495: How To Make An Extra $100k This Year By Optimizing Your Financial Stack With Bill D’Alessandro

00:00
You’re listening to the My Wife Quitter Job podcast, the place where I bring on successful bootstrap business owners and delve deeply into what strategies are working and what strategies are not with their businesses. Today, I my good friend Bill D’Alessandro back on the show. And in this episode, Bill is going to teach us how we can make an extra $100,000 per year with just a couple of small changes to our financial stack. Now, I didn’t know about one of these tips and it’s already made me over $40,000 this year. But before we begin,

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I want to give a quick shout out to Chase Diamond for sponsoring this episode. Chase is my go-to guy when it comes to email marketing and he runs a successful email marketing agency over at Structured Agency, which caters to many eight and nine figure e-commerce brands. Now for those of you who can’t afford to hire an agency, Chase offers a pretty good email marketing course if you want to learn how to do email yourself. This course can be found over at mywifequitterjob.com slash chase. Once again, that’s mywifequitterjob.com slash chase.

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I also want to thank Emerge Council for sponsoring this episode. If you sell on Amazon or run any online business for that matter, the most important aspect of your long-term success will be your brand. And this is why I work with Steven Weigler and his team from Emerge Council to protect my brand over at Bumblebee Linnens. Now what’s unique about Emerge Council is that Steve focuses his legal practice on e-commerce and provides strategic and legal representation to entrepreneurs to protect their IP. For example, if you’ve ever been ripped off or knocked off on Amazon,

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then Steve can help you fight back and protect yourself. The students in my class have used Steve for copywriting their designs, policing against counterfeits and knockoffs, vendor agreements, brand registry, you name it. So if you need IP protection services, go to emergecouncil.com and get a free consult. And if you tell Steve that I sent you, you’ll get a $100 discount. That’s E-M-E-R-G-E-C-O-U-N-S-E-L.com. Now on to the show.

01:56
Welcome to the My Wife Quarter Drop podcast. Today I’m thrilled to have Bill D’Alessandro for I believe the third time. He’s the founder of Elements Brands where he acquires and sells consumer brands. He is also the host of the Acquisitions Anonymous podcast. Does a bunch of consulting and coaching and he’s spoken at my annual e-commerce conference, the Seller Summit, a bunch of times now. I can’t even keep track. I’ve known the man for about nine or 10 years at this point and he always has a ton of knowledge to share.

02:25
And in this episode, we’re going to talk about managing your finances as you run your e-commerce business. And I thought I knew a lot of these things just to be upfront with you guys until I chatted with him recently. And I wanted Bill to share his knowledge with all of you. And with that, welcome back to the show, Bill. How are doing, man? I’m great. I’m glad to be back. I said that at Seller Summit, I had lost count of the number of times I’d have attended. And I’ve also lost count of the number of times I’ve done your show. So good to be back for the who knows how manyth time.

02:54
So, how’s it going? I’ve noticed you’ve been just popping out a lot of kids lately. Yes, we’re working on our third at the moment. So I got two. So I my first kid in March 2020, like right when the pandemic started, and then we just went for it. So now our third child will be born in January 2024. Thank you. You guys done a three or are you going to put up basketball? I think so. My wife is lobbying for four already. We don’t even have three. That’s enough for me.

03:23
So it seems to me, and I’ve known you for a long time, it seems like the bill of just maybe four, three or four years ago has changed dramatically since having a family. How have things changed? Yeah, well, when you have, before you have a family, it’s just you. And I know that sounds obvious, but you can go really hard before you have a family, right? You you can work nights, you can work weekends, you know, you can have an erratic schedule, but once you have kids, you can’t, that’s a luxury you just don’t have anymore. So I have gotten much more structured. So I have like a really,

03:53
blocked week now, which is awesome. like Steve, you scheduled this with me. This is in like my external meetings block. This block is for meetings with people that don’t work at elements brands. And it’s like just today and tomorrow. And that’s it. Otherwise, wait till next week. So I’ve been much more structured with my time. And we’ve also sold a bunch of our brands. I simplify my life a lot. So we have kind of one one big brand now in natural dog company. We kind of 80 20 the whole portfolio. So life is more chill now.

04:23
Yeah, so just one company to worry about not like you had like five or six before, right? Eight, in fact. Eight. Oh my God, that’s crazy. Yeah, it was crazy because like, I mean, a lot of people listen to have ecommerce businesses and Steve, I you have an ecommerce business in any ecommerce business. Something goes catastrophically wrong, like once a year, right? Like your Amazon, your main Amazon listing gets suspended. Your Facebook ads go completely off the rails. Something happens like really bad once a year. And when you have eight brands, that means something happens like

04:53
catastrophically bad like every six weeks. It’s terrible. It was terrible. Right. And so like it was a it was a tough life. And we can talk a lot about whole Co’s and why whole Co’s are tough and know, multiple brands is tough. But that was what my life was. And then in 2022, we basically just said this is bananas. We have one one brand in natural dog that can be really, really big. Let’s just go all in on that. Nice. Nice. That’s like Spencer Jans philosophy.

