Getting ready to properly file your taxes ⎜ Seller Accountant ⎜ EP 204

Ryan: What's up everyone. Welcome to my corner of the internet. I'm your host Ryan Cramer, and this is Crossover Commerce presented by PingPong payments. The leading global payments provider, helping sellers keep more of their hard earned money. Hey everyone. Welcome back once again to my corner of the internet. My name is Ryan Cramer, and this is Crossover Commerce presented by PingPong payments. That's right. If you're new to the show, this show is presented by PingPong payments. What is PingPong? Well, we help people save time, money, and effort when it comes to you sending or receiving funds internationally, that could come in the form of paying your supplier perhaps, or your VAs internationally, if you have people working for you perhaps, or just in general, trying to build your empire, if you're selling on different accounts internationally, whether it be in the United Kingdom, Mexico, Canada, Japan, wherever that Amazon platform might be. Or if you are starting to go direct to consumer route or just expanding your ecommerce empire, PingPong can help you save time, money, and effort. It's easy and free to sign up. Just go to usa. pingpongx. com/ podcast to catch all of our past episodes, but also sign up for free today. Go ahead and start putting money to your bottom line with PingPong payments. That being said, we talked about just growing, again, this is my corner of the internet, Crossover Commerce growing perhaps is this podcast. This is episode 204. This week is just gone by in a flurry and a blurry. I'm blurred right now, it seems when I’m talking, but this year has been something of fanaticism, if you will, of just trying to get back into the swing of things, but people's now focus is on, what am I going to do in terms of growing my business in 2022? Hopefully you've already been thinking about that. Hopefully you've been able to start put that plan in place. But a lot of people are looking for it in the future, but we're here today to help you solve for one of those things that not a lot of people like to talk about, and that's just looking at your books and your finances as well. We brought a friend of the show, Tyler Jefcoat of Seller Accountants, but I just want to let people know, today if you questions, or if you have comments too, this is a live interactive podcast. So if you have questions and you're watching on Facebook, LinkedIn, YouTube or Twitter, go ahead and post your questions in the comments section below. Or if you catch us a little bit afterwards, if you're not up, or if you catch us on a later date, go ahead and post those questions in the comments section as well and you'll be able to... We'll tag you to our guest, Tyler and myself, and we'll make sure that we get you squared away. Without further ado, I want to bring on, again, friend of the show back to Crossover Commerce, if you will. Tyler Jefcoat, Seller Accountant, Tyler, thanks for coming back onto Crossover Commerce.

Tyler: You bet, Ryan. Good being here, buddy. Happy new year.

Ryan: Happy new year to you too. Yeah, it's been, I said week two. I was joking with people last week. We were talking pre- show. One week down, 51 to go. No matter which way it swung, a lot of people were just like, " Man, that was a flurry of a week." And it's been crazy. I know this is a busy time for you and your team as well, but I appreciate you just hopping on with the craziness that is the new year and coming back on to talk with our audience for a little bit.

Tyler: Yeah. Honestly, glad to be here. And this is my favorite time of year. Not only do accountants tend to be really busy, but I love holidays. Don't get me wrong, but I'm just the kind of creature that really is incredibly productive when I'm in a routine. So just getting back, saying back to the grind, but actually back to executing is just where I thrive. And so, I'm happy to be back in the saddle, man.

Ryan: Absolutely. Since we last talked with you, I know you're down there in Georgia. What's been new since we last spoke with you? Gosh, I want to say, mid or early last year in 2021. What's been going on with you and the team?

Tyler: Well, first of all, you just said team and you said Georgia. So the first celebration is my Bulldogs-

Ryan: That's right.

Tyler: ...finally brokethe ground. So I'm here-

Ryan: crosstalk. That happened here in Indianapolis. I'm in the same city. It's been crazy.

Tyler: I’m sure you saw the finer side of a lot of my friends up there, but yeah.

Ryan: That's right.

Tyler: No, it's been a great week. That's happening. And then, my team is just... I'm just thankful it's doubled in the last year, so we're about 25 on the Seller Accountant team and just really helping ecommerce brands get where they're trying to go financially. It's been a good year. It's been full. I think busy is a choice. It's been full because we choose for it to be full and glad to get to do what I want to do with the people I want to do it with, that kind of thing.

Ryan: I like that. I like that mentality too. A lot of this year is for me, I'm leaning into education, growing, learning more and really just making things happen. And I think that's what plays nicely our topic today. And I know people are... We talked about, I had to preface this in my social media channels. If you're listening to this, try to properly file your taxes, Tyler and I, we're not tax accountants. We're not people who are going to tell you exactly how the boring nuances, but we want to tell you why it's important. And I think that's the biggest reason of finance side. Biggest reason that hang up, I would say for 70 to 80% of businesses looking to exit, would that be fair, honest assessment to say, Tyler?

Tyler: Yeah. I think so. Again, we're not CPAs, I don't even do my own taxes, but I think having the stuff that you and I have to focus on, Ryan, the financial work that we have to do in order to do two things, and you mentioned one there, which is file your taxes. The reason we have to care about this topic, even though you and I hate taxes is that we are putting a stamp in the IRS's book that we're going to have to be accountable to. We may be audited in the future. We may have to defend the profit numbers and the balance sheet numbers and that kind of thing. But then there's also the other thing that you mentioned I think when we were chatting earlier is just people are exiting like crazy right now. So we're also putting a stamp in our financials for 2021 that is going to be subject to due diligence if we were to try to go to market and sell our brands. And so, the things that we can control, even if we're not tax guys is to have our house in order so that we can file our taxes, manage our businesses better and then be ready in the event that someone makes us an outrageous offer and it's time to go ahead and exit.

