where gut instinct and intuition is just not enough to be able intuition is just not enough to be able intuition is just not enough to be able to make clear decisions about whether we to make clear decisions about whether we to make clear decisions about whether we should turn left or if we should turn should turn left or if we should turn should turn left or if we should turn right. So, essentially what I do as a right. So, essentially what I do as a right. So, essentially what I do as a fractional CFO is I'm an assistant fractional CFO is I'm an assistant fractional CFO is I'm an assistant decision maker, right?

I'm the guy that decision maker, right? I'm the guy that decision maker, right? I'm the guy that rocks up with the finances, the numbers, rocks up with the finances, the numbers, rocks up with the finances, the numbers, the data, and shows founders, hey, this the data, and shows founders, hey, this the data, and shows founders, hey, this is what I think you should do, or this is what I think you should do, or this is what I think you should do, or this is the opportunity that I think is most is the opportunity that I think is most is the opportunity that I think is most interesting based on the information interesting based on the information interesting based on the information that I have access to. Now, sometimes that I have access to.

Now, sometimes that I have access to. Now, sometimes they'll say to me, "Hey, Nate, that's they'll say to me, "Hey, Nate, that's they'll say to me, "Hey, Nate, that's great and all. I hear you, but this is a great and all. I hear you, but this is a great and all.

I hear you, but this is a brand decision and I need to go in a brand decision and I need to go in a brand decision and I need to go in a different direction because of XYZ brand different direction because of XYZ brand different direction because of XYZ brand reason." That's fine. Totally fine. I reason."

That's fine. Totally fine. I reason." That's fine.

Totally fine. I get it. But at least the numbers and get it. But at least the numbers and get it.

But at least the numbers and finances have been heard. At least finances have been heard. At least finances have been heard. At least they've had a voice and at least they've they've had a voice and at least they've they've had a voice and at least they've been able to participate in the been able to participate in the been able to participate in the conversation in a way that they, you conversation in a way that they, you conversation in a way that they, you know, may not have or weren't before.

know, may not have or weren't before. know, may not have or weren't before. So, you know, that's um yeah, a big part So, you know, that's um yeah, a big part So, you know, that's um yeah, a big part of what I'm helping them these these of what I'm helping them these these of what I'm helping them these these folks with is just understanding and folks with is just understanding and folks with is just understanding and seeing how to use this information to seeing how to use this information to seeing how to use this information to make clearer and more confident make clearer and more confident make clearer and more confident decisions. decisions.

decisions. >> Love it. Super important. every every >> Love it.

Super important. every every >> Love it. Super important. every every function should be strategic and function should be strategic and function should be strategic and proactive versus reactive whether it's proactive versus reactive whether it's proactive versus reactive whether it's finance whether it's marketing whether finance whether it's marketing whether finance whether it's marketing whether it's customer success and I think it's customer success and I think it's customer success and I think finance is one of the ones that is the finance is one of the ones that is the finance is one of the ones that is the last to become um proactive and mostly last to become um proactive and mostly last to become um proactive and mostly sits at reactive sits at reactive sits at reactive >> all right let's shift into rapid fire >> all right let's shift into rapid fire >> all right let's shift into rapid fire the rules here are 10 words or less is the rules here are 10 words or less is the rules here are 10 words or less is the ideal what uh what's one financial the ideal what uh what's one financial the ideal what uh what's one financial metric founders misunderstand the most H uh uh uh uh profitability.

>> So many different ways to interpret it. >> So many different ways to interpret it. >> So many different ways to interpret it. Um Um Um >> yeah, I'm going to go over 10 if I go >> yeah, I'm going to go over 10 if I go >> yeah, I'm going to go over 10 if I go once.

So I'll shut up. Let's keep it at once. So I'll shut up. Let's keep it at once.

So I'll shut up. Let's keep it at one. Profitability. one.

Profitability. one. Profitability. >> Harder harder problem.

Growth or >> Harder harder problem. Growth or >> Harder harder problem. Growth or profitability? profitability?

profitability? >> What is a harder problem to solve? >> What is a harder problem to solve? >> What is a harder problem to solve?

>> Yeah. Uh, I would say growth. >> Yeah. Uh, I would say growth.

>> Yeah. Uh, I would say growth. >> Yeah. >> Yeah.

>> Yeah. >> Revenue or profit? Which matters more >> Revenue or profit? Which matters more >> Revenue or profit?

Which matters more early? early? early? >> Revenue.

>> Revenue. >> Revenue. Nice. Um, last question.

Dream vacation Nice. Um, last question. Dream vacation Nice. Um, last question.

Dream vacation destination. destination. destination. >> H.

Somewhere in the mountains involving >> H. Somewhere in the mountains involving >> H. Somewhere in the mountains involving camping and my bike. camping and my bike.

camping and my bike. >> Ah, >> Ah, >> Ah, >> nice. Very nice. >> nice.

Very nice. >> nice. Very nice. >> Cool.

Nate, thank you so much for >> Cool. Nate, thank you so much for >> Cool. Nate, thank you so much for joining the show for sharing how to joining the show for sharing how to joining the show for sharing how to shift finance from reactive to proactive shift finance from reactive to proactive shift finance from reactive to proactive and how to look at finance through a and how to look at finance through a and how to look at finance through a strategic lens. Where can people learn strategic lens.

Where can people learn strategic lens. Where can people learn more about you and your services? more about you and your services? more about you and your services?

>> Yeah, two places I would recommend. >> Yeah, two places I would recommend. >> Yeah, two places I would recommend. Firstly, the website which is Firstly, the website which is Firstly, the website which is futurerecfo.

com. Uh on the socials, I'm most active on Uh on the socials, I'm most active on Uh on the socials, I'm most active on LinkedIn. My name again is Nate LinkedIn. My name again is Nate LinkedIn.

My name again is Nate Littlewood. Uh should be pretty easy to Littlewood. Uh should be pretty easy to Littlewood. Uh should be pretty easy to find and I'm posting on there usually a find and I'm posting on there usually a find and I'm posting on there usually a few times a week.

Awesome, Nate. Thanks few times a week. Awesome, Nate. Thanks few times a week.

Awesome, Nate. Thanks so much for joining the show. so much for joining the show. so much for joining the show.

>> Thanks, Al. Thanks, Adam. Cheers. >> Thanks, Al.

Thanks, Adam. Cheers. >> Thanks, Al. Thanks, Adam.

Cheers. >> Bye.