05:21
He sold off all his other brands except for the main one, Solo Stove, and then he turned that into a billion dollar business. Yeah, that would work for me. So I am curious, just the environment still isn’t that great in general with the economy. How are you putting your business’s money right now? Are you just T-billing and chilling? T-billing and chilling, yeah. I mean, I use money market funds. I don’t buy the T-bills directly, but yeah, mean, and I haven’t like, just to be clear,

05:51
like bailed out of the market. haven’t like sold everything or anything like that. I’m just kind of accumulating excess cash in T bills and interest yielding instruments. I’m doing a friend of mine also raised a debt fund that invests in like fix and flip homes across the whole portfolio yield like 10%. So I’m invested in that. So I’m looking for more kind of interest bearing stuff.

06:15
Yeah, so one thing you said at seller summit was you were going to guarantee that everyone listening was going to make $100,000 after listening to your talk. That’s right. And there was one thing that you mentioned, which I want you to talk about, where I was just sitting on like a pile of cash just sitting in like a checking account. And then you said something I was like, Okay, well, he just made me maybe $40,000 right there. You want it? You want to share it? You want to share it?

06:43
Cause I thought that’s cool. didn’t even know these existed. Yeah. So, uh, several people, by the way, Steve came up to me after my talk and said that I did legitimately make them a hundred grand. So I’m the stellar summit next year. Uh, so, but I’ll, no, I’ll the beans here. Also, you don’t, you don’t need to come to seller summit next year for this, but you should. Uh, so the big thing that everybody’s gotta be doing that people have kind of taken their eye off the ball for the last 10 years.

07:10
is earning cash, earning yield on your cash, on your business’s cash, right? So for the last decade, interest rates have been effectively zero. So you didn’t have to optimize where you parked your business’s cash. But now, interest rates are in the high fours, as we record this in July 2023. And if you park a million bucks in an interest-yielding account, you’re going to make 50 grand a year just for doing nothing. And there’s these new banks that have popped up that will let you earn yield on your operating cash.

07:40
There’s two of them I really like. One is called Mercury and one is called Highbeam. Mercury’s been around for a while. They were focused on SaaS companies, but they’ve recently started pushing the e-commerce and then Highbeam was founded, I think last year or two years ago, and they specifically focus on e-comm. But both of them will give you like 4.8 % yield on your business’s idle cash, just straight up free money. So here’s the thing, Bill. During the whole bank scare, my wife became paranoid.

08:09
And what she did is she started opening bank accounts like crazy because of the FDIC limit. Yep. And so now we were the proud owner of like a bunch of bank accounts, which I hate keeping track of. One thing you left out was the insurance limit on these companies that you just named. What? Yeah, it’s cool. So right. Everybody’s freaked out. We don’t want to keep our cash over the FDIC limit. The FDIC limit is two hundred fifty thousand dollars. If you more than two hundred fifty thousand dollars in account, your bank goes belly up. You may not get all your

08:39
But the cool thing about both Mercury and Highbeam is what they actually do is spread your money around what’s called a sweep network. So it looks like you only have one account with them, but behind the scenes, they open accounts for you at lots of different banks and distribute your cash and make sure each individual kind of phantom account is always below $250,000. So no bank, you’re always fully FDIC insured. So both of them, Highbeam and Mercury,

09:05
have $5 million of FDIC insurance because they divide your money across 20 different accounts. And that is the bomb. So we are closing those, a bunch of those accounts now and consult, you wouldn’t, don’t know if you’ve ever tried to do this, but keeping track of all those accounts is a pain in butt. have this spreadsheet down. Yeah, whenever I want to log in, I don’t even know how much money we have. My wife could just run off right now and I would have no idea.

09:32
And if you lose one, that’s 250 grand. Oh, we forgot about, you know, the, Steve Chu community bank in Mississippi. Oops. It reminds me of Bitcoin. Like you lose your wallet. It’s gone. Yeah. It’s also gone. Even if you don’t lose your wallet in crypto. That’s true. Uh, the other value add that I had a number of people come talk to me about regarding your talk was just optimizing your spend. One of the biggest bonuses of running an e-commerce business.

10:02
or any business for that matter, is that you can get points and that sort of thing. But a lot of people aren’t optimizing that. what is your, what is your strategy there? So yeah, so the first half of make a hundred grand by listening to this podcast is park your business cash in an interest yielding checking account. The second half of make a hundred grand by listening to this podcast is optimize, optimize your fricking credit card spend. If you are running, if you own an e-commerce business like

10:28
I know everybody’s read all the blogs about points and you go, Oh, this sounds so complicated. Maybe it’s not worth dealing with. I’m here to tell you this absolutely worth dealing with. Um, you know, myself and other people I know take home six figures a year just on credit card cash back and points, um, based just on points. I fly first class pretty much everywhere I go. Um, I don’t pay a penny for it. It’s just points from the business. This is absolutely worth figuring out. So here is like the

10:56
80-20, the simplest possible e-commerce credit card stack so you don’t have to like do all the points brain damage. So you need two credit cards. So first start with an Amex Gold. It earns 4x points on advertising and shipping. And if you’re an e-commerce, know, advertising and shipping are basically the whole cost structure. So you get an Amex Gold, the first $150,000 you rent with that Amex Gold are going to make 4x, you’ll get $450,000.