Ryan: Well, that's the curiosity of when people... I swear, I hear this come up all the time when I talk with people and they're like, " What's the first thing to do?" And again, in a blog you have to have bullet points. I want to get more nitty gritty of when people say clean books, that's a phrase that people just like to hear, but that doesn't resonate with me, a layman who might say, " Okay. Well, what does that mean?" In terms of that, every accountant likes clean books, but what is that phrase supposed to mean to me? If I'm in a business owner, how can I attribute the phrase, clean books and make sure that I have such a thing without looking up dictionary, going to an accountant and saying like, " Please help me."?

Tyler: That's a good question. When you think about the IRS in particular, the tax guy that's out there, whatever tax organization you're subject to, you are having to write some really important numbers on those tax forms. Most notably what was my profit for the last 12 months? And then as a product based inventory business, like most of our clients are, you're having to write an ending inventory balance. There's some other things that... There are some performance numbers that flow from your books that you're having to say, " Hey, these are legit. These are accurate." And smaller businesses aren't going to get audited all that often, but you're saying, yes, this is true. I'm signing on the line at the bottom saying that I'm telling the truth to the IRS. And how do I know? And so, what's really interesting, Ryan, what I find is that most entrepreneurs are really, really honest. There's only a small subset that are trying to cheat the tax system. Most of us actually don't take enough deductions on our taxes and we don't have the confidence to take enough deductions because we're not organized. And so, having clean books is having an unassailable picture from point A to point B that allows me to deduct all of my valid expenses for my tax partner and feel like I can put my head on the pillow and not worry at all about whether I'm going to be audit bait in the future. And so, when I think of clean financials, the two that matter are a profit and loss statement, which shows our revenue and our expenses, revenue minus expenses gives us profit for the year. And the way that we can validate that profit number is not BS is a thing called a balance sheet. And entrepreneurs hate balance sheets, Ryan, but balance sheets are supposed to balance. So theoretically, if we had a December 31 balance sheet, it should be the actual balance in our Bank of America checking account or in our PayPal account or in our inventory warehouse. And so, those two documents, those financial statements work together to give us either a clean picture of our financial business or a really muddy picture. And again, the bigger you get, if you're doing a thousand dollars a month in revenue, you probably don't care a lot about this. If you're doing a hundred thousand dollars a month in revenue, this is extremely important, of course, as you scale beyond that.

Ryan: Well, and of course even throwing in ripples of international growth and expansion of if you have different companies and the fees that you're going to be paying on with employees around the world or with any sort of hiring and investments and reinvesting into your business. A lot of those when money's tied up, I think we were talking about this maybe in the first steps that we had with you, is when you write checks for inventory or you get a PO, a purchase order for your inventory, a lot of the times that money, it's already claimed, right? It's in your checking account, but you're not paying for it until maybe 60 days, 90 days out the door, depending on the terms you might have. I think a lot of people misstep when it comes to showing what their money is earmarked for and what's actually in their bank account. Is that a solid assessment in terms of that, when it says, " I have a purchase order for a hundred thousand dollars goods, I'm going to pay for it over the course of 90." I can't just theoretically say, " Yeah, the a hundred thousand dollars is still in my bank account." It's spoken for, right? Is that where a lot of sellers that are both small and medium size, where they misstep in thinking that they have the money, but they don't because it's earmarked for certain things and it's just not taken out of their account, perhaps?

Tyler: Yeah. I totally agree with you there. And part of it is, and all of us that have owned small businesses here can attest to this feeling, but that pit in your stomach, three o'clock in the morning, I can't sleep feeling because I'm not sure if I'm going to run out of cash next month or not. That. Because we know like, wait a minute. I did place that PO and my Asian supplier is going to take that second draw or I'm going to have to send that wire at some point. And then I can't remember when my payroll to my contractors is going to come out and what was that Amazon fee percentage again? And so, again, this is another reason why, Ryan, it's so important to have a clean financial picture because being clean and knowing what you know, instead of guessing what you guess allows you to again, focus your energy on A, first of all, I want you to sleep at night. That'd be nice. Right? I'd love you to do that.

Ryan: Yeah. He-

Tyler: crosstalk. And then beyond that, I want you to focus your energy on making money, on actually driving your strategy and your brand forward and the blocking and tackling, the basics are just having really solid bookkeeping. if you hate bookkeeping, pay someone to do it. Get a solid set of financials so that you can be the person that just looks at... And here's another reason for this, Ryan, not only are we going to get cash crunches, but entrepreneurs, you and me, we are an optimistic people. If we look at a blurry situation, like it's unclear whether we made money last month, we're like, " inaudible. I'm not really sure. There's probably just noise in the accounting and probably really made money." We're going to do what I just did. We're going to err on the side of assuming the best in ourselves as leaders. So for instance, if I don't have good books and I just look at last month's picture maybe in an Amazon Seller Central or something like that, I'm going to be like, " Man, I'm a genius. I crushed it last month." Nothing could ever go wrong. It's either that, or it's that feeling at three o'clock in the morning where we're like, " Dear God, I may run out of money and go bankrupt and my wife's going to leave me and the dogs won't..." Everything goes out. Right?

Ryan: Right.

Tyler: We tend to be like a seesaw personality as an entrepreneur and having good accounting allows you to not. It forces you to look at some hard facts and be like, " Boy, I thought I was a genius, but that advertising campaign I ran last month was a dud. " It forces you to pay attention to it. And I think being forced to pay attention to it, frankly, results in better outcomes. And that's what we really want for our entrepreneurs.