11:28
Then any ads or any spend that’s not ads or shipping, put it on a Capital One Spark business card. It earns 2 % cash back on everything. If you just do those two things, right? That’s like the most basic e-com stack. If you are spending more than $150,000 a year on ads and shipping, and here’s the big secret, you can have more than one Amex Gold on the same EIN. So you just apply for another one.

11:55
and that one has a separate $150,000 cap. You can have up to 10 Amex golds. So you can earn 4X Amex points on up to one and a half million dollars a year of ad and shipping spent. So that’s like, and then everything else besides that and shipping put on a capital one spark. That’s the simple like 80 20 econ credit card stack. I don’t really spend money on flights or hotels anymore because of this.

12:22
But I don’t fly first class. guess that’s the only difference. You could. I could. know, we’re sitting on like millions of points. Actually, we could. We’re just, I’m just a, I’m just a frugal guy, Bill. Even if it’s imaginary, imaginary, but they’re a point. But they do disappear. The value of them does depreciate. They devalue them over time. like the kind of the strategy on points is like earn and burn because they’re, they’re not a good investment. holding them.

12:51
The credit card companies are just looking for ways to slowly make them worse and worse. Yeah, I think the philosophy though is unless the points that we’re getting is a good deal for the ticket for the points, we tend not to use them, which requires a little bit of planning, right? But are you planning your trips so that you can take these first class without blowing a bunch of points or? Yeah, I tried. So for example, my wife and I just went to Italy for 12 days. We flew first class both ways on points and I.

13:17
Don’t remember how much it was in points, but it was not. Well, first of all, I would never pay cash for these. Like let’s just be quick. I would have never flown international first class. It would have been like $20,000 or something insane. So no, I would have never done that. But on points, was like the equivalent. I got like something like five to 10 cents of value per point, which is like, you know, base value on a point is like one to two cents. Right. So when you redeem for first class international, the points just go a lot farther.

13:46
I just wanted to let you know that tickets for the 2024 Seller Summit are now on sale over at Sellersummit.com. The Seller Summit is the conference that I hold every year that specifically targets e-commerce entrepreneurs selling physical products online. And unlike other events that focus on inspirational stories and high-level BS, mine is a curriculum-based conference where you will lead with practical and actionable strategies specifically for an e-commerce business. Every speaker I invite is deep in the trenches of their e-commerce business

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entrepreneurs who are importing large quantity of physical goods and not high level guides who are overseeing their companies at 50,000 feet. I personally hate large events, so the Seller Summit is always small and intimate. Every year, we cut off ticket sales at around 200 people, so tickets sell out fast and we’ve sold out every single year for the past eight years. If you’re an e-commerce entrepreneur making over $250,000 or $1 million per year in revenue, we also offer an exclusive mastermind experience with other top sellers.

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The Seller Summit is going to be held in Fort Lauderdale, from May 14th to May 16th of 2024. Right now, this is the cheapest the tickets will ever be. For more information, go to SellersSummit.com. That’s S-E-L-L-E-R-S-S-U-M-M-I-T.com or just Google it. Now back to the show.

15:05
Okay, so now that we’ve put out the candy for this episode, let’s talk about the guts that are gonna really make the big difference for an e-commerce business. One of the, I guess the downsides of running an e-commerce business is that it’s a cashflow heavy business. So I wanna get down to the nitty gritty now and just talk about how to manage cashflow, because you’ve done this for so many, eight e-commerce brands at one point, and it can get into a headache. So what are some of your main principles? Yeah, so the…

15:34
The problem, right? And I think everybody running an income business has felt this. Even if your business is doing well and growing, you know, my business is doing well, and then it’s time to buy inventory again. And you’re like, I need to buy $200,000 worth of inventory and I have $100,000 worth of cash. Where is all my cash going? My income statement says that my business is profitable, but I never have any cash. Why is my bank balance not going up? What the hell is going on? But I’m sure a lot of people listening have felt that.

16:01
And what the hell is going on is that all of your cash is tied up in inventory. It is all on the shelves that you’re 3PL. Because as your inventory balance goes up, that is a use of cash, right? So if you had, you know, $500,000 of inventory last year, and this year you have a million dollars worth of inventory, you have plowed in an incremental half a million dollars into inventory. So if your business made a half a million dollars, well, guess what? You don’t have any more cash. You have a bunch more inventory, but you don’t have any more cash.

16:31
So I’ve seen so many entrepreneurs get pinched by this. And then what do they do? They go for one of these quick cashflow loans, you know, like the Parkers or the eight figs or the clearcoes or Wayfly or all these things, right? And they pay absurd interest rates. And it’s just a tax on people who can’t forecast their cashflow. So I’ve got a couple of kind of like easy rules of thumb to make sure that you have enough cash to buy your next inventory order.

16:59
Okay, it’s really, it’s really only two. For one, it is maintain a weekly cash flow log. And I don’t mean an income statement, I mean a cash flow log. mean, when you think about an income statement, right, so like, you sell a product for $1, you have 20 cents of cost of goods in it, you have all the other expenses down the PNL, and you’ve got maybe 20 cents of profit, right. But there’s a couple expenses in that PNL that are not cash. And the biggest one is cogs.

17:27
cost of goods, like yeah, you had 20 cents of cost in it, but when you sold it, you didn’t pay 20 cents, you already paid the 20 cents, it’s been on the shelf, right? So you generated as far as cashflow from that order, whatever your net income is, plus your cogs, because the cogs is a phantom cost. So when you build a cashflow model, you need to build it based on deposits. And the deposit that you get from Shopify is gonna be, know, doesn’t have cogs taken out.

17:55
So build a cashflow weekly cashflow log. And then in the future, you can start going, when do I think I’m gonna have to buy more inventory? And you put a bogey out there, you know, in two or three months of, it’s gonna cost me a hundred grand. And then I go, how many days between now and then do I have of cash coming in? Am I gonna have a hundred grand? And you go, well, okay, how much money should I save to make sure I have a hundred grand buy whenever it’s time to order inventory? Easy rule of thumb.

18:23
put away in a separate account on the side, whatever your daily cogs were, right? Because that phantom cogs expense, it’s phantom, you’re getting that cash. If you blow the cash, you won’t have it to buy inventory again. So kind of think of it as replacement costs. When you sell a unit that costs you 20 cents, right? You’re gonna need to replace that unit, essentially, eventually, right? So take 20 cents and put it aside every time you sell something.

18:52
you know, that cost you 20 cents. And then when it’s time to order more, you should have cash in the bank to do it. This sounds just like profit first, kind of, but for inventory, but for inventory. Exactly. So exactly. Are you implying then that there’s literally separate bank accounts for each of these things? Like for Yeah, okay. Yeah, I find it super helpful to have a separate bank account. just call it reserve cash. And it’s basically I, you know, I we move money into it every week.

19:19
And we that’s what we save up and we know that reserve cash is going to get spent down to zero. You know in three months and four months or whatever when we have a big inventory bullet right, but then we know it’s there and so then we’re basically we borrow from ourselves our reserve cash rather than having to go borrow money from a lender. So this happens every week or every month. We do it weekly. I find if you do it monthly your it’s too late like you will have spent three weeks of the cash right right right?

19:48
You know, because business owners tend to operate on what’s in their bank account, right? They’re like, oh, wait, the bank account has a lot of money in it. And then they’ll spend the money or they’ll take it out of the business. But then a month later, the big bill shows up and they got to order more inventory. They don’t have the cash. It’s funny how that psychology works. Someone just gave me an analogy the other day, like, you know, in the beginning, when you have a big fresh tube of toothpaste, you slather your toothbrush. But then when it gets down the little bit, you’re just putting this little tiny dot on there. Humans are like that. When there’s money, they spend it. So yes.

20:18
100%. So it’s really important to build a cashflow forecast. So what happens if you’re doing this forecast and there’s no way in hell that you’re going to actually make enough money to pay for your next inventory order? What are your options? So, well, so you have lots of options, but before we get into the options, if that is the case, you need to fundamentally change something about your business, right? Your margin profile is not good enough.

20:45
If you are running your business and it’s not generating enough cash to pay for your next inventory buy, there’s something wrong with your business, right? You’re either spending too much on ads, your gross margin isn’t high enough, you have too much overhead, something is fundamentally broken. So first, let me just say, you know, don’t just put a bandaid on the thing and figure out how do I get the cash to pay for the next inventory buy? Because that’s what everybody does. And then they call me and they’re like, Bill, we’re totally screwed.

21:11
And I go, yeah, but it could be you’ve been just looking for the next hit and you didn’t fix the thing that was wrong in your business. So first thing, fix what’s wrong with your business. What if you’re growing just so fast though, and you want to just keep fuel to the fire and that if you really have the, the math and the spreadsheets to show that you’re profitable, you have good margins and it is simply because you’re growing too fast, proceed to the next step, which is what we’ll talk about. Can you throw some numbers out there? Like what is a healthy company in order to throw fuel in the fire?

21:41
Yeah. So I mean, first of all, are you net income positive? Right. I mean, if you are not venture backed, you need to be net income positive. Right. Period. That’s like the lowest bar. Right. Right. The higher bars, I think, and I’ll credit this to Taylor Holliday on Twitter. He basically says that your returning customers should pay for your overhead and your new customers should be breakeven. Right. So you can basically run your ads at breakeven.