Ryan: Well, and that's what a lot of people are not starting with is making sure you know your numbers from the get go, and I think that's really disheartening to hear. I've heard entrepreneurs and business owners say, " I really just didn't have a firm grasp on all the different fees or associations that would have to pay." From the beginning, put that to what it takes to put in an investment to the goods and whatnot, what I'm selling it for. And at the end of the day only getting 10% margin or 5% margin or not even making a single dollar on their goods that they're selling and they're actually selling at loss. It's things like that where it's constant editing your own and auditing your own processes of what am I selling it for? Maybe I have to buy it somewhere else for cheaper, or I have to completely redo my product selection. Just starting from that get go. A lot of people are just misstepping in that regards as entrepreneurs and that's really unfortunate. Just understanding the whole context of all the fees that you're going to need. I think there's a report recently and I've talked about this a couple times, alluded to it. It was as high as 34% of which Amazon takes as necessity fees or at the door fees. And that's excluding, I believe if I'm quoting it correctly, PPC costs, FBA costs, which again are optional in the eyes of Amazon, but we all know that those are not. So again, starting from the get go is such a high percentage for fees. That's really tough to put your thumb on and see how am I going to make my money down the road? Where do we go from here? I guess is what I'm going to get at is maybe worst case scenario, what situations have we seen for people that you're working with that haven't shared up their books? How does that affected maybe an exit or just their business and they had to shut it down or something like that? Again, I'm hoping that this is not the case, but I can only assume it is.

Tyler: Yeah. Well, first of all, anecdotal on your statistic there, because we do an aggregate study of about a quarter billion a year in sales, and once you include PPC, the average Amazon seller is spending about 44% of their total budget in money going to Amazon, right?

Ryan: Right. That's what-

Tyler: crosstalk. You're about 34 points going to the 15% commission and the pick pack and ship fees, plus other stuff, storage, whatnot. And then another 10% going to pay per click and other various advertising. And so, to your point, Ryan, I think understanding your numbers so that you can drive your business instead of... Think about, imagine either driving a car or riding in an out of control wagon with no steering wheel down a really steep hill. I want to driving this thing instead of just going a hundred miles an hour down a hill because I'm much less likely to crash.

Ryan: Absolutely.

Tyler: And so, unfortunately there are crash stories. Because we do a lot of due diligence work as an accounting firm, we get to see the ugly side of this, where they didn't get things in order and they tell an investor or an aggregator or a guy that's buying their business, " Hey, my profit was$ 500,000 last year." And once you actually scratch the service and get into it, they're like, " Boy. Man, did they not really know how to classify Amazon fees? And boy, did they really decide that loan revenue from Shopify capital was actually revenue?" It wasn't avenue, it was a loan. We've had some instances like that. I even had in our client's favor, we were cleaning up the books and he had a negative million dollar PayPal account in his balance sheet and just what that means is that he had shorted himself by a million dollars in sales over the last five years, which is important, that matter. Anyway, so yes.

Ryan: What does that mean real quick? I'm curious, on the back end, that means that they said that they sold a million dollars more than what they actually surely did over the course of five years?

Tyler: It was actually the opposite. What was happening is we were having money coming into PayPal and they were just putting it into a PayPal receivable. But every time we got a deposit, it would make that receivable negative, negative, negative, negative, because we weren't actually booking it as a profit on the P& L, so it was inaudible thing ever. And so, we got to doing it and we were like, " Huh, why do we have a negative$ 895, 000 balance on this particular account here? Which is not what you want to see by the way.

Ryan: It almost sounds like a rainy day fund, almost like it was just going there.

Tyler: Yeah, definitely. Public service announcement here, if you pull up your balance sheet in QuickBooks or Xero, and you have a negative balance that's unexplainable, you probably have an accounting error somewhere. There are few accounts where there are negatives occasionally, but normally a balance sheet is going to be all positives with very few exceptions, so PSA there. But just to pivot here. I think Ryan, bookkeeping is the price of admission. You need to know your numbers if you're going to run an adult company. And then we pivot to, okay, now that we've got the numbers done, how do we focus on building a profitable business here in 2022, Ryan? Given the fact that we're getting more sophisticated aggregator level investors, we got some competitors they're upstream, the supply chain's just been an absolute disaster for the last year and I think it's going to continue to be for a few months here. Given the pressures that we have, what do we do about it? And Ryan, you're the one leading the podcast here, but I'm curious, as you've been talking to your friends over the last couple weeks, what would you say is the mood related to ecommerce profitability going into 2022 right now?