22:11
and then look at how much money you make from your recurring customers. And that should cover the overhead of your business. If you do that, you can’t possibly lose money, right? That’s a break even business, right? Another way to describe a break even business, right? The returning customers pay for all the overhead. So that segment breaks even. And then the new customers are break even because you spend on ads to acquire them. And that part’s break even. You can’t go out of business. You’re break even. I would think sort of a, so if you’re running a really fast growing econ business, you know,

22:39
low single digit EBITDA margins are OK because you’re probably plowing money into ads. But if you’re doing that, you better have frickin good cash flow forecasting because one or two percent the wrong direction and you’re losing money. So you got to be focused on it really, really tight. So that also implies then that you have more than one product, right? Because if you’re one and done, you’re pretty much screwed with one product is tough. mean, hero products are great. Like successful companies have hero products.

23:06
power skews that push big volume and you can order in big quantities. And you know, mean all else being equal, right? I would love to have one product that does $100 million versus a million products that do $1 or you know, whatever. So if your products is obviously easier in every way. So you want to cultivate power skews. There’s nothing wrong with the power skew. But if you are a single skew business, you probably have a massive opportunity to build a product family around that single skew.

23:34
Okay, I like that. I never heard that before. Maybe I should follow this guy on Twitter. Yeah, Taylor’s really right. He runs ComFed Collective. He’s a really smart, smart guy, tweets a lot too. So lots of good content. So if you feel comfortable that you’re not spending on ads irresponsibly, and that your business is structurally okay, but you need money for growth, you have a couple options from best to worst.

24:01
One of the cheapest ways, if you sell on Amazon, the Amazon Marcus lines of credit are really, really inexpensive. They’re like 10 % interest. They’re true interest. We’re talking about the difference between true interest and a fee in a minute. But they’re true interest. If you go for the Amazon Marcus loans, the Amazon paraffin loans, they have partnerships with Marcus and with paraffin. The paraffin ones are phenomenally expensive and avoid them like the plague. The Marcus ones.

24:31
are reasonably priced. Another thing you can do is go to your local bank and get a line of credit. A line of credit is basically like a big credit card that you can draw down on and then pay back. And they’re usually priced in today’s interest rate environment. They’ll be in the low teens. They’ll be 10, 11, 12, 13 percent, which is pretty cheap money considering that T-bills are paying five percent.

24:57
the bank’s only making a 7 % ish risk premium to lend to you. Very reasonable. They charge true interest. When you pay them back, it stops charging interest, right? You pay them to zero and it stops charging interest, which is different than some of the other products we’re gonna talk about here in a minute. So a line of credit to your bank is a great place to start. Can we go back to the Amazon loans real quick? I’ve actually never taken money from Amazon before. What is the difference between a Marcus and a Paraffin just logistically? Yeah, so these are…

25:24
Just to be clear, Marcus and Parafin are third party companies that Amazon has partnered with. Okay. Like on the loans and then Amazon like facilitates you getting the money. Got it. Okay. So you’ll see a Marcus logo or a Parafin logo inside of Seller Central. Okay. The Marcus one, the terms will be something to the effect of like it’s a hundred thousand dollar loan. It’s 12 % true interest, you know, and it’s due in a year. Okay. Something like that. Right. And you will

25:52
The key though is if you borrow the hundred grand, it’s 12 % interest. If you pay it back tomorrow, you you only kept the money for one day. You would only pay one 365th times 12%. You would pay functionally no interest because you only have the money for a day. Okay. Right. And because it’s a true line of credit that shows there’s true interest. And that’s how it would be too. If you went down your local bank, um, it reasonable. This is the way money should be lent. This is way money is lent all the time to large businesses and, uh,

26:21
Normal. Let’s now go to the next, the other type, which is these merchant cash advances, the way fliers of the world, the paraffin side of Amazon lending, eight fig, like all these and people will invariably tweet you after this episode comes out and me and they’ll go, well, what about this one? If they frame it as a fee, if they use the word fee and what they’ll say is borrow $100,000, pay a 10 % fee and you’ll pay it back as a fraction of sales.

26:51
or you’ll pay back $1,000 a day or whatever until the loan is paid back, run the other way. And here’s why. If you borrow that same $100,000, what will happen is they will immediately just increase your loan balance to $110,000. They will just put the fee right on your loan balance. If you try to pay it off tomorrow, you will owe them $110,000. You would have paid the full year of interest and only have the money for one day.

27:21
And that is the huge difference between these merchant cash advances and a true line of credit is that the merchant cash advance charges you all of the interest for the entire duration of the loan right upfront. And then on day one, you pay back a little fraction. On day two, you pay back a little fraction. On day three, you pay back a little fraction. Well, the problem is that money you pay back on day one, you had it for one day and you paid the fee on that money for the whole time.

27:48
Right? You had the next money on day two, you had that money for two days, but you paid the full 10 % fee on that money and so on and so forth. I have a whole calculator and article about this. If you go to buildda.com, B-I-L-L-D-A.com slash debt, I kind of spell it all out because verbal math is hard on podcasts. Right. buildda.com slash debt. And you can kind of break down the math. And so what is the effective APR then on one of these loans, assuming you’re paying back? Yeah, the way these loans work,

28:18
I guess for people listening is they literally take the money out of your revenue directly from your Amazon account, and then pay you the difference after subtracting their fee. So how does the math work? What does it end up coming out to? So let’s say you get a traditional loan, and it’s 10%. But a 10 % fee from one these companies, what is the equivalent? So and this is sort of what these companies are based on. You can’t is very hard to do the math without a spreadsheet, right? front.

28:45
But I will tell you, having done the math on a lot of them, they usually pencil out to between 40 and 60 % interest. Wow. Even though it looks like a 10 % fee, they usually pencil to about 40 to 60 % true interest because you pay the money back so fast. So you’ve paid a 10 % fee on money you had for days or weeks. So think about this way, if you pay a 10 % fee and you have the money for a month, what’s the real APR?

29:14
Right, it’s 12 times 10, 120%. Right? So that’s why these things are so they’re hidden expensive. But people can’t do math because math is very complicated if you don’t have a finance degree. And that’s kind of what these companies are relying on. I was always wondering why so many of these popped up all of a sudden, like I get emails from these types of companies, probably like every other day, wanting to sponsor something or or or whatnot. So I guess they’re just making a ton of money hand over fist then.

29:44
Well, that should tell you, right? If somebody is like desperately trying to get you to take their money, you should be asking, why am I so lucky? Right? Like if they have, if they can afford to email the crap out of like, does Bank of America email the crap out of you every day? Does Chase Bank, you know, does your local credit union like no, because they’re lending money at reasonable rates of interest, right? These guys who are lending money at insane rates of interest.

30:11
What are they? They’re actually sales and marketing companies. They call Steve Chu every day and say, we need to sponsor the podcast. We need to sponsor seller summit. We need to be in front of all these sellers. They have huge marketing budgets because they are trying to get their money out because when it goes out, they get 50 % APR on it. It’s the best deal going. So I guess one of the, one of the value adds that they advertise is that you get approved in like a day and you can get your money the next day. Whereas if you apply for a

30:40
a line of credit at a bank, for example, what do they need from you? A full proctology exam. Yeah, a lot, right? And so this comes back to my strong recommendation for a cash flow forecast. Spending paying a really high interest rate is a tax on not realizing you need the money until you need it tomorrow. Right? When you realize that, oh, crap, I need the money in 48 hours.

31:09
your only option is expensive money. And by the way, that’s why the money is so expensive, because they don’t fricking underwrite you. They’re like, Oh, hi, Steve Chu off the street. Here’s $200,000. Does that sound normal to anyone? Like, no, they’re taking a ton of risk. They don’t underwrite very well. And so as a result, they have to charge really high APRs to the people that do get the money because it has to cover defaults because when they lend that fast, they can’t underwrite.

31:39
So that should be another tip. If someone is just trying to shove you the money and doesn’t even know you, you should start asking questions. Plus, you know, they’re taking it directly from your Amazon earnings and they look at your track record. I mean, they get access to the money first. They’re intermediary between your earnings and your bank account, actually. So they always get paid. Yeah, they go pay it first. Yes. And I’ve seen businesses just choked by these things. You know, they’ve got two or three of them and they’re none of the money’s making it to their bank account.

32:09
And then they got to buy inventory and what they don’t have any cash. So what do do? They get another one. It’s, it’s a horrible slippery slope. I’ve seen it kill businesses. All right. So let’s talk about, uh, logistically keeping track of your inventory. And I mean, you mentioned a separate bank account, but I’m just thinking like cost of goods. It’s, kind of complicated because, you know, it comes in at different times. You’re getting everything at different prices. Like, is there a nice logistical way to organize all this? Yeah. So this is hard. Um,

32:39
And it’s kind of like much in accounting. If you guys have ever done tried to do accounting for your business or talk to your accountant, you will pretty quickly realize that all accounting is a trade off between speed and accuracy. Like so many things in life, right? Of course, you in the inventory side, you could keep track of literally every unit. And you could keep them all in little piles based on how much money you paid for them, right? If your cost from your supplier is changing, and you could

33:05
keep them all in little piles because the freight is different each time you bring it all in. Right. And then you could be very sure which pile you sold each one out of, and you could make an entry for every single one and your accounting would be perfect. Right. But that’s just not reasonable. Right. Like we all use three PLs and three PLs won’t keep inventory in little piles. You know, it’s just, it’s not feasible. Um, so I find sort of the, the best, like 80 20 for most econ businesses.

33:34
is what’s called landed average cost. So let’s say you’re make our math really easy. You’re going to buy 100 units from China and they each cost a dollar a piece. Right. So that’s $100 in inventory, right? 100 units, dollar piece, $100 in inventory. You’re also going to pay $20 to ship them. Right. So many businesses will expense the $20 that they paid to ship it.