Ryan: That's a good question. And no, I like answering questions on my own podcast. Don't worry about that. The mood has actually been mixed. I would say people upstream, I say upstream, people who are leading the pack in terms of finances and money, they would say, " Hey, we're able to run profitable businesses. We're figuring that out. We're throwing not money at it, but we're figuring out as we're going, we're getting smarter with our own investments and moving on from here." Worst case scenario, this would probably be the worst that they would ever have to hit in terms of shipping logistics, people just going back to retail and whatnot, more of a push in that direction and it's evening out instead of the 2020 bump that we saw across the board in the ecommerce. This was the reshift back to where trends were going in that direction. But to be honest with you, I think a lot of people are getting pickier in terms of what that mix is going to be in terms of the mix on versus off of Amazon. I think a lot of people a hundred percent, want as much as they can on Amazon, but realize very quickly, you can't just have somebody that's purely on Amazon. Someone's going to have to have a smart mix of Shopify or BigCommerce or whatever platform they're running on. Plus, an omnichannel presence of maybe it's in retail with different marketplace of Walmart. It's going to get more complex. In the aggregator world, I think people are just starting to look at more complex deals instead of the cut and dry, I'm in the number one seller on Amazon for, I use this one all the time, pillows or something like that. Whereas five years running, number one pillow on Amazon has a hundred or 300, 000 reviews. It's impossible to torpedo that thing. It can only go down. With that being said, I think it's a mixed bag. I think people pulled back a little bit in the end of 2021 in terms of investments. And now this is the year of, all right, 2020 is not in the books anymore. We can start to look at real numbers of overcoming objectives, who really has their business in order and they're going to start getting creative. And I think a little bit more of a... I think people are going to take more of a possibility of a, not a sure approach, but almost a take a chance on a business. There's more upside than there is of surety in that regards. Would mean it's a good product, just needs a lot of love and attention so maybe we're going to invest in that. And that potential outcome down the road is more of a upside than it is a high floor, low ceiling business. That's the right term. That's my take initially from the outside in.

Tyler: No, that's such a good take Ryan. I really appreciate that. Listen, you and I want to talk about strategy here for a minute, but let me tell you why we care about the strategy and it's to the point you were just making. I probably interviewed 30 to 40 representatives from the aggregators that were starting to raise money and buy assets in the last maybe 16 months. And I'm going to be honest with you, Ryan, about two things. One is that eight out of 10 that I interviewed, off the record, one to one, didn't really have a clear investment thesis. And what that means for the layman is, I'm like, " Hey, what do you want to buy? What's out there?" And I would say eight out of 10 were fairly, they would call it category agnostic, customer agnostic. The one thing they weren't agnostic about was what you just said, Ryan, which is we wanted simplicity. And what we meant by simplicity is we want 10 SKUs on Amazon, top two seller ranking, that kind of thing. And I think where some of those aggregators are in trouble, candidly right now, because they're not as profitable as they thought they were going to be. And a lot of them are going to figure it out. Some of them are not and are going to crash miserably here in the first half of 2022, but what's happening because there's been pressure. Now, these guys are getting a little smarter and they're like, " Gosh, we went to our investment boards and we sold them on some promises, gave us millions of dollars and we are going to do two things that the mom and pop owner across America, across the world hasn't been able to do. We're going to deliver better use of our working capital because we're big and bad. And the second thing is we're going to be able to use scaled intelligence to be better at marketing than the average Joe that's running these businesses." And what I've seen through about 12 to 15 months of being CFO, boy, of doing the actual accounting, doing some of the due diligence is by and large, they have not succeeded in those two promises yet. And what it's forcing them to do is what you and I would've thought they should have done to begin with, which is to have a real strategy, to have a real focus with the way they address their customers. And so, to your point, Ryan, you either need to be the number one pillow with 300,000 reviews, and you've got an unassailable listing on Amazon, or you need to know who you are. And this is a little bit more nuanced than just saying you need to have a more complex business, a more sophisticated business. This is where I'm beating a drum heavily right now. And this is where I'd love to get some of your thoughts is, it isn't a one size fits all. What's really important in terms of making money right now in 2022 is making sure that I have clear alignment in my three, only important, there's only three important funnels in an ecommerce brand business. And you used to be able to get away with not having alignment strategically. And those three funnels are, how do I reliably buy my product? I got to have a sourcing funnel. Number two, how do I reliably find customers that will buy my product? Whether it's marketplace, direct to consumer, both, retail, whatever it is. And then number three, which isn't thought about enough is how do I reliably raise and manage working capital? And so I am not in business very long with the current universe of Amazon or Shopify or otherwise, if I can't align those three funnels. Here's a good example. I know guys that are making millions of dollars as arbitrage sellers, but darn it don't go invest in patents, in long term supply chains if that's your strategy. I need to align my capital strategy around being an arbitrary seller if that's what I'm going to do. And I need to realize that my market value for an exit is going to be different. That's okay. Be who you are. And so the biggest fallacy that I think I've seen, Ryan, in the last six months is somebody has a fairly commoditized, private label product on Amazon. And they believe that they cannot not be successful unless they launch a full force million dollar Shopify direct to consumer strategy. But guess what? That's not their core competency and their products don't lend themselves to that kind of customer relationship. And so they spend a hundred grand trying to build something that isn't going to be built and they actually are confirming their business. And so for me, this starts with a hard look at ourselves as a product blend saying, what am I selling? Who's my customer? And can I make sure that my sourcing, selling and capital raising strategies are aligned? I think that's really what's maybe most important right now.