34:03
and then stick $100 of inventory in the balance sheet and debit it $1 at a time as they sell everything. I think the better way to do it is to take that $20 you pay for shipping and what’s called capitalize it. Put it on the balance sheet in your inventory account as well. So you have $120 of inventory because that’s really what it costs you to get it to your 3PL, a landed cost. So you got 100 units at a dollar of hard cost and 20 cents each of shipping cost, meaning

34:31
the landed price of that unit is $1.20. And by doing it this way, like think about the $1.20 is also essentially the replacement cost of that unit, right? If when you need to buy another one, it will cost you $1.20 all in to get it to your 3PL, right? To get it landed in the state. So you should be putting away to the side, $1.20 per unit, right? So when you buy again, you pay $100 to your factory and $20 to your freight forwarder, and you have

35:00
100 more units. So that is what’s called at landed cost is the dollar 20 versus the dollar. So that’s landed cost. Then average cost is if you pay, you know, 90 cents this time and $1 10 last time, you just carry it at $1. Like you put them all in one giant pile. And the value of everything in the pile is the weighted average of everything that’s gone into the pile, right? If that makes sense. Yep. Yep. Yep. And that’s just the easiest

35:29
80 20 way to do it. And then once a year or twice a year, depending on how much you care about, you count everything and you revalue it. So basically, you know, if you’re if your prices have gone up and now you’re paying your supplier, you know, $1.20 or whatever, you just count how many things are in the pile. You multiply by $1.20 and you go, that’s the new cost. And you take a charge or a benefit on your income statement one time and you revalue your inventory. I find that’s like

35:57
the easiest. So you use average landed average cost and then like once or twice a year, you just give it a sanity check and say, I holding this at the proper value? So I had Kevin Steckow on the show a while back and he does this for everything. He calculates overhead per unit advertising cost per unit and he lumps that all into one, one cost that he subtracts out when he makes a sale. Is that something that you guys do also?

36:26
I think there are limits to this. So like I take some issue with putting advertising cost in the cost of goods in the per unit, because like, for example, for us, we can sell a unit on the dot com. We can sell you an Amazon or we can sell a unit through Petco. And, you know, the advertising cost is very different right through all those channels. So and also the advertising cost hell even on Facebook changes day to day. So like things like that that are so dynamic are not cogs items. There are different.

36:56
Okay. for you, it’s just basically whatever you paid to get it in the door landed averaged across a bunch of different orders. And then you change that number of once a year. Yeah, once a year. And it shouldn’t change that much. Or you change it when your supplier emails you and goes, this is your new price. You’re getting a price increase. Yeah. You know, so logistically, is there like a plugin that does this? Or yes. Yes. With Asterix. So there’s a million different ways to do this.

37:26
The biggest iron way to do it is to get an ERP like an ERP and enter enterprise resource planning piece of software, right? Worst acronym of all time. This would be like a net suite or like an SAP or like a fulfilled at IO and these things are really good if you care about accuracy and you’re a bigger business, but they’re expensive costs like 100 grand a year. Yeah, but if you’re a smaller business, the best way to do this is you should use either QuickBooks or zero Xero accounting. One of those two.

37:54
And then there is a service called a 2X a 2X accounting.com a letter a the number two letter X accounting and they will connect to your Amazon and your Shopify and your QuickBooks and we’ll see what you sold every day and then you will tell a 2X what your average landed cost is. You you keep track of that in a separate spreadsheet and then you just plug the number $1.20 in the case of the example we were using into a 2X and every time you sell one.

38:22
it will recognize the proper cogs in your accounting. It’s pretty slick. They’ve been doing it for like 10 years. It’s a good piece of software. Okay. And as for the bank account, is there a way to automatically divvy up the revenue that comes in to all your separate accounts? Well, not if you have 250 of them like you and Jim. You get what I’m saying, right? If we have a separate account just for cost of goods, ideally when that dollar comes in to Shopify, let’s say part of it goes into your tax account, part of it goes to your cogs account.

38:51
part of it goes into your own account. Is there an automated way of doing that? Not that I’m aware of. know Mercury Bank who we use actually has some some cool rules about, you know, routing money between different accounts at Mercury, but we just have an SOP every week. Our account does it. Yeah, I was just thinking like stuff like that I wouldn’t be good at. Even with an SOP, you got to still follow it, right? You do have to follow it, but I found I take it out of my hands.

39:21
Right? So it’s our accountant that does or my COO does it. I see. Okay. And they’re just moving the money around for you. Yeah. So it feels automated to me. Yeah. Yeah. Okay. And then in the event that you find out that you don’t have enough money to fund your next inventory, where like walk me through the process of finding out what the hell is wrong. I know that’s a loaded question, but we’re just some common places to look. So complex to look, I mean, just sort of walk your income statement.

39:50
Right. So number one, has your revenue fallen off a cliff? Right. So that’s number one. Right. If your revenue is falling off a cliff, you know, it’s hard to fix a lot of problems if you’re not selling anything. So number one, look at your revenue. I mean, everyone checks their revenue. So chances are that’s like the obvious. So walk down the P and L your cost of goods is your cost of goods more than 30 % of your revenue. If so, you’re going to have a hard time.