Ryan: Yeah, I have this conversation I feel like daily with people is, I feel like, this is going to sound bad. For people who exited their businesses, I feel like they were first in market, whether it be, I say first, one of the few that really figured out Amazon quickly, got the numbers that... Again, were nice on spreadsheets and profit loss statements. And it looked clean in the get go. But what I think the most average Amazon seller in business out there today is going to be a little bit more nuanced, a little more... It's going to have those ugly bumps and awards that come with it. Or it's just not as clean as you might think. It's not cookie cutter business. For example, brands that I know they might actually be selling quite a bit on eBay, for example, have a great mix on a little bit of Walmart, but then also the opportunity is really, you can really maximize it out on Amazon. Again, all those different pillars that they're selling in marketplaces will instantly show up red on a M& A statement in my opinion is what I'm going to say it's not clean cut because they don't know how to figure out, hey, we don't have an eBay department. We don't know how to make that work for us. Even though on the profit and loss statement, they're going to be a$ 250, 000 in profit every single month, which is a good book of business for a lot of aggregators. It's minimum threshold. That's going to check off those boxes, but when it comes to, hey, we have warehouse in state XYZ, we have three of them. What do we do with all those resources? We can't just absorb them, there's people involved. How do we absorb people process? I talked with TJ Hyland of Elevate Brands, I want to say this week, earlier this week and he was saying to me that some of their businesses and their exits, they're getting more... It's not cut and dry. It's not like, " Hey, business owner, here's your check. Nice to see you. Thanks for working with us. Come back when you have another business." It's a mix, " We're in partnership together. We're going to own 51% to the 49 that you might still want to invest and grow with. You just need support in that regards. You have a warehouse team of 15 people. We don't want to get rid of those people. Let's hire those people on as employees." And some of those nuances, like those deals that we're talking about exiting their businesses. I think they're going to get more complicated in that capacity, but that's because that's just where the ecommerce business owner and entrepreneur is at this juncture. It's not clean cut. And I think that's where a lot of the missteps happened.

Tyler: Yeah. And I think the question, if I'm listening to this pod might be, what do I do about that? That's really good information, Tyler or Ryan, but what do I do about it? And I just want to encourage you guys to make this practical. Take a step back. In the same way, by the way, if you've ever designed a product, the best way to design a product is to start with a customer in mind. What does she look like? Where does she shop? What are her preferences? I say this because my wife spends most of the money in our house. It's like that's always the case.

Ryan: Profit and loss statement at Jefcoat home is not good. Right? No, I’m just kidding

Tyler: Right. I know. Baby, I love you. No, I'm just kidding. Listen, the same happens if I'm going to sell a business. What I'm going to say to you right now is if I understood who I am, what do I really do well as a business? Maybe it is warehousing. Maybe I'm really good at logistics. That's okay. Let's sink your teeth into that and then try to find the customer avatar who's the investor avatar. This is what this really becomes, that is going to benefit the most from what I do well. And I'll give you an example for an accounting firm. I'm an accounting firm that does bookkeeping and CFO for ecommerce, that's super nichey. Who the heck's going to buy my business someday? Well, I've got to take a step back and be like, what kind of company or investor would benefit the most from what we are genius at? And then I'm going to focus as a CEO of my company at becoming more and more of a genius at doing those things. And so, I would say the same thing for you guys. If I'm really, really, really good at sourcing, man, I want to build my moat around sourcing with technology and doing it as efficiently and effectively as possible so that I can capture profitable points and use those points to serve some investor someday, because there's going to be someone out there that needs what you do, whether it's warehousing. Maybe I'm better at product development. If you happen to be a truly great, patent product developer, that it's a valuable skillset. Don't try to become a genius of sourcing. That's not going to be your core. Focus on what you're great at. And I think if you could try to put yourself in the seat of who's going to pay me the maximum multiple? Because it makes them richer in the future and then reverse engineer your business around that guy or that girl, it'll give you clarity in your strategy. And again, it'll help you align those three things. If I'm going to be that person that focuses on marketing and product development, okay. I need to have a budget for research and development. How do I align my capital structure, where I have enough money to have a budget for research development? And again, this goes back to our first discussion, Ryan, which went from boring tax shit to now let's talk about making money here, but it's like, I need to know how profitable my products are, because if my margins after advertising are in the teens, I don't need to do a direct to consumer strategy, ever. But if my margins after ads are 25, 30, 35, or maybe even a little more, then I may have the meat on the bones if I have time to go and actually launch a direct to consumer strategy or to launch ancillary variations of that product. And so again, it's all about alignment. I can make money with a lot of different strategies. I can't make a lot of money working seven strategies at once. And that's really what we're trying to do in our firm is help our clients align and focus.

Ryan: What I'm hearing is obviously almost keep it simple and stupid, right? Is make sure the numbers make sense before you go off into your next adventure. Again, I think a lot of what you're saying is don't get shiny objects syndrome, which again, a lot of people do in the business of, you got to keep your head down, know where your goals are and objectives are, what you do well, and stick with that. And again, making sure those numbers attest to that too. With that being said, starting on Amazon, I think a lot of people agree with that. It's a little bit easier to launch products. You're not driving outside traffic to it. Is there good numbers that a lot of people just... I guess when people are doing that, how many times should they assess themselves in terms of, " Hey, this is a good where we feel comfortable with where we can start those next projects of direct to consumership or go to a different marketplace."? Is there a good feeling that customers get? I know what they're going to say, " What's the number that I got to shoot for?" And a lot of times I say to people is when you feel comfortable with it financially, but also let your numbers speak for you. Is that what you and the team are telling people or different-

Tyler: crosstalk. Yeah, I think so. I feel like two quick points there. One is a timing thing. If I'm trying to sell within the next six to 12 months, I really need to be careful not to do too many brand new things. Because, for instance, if I do Shopify correctly, it's going to take me a year to really nurture that correctly. And if I'm going to sell in six months, I'm not going to be able to capture that value. I should just keep my business simple. So for me, if I'm less than a year from selling, I want to optimize and simplify. If I have more than a year then I'm going to be a little bit more creative and ambitious on how I can grow my channels. That's just me. And then to your point about the numbers, Ryan. Okay, now I've decided I've got more than 12 months. I've got some time on my side to try to launch a new product or try to launch a new channel. And then it really, again, comes down to understanding margin. I'm going to make it really simple, your landed cost to get sold. What do I pay to get product ABC to America, plus the freight duties, tariffs? That number. How much of that is as a percentage of your sales? Let's keep it really simple. If I sell a product for a hundred dollars and I've got$ 20 landed in the product, that's a 20% factor. And then the other number that my matters. COGS is the first one, the second one, and the only second one that I believe matters as the CFO of nine figures a year in sales for Amazon is direct advertising spend. So if I can combine that landed cost sold number that was$ 20 and now I've got to spend another$ 20 on ads, that feels like a huge ad budget, but because I have such great margins in my product, I can afford to spend more on ads. And so for me, ideally, the total is 40%. I know that's a lie. I just gave you a lot of statistics. You're never going to get those three minutes of your life back. I'm so sorry, but really wha-

Ryan: No. No, I followed you.

Tyler: So, if I have really low margin products, let's say that I'm having buy the product for 50 bucks and can only sell it for a hundred dollars, I have very, very little budget left to advertise. And so to your point, Ryan, if I look at my hero product, my hero SKU, and I've got great margins, then I am getting signals from the market that I need to extend that product line. Something ancillary, some kind of an accessory, some kind of a variation, some kind of a new color. The market is giving me clues that there is a profit bubble here in my area, and I need to exploit it. If I'm getting the opposite cues where I'm working my tail off and making 17, 16, 15% after ads, bottom line after ads, the market is telling me that I may need to find a new product grouping, or I need to focus on destroying overhead and being as lean and mean as possible. And I don't have quite as much budget to go experiment with new stuff.

Ryan: Right, yeah. And I think that's what a lot of aggregators or businesses that are acquiring is what are those hero products? Again, they don't want to take on the duds of the group of if that's the business. Is that what a lot of people have to just come at grips with is they're probably going to look at if I have 10 SKUs, there's probably, again, the 80, 20 rule of 80% of my business comes from 20% of my products. So if you have 10 SKUs, you got two that are real great ones. The rest are stinkers. Do I need to get rid of those or do I just need to come to grips with make those a small of an acquisition as possible? What’s the suggestion in that regards, do you think?

Tyler: Well, this goes back to your accounting and financials a little bit. Your accounting system way, isn't going to have a per SKU profitability. That's not a good way to use your accounting system, but you need to have some kind of a system, a spreadsheet or use whatever tool you use for managing profitability. And so to your point, Ryan, is I may have a hero SKU that's crushing it and I may have some smaller SKUs that are still profitable, or they're just not as much volume. I may still be okay with that as the strategist, as the CFO. But what I have found over and over and over again is if a client has 20 products and we actually do the work of doing a per product profitability every single time, at least one of those products is killing us. Meaning it's not just a zero, it's a negative. I'm losing money because I'm overspending on ads and the market's telling me I don't have enough margin to sell that product. I'm not good enough at it. And so, if you find anything that's below some acceptable minimum for profitability, then yeah, you probably need to kill it. You probably need to go ahead and work that. And here's the reason by the way, the reason is that we don't have unlimited working capital. If we were in a universe, say like Netflix is, do you know how much it costs Netflix to send one more customer access to that online portfolio? It's zero. Because of that, Netflix has an incentive to go as far down the long tail as they possibly can even if only one super nichey weird dude watches this movie once a month, as long as they can get a good enough contract on the movie, they have an incentive to add it to their library. You and I don't have that luxury because we are capped by how much cash we can afford to raise and keep in our business. And so, as a result of that, we have to apply the 80, 20 principle and say, where can I best spend my precious dollars? Or whatever currency. And if this product isn't performing, I owe it to my business to pull the dollars out of that product and put them in a better product because we're not made of infinite cash. Frankly, if you're made of infinite cash, get out of ecommerce because there may be better ways to invest your money. But those of us that have capital constraints have to prioritize high margin products.

Ryan: So when people are exiting nowadays, I feel like there's been this shift in dynamic of again, a lot of people are exiting because of that. I think that the constraints have become too either great because they can't have a container that's lost and you lose out on your selling in Q4. I've had... I think you're actually going to be speaking with him or here in the next couple weeks, Brandon over at Seller. My gosh. Why am I blanking on his name?

Tyler: Gales or?

Ryan: Brandon Young. No, Brandon Young. Excuse me. He was just like, " Guys, I'm going to lose probably six figures on inventory just because it's stuck on a bow. We lost our..." He's in the toy category, pretty notoriously and it's pretty crazy to think. He's like, " Yeah, we're going to have to ride off a hundred thousand dollars plus or six figures in our business just because it's stuck under the water and no one ha..." I can't imagine how many people have that luxury to do that in the grand scheme of all of Amazon. Now, on a business side, is that why a lot of people are looking at, " I cannot do that anymore. I need to exit quickly and effectively. I will take whatever my business is worth." Do you see a lot more of that coming to fruition instead of, " I'm going to play the long game and I'm going to let my marketing know how or my brand speak for me in the next 48 months." Let's call it. What is that looking like more when you're looking at people who are trying to either exit or share up their books for potential sale?

Tyler: You're hitting on some things there. I think if your entire net worth is tied up in this one business that you've worked so hard to build, then any risk factors in the market feel really acute to you and me. And so, an opportunity to de- risk my family's future by pulling some chips off the table and selling my brand is really an attractive thing. And the other factor that I think is coming into play the last 24 months at least is the aggregator phenomenon or supernova as your buddy inaudible and mine always says, the supernova of all this aggregator cash has really driven the multiples up a little bit. And so because of the multiples are higher and I have an opportunity to de- risk my family's finances, I have an increased incentive to go ahead and sell this brand. It's different if this is one of four brands that I own and I'm worth 20 million, and maybe this brand is worth 1.2 million. I'm not quite as concerned about the risk of losing it if something goes wrong with a container for this brand. I can be more focused on how do I get my$1.2 million asset to be$ 3 million? But the reality is, Ryan, for most of us that are like, I sold my first business in 2017 and my risk tolerance for my second business is higher because I made a little bit of money the first time. And if maybe I do well in this business sometime in the future and I've got an even higher risk tolerance, but the reality is the first offer that came to me with that first business. I was like, " Baby, let's take it." Because what I'm looking for is to pay my mortgage and make sure that my kids are taken care of and that kind of thing. And I just think because of what you mentioned with the containers stuck on the water and coronavirus changing, the swooping of new demand, and then just reverted back to old demand, for what it's worth, if you're feeling stressed, selling is one way to de- stress. Unfortunately, the guys who decide to sell about exactly a year ago really got top of the market with that first feeding frenzy. And now to your point, Ryan, there's a little bit more nuanced approach to selling and I wouldn't get too puckered up if I was a seller. If I'm not optimized right now, I would be willing to wait six months, let the market mature a little bit more, and I wouldn't be too much in a hurry because things aren't quite as sweet as they were maybe a year ago.

Ryan: Does that phrase right there with that notion, should that scare people that are coming in the aggregator space? Like you said, more people are popping up. Is that a prediction that we can maybe both agree on less and less people are now looking at? Maybe we're going to play the long game of, we just passed by the people who are looking to exit fast and heavy, no matter what, and we'll take whatever you got in front of us instead and maybe more of a strategic approach of, " Hey, we're good. We'll just wait a couple more months until we get the number we want." Is that now shifting into the favor of a seller more than the aggregator world?

Tyler: I don't think it had ever shifted in the favor of a seller more than about a year ago, right after Q4 of that first COVID year, 2020, trying to sell in Q1 of 2021 when... What was it? Billions of dollars had just flooded into the space. The aggregators didn't know how to buy the assets yet and they were the feeding frenzy. And so, I think things have normalized a tad, but I'm not scared if I'm a seller and I represent a bunch of them because I still think that the fundamentals of our business model are really, really strong. I still think that the future of private equity, which by the way, you and I don't want to care about private equity, but we have to, we really-

Ryan: I do care.

Tyler: Well, yeah. You do. And the reason that our sellers and audience have to care also is that you may love Thrasio, you may hate them, but you'd love for them to have a great IPO at some point, same with Heyday, same with Perch, same with Elevate, whoever these biggest guys are. And the reason is that one of those guys having a wildly successful IPO is going to unleash another$ 30 billion in working capital or dry powder as they call it, cash in the space to invest in these businesses. And so, let me just give you my prognostication. I think we're going to see some distressed aggregator sales early in 2022, where some guys bit off more than they can chew and realized, " Boy, I don't know how to run these businesses. Let's go ahead and sell them at a discount to one of the aggregators that has figured it out." I think towards the end of 2022, we're going to see two things happen. One is, there may be a second layer of rolling up where the more successful aggregators are just not distressed, just buying the smaller ones. Small guy makes a little money and the big guy knows how to run the business. And then the second thing is I do think we'll see at least one successful IPO, Heyday and Thrasio and Perch and Elevate or maybe some of them would... Monolith is really getting big. One of these guys is going to emerge and is going to get the spec to go through or is going to get Goldman to fund it and they're going to get an IPO and it's going to be successful. And you're talking about waiting six months for those reasons, all of them. I may be inclined. If I'm optimized, if I'm the guy on the top of my list right now, I just had my best Q4 ever. My profit numbers for the trailing 12 months are outrageous. They are still paying a premium for your model if that's you. If you are the top of the game and you're making great margins, I would still consider going ahead and selling. I would just say to you this, know your number. You can't spend multiples. Another one of my friends, Joe Valley always says that. You can't spend a multiple, you spend cash. I want to know exactly what my number is, so that if I get it, I can take advantage of it. And then if I'm not on the top of my game, I'm going to be comfortable waiting a little bit because the market's going to recover back up in terms of multiples I believe towards the end of the summer.

Ryan: I'm curious in your eyes, what's a smart way if I'm a business owner, how do I come with a realistic number? Because people are like, " What do you want for your business?" And they say something outrageous. I'm selling$ 25,000 a month and they want a inaudible back. Not clearly going to happen. Well, what's a good rule of thumb for people to get to a number that they feel comfortable and they know they can comfortably get it achieved? Does that make sense? Well, what's a dream number, but we can hit that dream?

Tyler: I would approach it from two different sides because here's where a lot of sellers, they're making the choice based on FOMO. There's fear of missing out. And so, if I take the first offer, someone makes me, whoa, I might've been able to get more money. And that's really not a great way to make your investment decisions, which by the way, selling a business is an investment decision. Right? And so, I would do it from two sides of the apple. One side is learn enough about the market, three to five X, multiple. If I have better profitability, if I'm more dominant, if I'm bigger, if I'm leaner, I'm going to have higher multiple. There is some range that's probably fair to estimate for any of these businesses right now and don't be unrealistic about that. And then I would go at the apple from the other side and say, what would be the number that achieves my objective for my family? And literally, by the way, I did this a few months ago, Ryan, for my business. Like, okay, what do I need to accomplish in this investment for my kids ’ college to be funded, for me to be able to invest in the other companies I want to invest in, for me to have the bandwidth to go start a new company. I would encourage you to take some time alone with a journal out in the woods somewhere and just think through, what do I actually want? Because you may want a number that's bigger than you think your business is worth now, but you never know when someone's going to come by and give you an offer and you don't want to of have that FOMO like, " inaudible. I don't know if I can take that$ 5 million offer because maybe someone will offer me 5.5 million." Well guess what, if five million was your number, you take it because you've already accomplished what you want to accomplish with this investment. And a quick sad story there is I had a good friend go through this. One of the aggregators made him a great offer in June and he was like, " Boy, I just don't have the confidence. I don't know what I don't know. I hadn't done the research in the market." And so ends up getting an intermediary involved and ended up getting a much lower offer six months later, from the same aggregator. And it's because the market had shifted and if he had just known, here's my number, here's what I want to accomplish. He would've had the guts to jump on it when it appeared back in June. I just encourage you guys-

Ryan: Wow.

Tyler: ...to knowyour number. Yeah.

Ryan: Yeah. I guess, turning this full circle on people who tuned in for just making sure your numbers make sense. What are your best tips of advice of, hey, if I started my business here either in 2020 or 2021, and I just really want to share them up, know that I have a business, I'm successful, I just need to know how successful? What's the best way to make sure that those numbers are matching that gut feeling we talked about in the beginning of the episode of like, " Yeah. I know for a fact that I'm doing really well." But they haven't done all those check marks. What are the best ways to do that? Just a recap for people.

Tyler: Great. Full circle here, your accounting matters. That's the first step is, right now, if you go into your accounting system and you pull a profit and loss by month and your margins are all over the place, you made negative margins one month and you made positive margins the next month, you have a problem where your picture isn't clear. And I would highly recommend taking a course, hiring a VA, hiring accounting firm like mine. Doesn't need to be me, hire somebody or get good at yourself to get your books and financials in order so that you have a clear picture. That's number one. And then the second thing would say is take time to understand those three pillars I talked about, which is, is my sourcing strategy aligned with my selling strategy and are those realistic given my capital strategy? I've got to align. There's no wrong answer, but I got to have one answer I can't have two. And then the third thing is what we just talked about, which is take a little introspective time to know your number. What is it that I want to accomplish after taxes? After a broker commission? I want to buy this house; I want this... It's okay. It's okay to be greedy. I want a hundred million dollars, but know what you want so that you can drive your strategy towards getting what you want. And if somebody offers it to you, my goodness, take it. Because you never know when the market's going to go back down and you just want to be ready in case that great offer pops up.

Ryan: Great stuff, man. No, I agree. And obviously you guys are doing a lot of these masterminds and coaching through people. Is that what a lot of the time at Seller Accountant you guys are spending on is just amping people up and just understanding the numbers aspect of, ultimately the biggest payday is probably going to come when your business is acquired, unless you're an anchor and you can go IPO or something like that. One or two options here, but what’s new, what's in the upcoming, I guess maybe next quarter, half a year until we get you back on the podcast? What's that goal for you guys?

Tyler: That's our goal. Our goal is we want to help people with bookkeeping. Sexy bookkeeping. How do you get the books together that would get you through private equity, due diligence? We want to give them then the analysis to say, " Hey, which of those SKUs do you maybe need to kill? Should you go open Shopify or an international channel? When is it time to bring PingPong on and just get ready to make those payments across border? Right? That kind of thing.

Ryan: That's great.

Tyler: And then again, hey, why don't we help you have a reality check about what the value of your business is so that when you get that offer, you know it's a good offer or a bad offer. Our goal for the first quarter, and until we talk again, Ryan, is to help as many sellers as we can achieve those goals.

Ryan: That's amazing. Well, obviously they can connect with you what? selleraccountant. com and reach out to you on social media. Best ways to do that still?

Tyler: Perfect. Yeah. Website's great. You can catch me on LinkedIn, that kind of thing, but most sellers getting more acquainted with us at selleraccountant. com is perfect.

Ryan: I love it. Thanks Tyler, for again, hopping on here. Stay right there. Hopefully I'll catch you for the last couple minutes just off air. I have something I want to run by you too, but thank you so much for hopping on Crossover Commerce and coming back as a friend of the show. I learned so much, obviously, I think a lot of people did too when listening to this. Hopefully that takeaway and planning for that eventual business, but start basics, get your taxes done effectively and don't skip out. I hate it when people are like, " I haven't paid the IRS in this entity country for two years." Not okay. We're not tax professionals, but I know as a personal professional that you should pay these entities before exiting your business. That's goal number one, make sure your finances are paid and debts are paid. Thank you so much for hopping on today.

Tyler: My pleasure.

Ryan: Awesome. And then thank you everyone for joining Crossover Commerce episode 204. This is my corner of the internet; I call it Crossover Commerce. Tune in next week, we have so many different episodes lined up. I am booked to the max. That means I have one episode every single day for five straight days, starting on Monday, we're going to be having great guests anywhere from marketing and advertising. We have aggregators coming back on. I have so many different people in the Amazon ecommerce space that are experts that are going to help you apply to your business like Tyler was talking about earlier in this episode to your business so you can eventually achieve your goals. That's what this podcast is all about. So if you're watching us, thank you for tuning. And if you're listening to us on your favorite podcast destination, make sure you just rate our podcast or click the notification bell down at the right hand corner most likely to be notified of future episodes once they get published. But the easiest way to check out all the up to date episodes is going to usa. pingpongx. com/ podcast. Thank you, Tyler Jefcoat of Seller Accountant. I'm Ryan Cramer. Everyone, have a great Friday if you're watching us, be safe out there and we'll catch you guys next time, take care.