40:20
In my opinion, this is maybe a hot take, but I believe that gross margins below 70 % are in e-commerce are not workable. It’s there’s just not enough room to pay for ads and shipping and profit. So if your gross margin, if you’re paying 50 cents for a thing you sell for a dollar, you got a problem. So you need to renegotiate with your supplier, launch some higher margin products. You got to get that gross margin up to at least 70%.

40:49
Then, you know, keep walking the PNL. If your gross margin is about 70%, what else might be the problem? And then this is always the other thing that’s a problem. Mark Zuckerberg is taking all your money, right? Or Jeff Bezos is taking all your money in the form of sponsored product ads, depending on what channel you’re selling on. So if your ads are more than, say, 40%, even 30%, like if your ads are more than 33 % of sales, you’re going to want to look at that. Yeah. You know, you might need to grow slower.

41:16
or even shrink, you might need to do less business, but more profitably and slow down those ads. And then the last thing is you walk to PNL is you got to at your overhead. Do you really need all those employees? And like, it’s a hard thing to say, but people are the single biggest. It’s usually cogs, ads, people on every PNL. It’s like almost that simple. So you just got to look at cogs, ads, people, and those are the only three buckets that I mean, canceling software and stuff doesn’t move the needle.

41:45
You want to move the needle cogs adds people period. So you mentioned 70 % margins. Does that imply that just selling wholesale, which is traditionally 50 % margins, it’s just not going to work these days. Wholesale is not traditionally 50 % margin wholesale for the retailer, right? So for the retailer will make a 50 margin. So like, let’s just give you an example, right? So let’s say a thing sells for $1 at the store. The retailer is going to want to buy it from you for 50 cents, right? Right.

42:14
you might make it for 15 to 20 cents. Right. That’s not what I meant. I meant you as the online retailer with the 50 % margin. No, if you’re, if you’re honestly, and this, I’ve been saying this for a couple of years and people always get mad at me, but like retail arbitrage and retail selling of the people’s products is dead. I mean, like this is a, it’s a tough business. It’s you create no incremental value. You know that these, if you’re buying from brands and selling

42:43
buying wholesale and selling on Amazon, they’re just waiting to cut you out. Yeah, I know they might, you might think that you’re so good at selling on Amazon. I’m sure you are, but tons of other people are too. This is not a sustainable business. Either your business partner, your brand is coming for you to cut you out or other sellers are coming to compete your margin away to zero. If you’re not selling your own branded products, the clock is ticking. I love it. I’m glad you said that because I’ve been saying that for like the last almost decade now.

43:12
But maybe people will listen to us eventually. Well, here’s what I think. Like the price always erodes to the bottom, right? You got a whole bunch of sellers, especially on Amazon on wholesale, right? Not only you have to fight for the buy box, the only way to get the buy box to keep dropping your price for the most part, right? Yeah. Yeah. And then pay more for ads also to one penny more for ads than the next guy who’s selling the exact same thing. It’s a it’s a zero sum, zero margin game. All right. Let’s wrap this up, Bill. So OK, so just switching to a bank account, assuming you have

43:42
a sizable sum of cash will make you between four and 5%. Right? Yep. If you like traveling and luxury, I think I saw the picture of you and Natalie on Emirates. Was that was that Emirates? Couple years ago. Yeah. Well, there’s like a private bar in the back. And then if you don’t want to ever pay for hotels or airfare ever again, get what was the MX gold, get an MX gold or multiple of them and then get a capital one spark. And I mean, you can get way more complicated than that. But that’s like the 80 20.

44:12
What I didn’t know actually what I learned from you was that you could get multiple MX goals. did not. Yes, that’s the secret. I guess you just had to be diligent about switching it out and keeping track, right? Yes. So it’s very easy if you just only put ad ad and shipping spend on the card. So it’s very easy and MX to just go on their website, you just go year to date spending. And so if you spent more than $150 on $150,000 on the card, you know you’re over the limit and to roll to the next card.

44:40
Yeah, but it’s way harder if you’re like putting all kinds of non bonus spend on the card and you got to parse it out. So I just put only bonus spend on the golds and everything else on the capital one spark. Okay. And then the other nugget was your repeat customers should fund your business and then you can break even on new customer acquisition. Correct. And then the other takeaway was do not do these fee based loans. If something sounds too good to be true, it probably is.

45:11
Yep, and do cash flow forecasting so you don’t have to so you can see your cash need coming three to four months in advance and borrow cheap money from a bank rather than three to four days in advance and borrow expensive money from one of these merchant cash advanced people. Right. And the way you do that is you calculate your landed cost of goods and then just put that money into a separate account and that will fund your next inventory purchase. Yep. That’s the easy way to think about it. I love it, Bill. Where can people find I know you

45:39
coach on this stuff? Where can people find you? Yeah, so this is complicated. I was trying not to do too much air, Matt. If you would like this, you know me to help you implement this type of stuff in your business, I do do coaching. It’s buildda.com slash coaching or just buildda.com and you can find the coaching link. So I will only work with like three or four businesses at once so I can get really deep with just a couple people and kind of help people implement a financial operating system at their econ business. So I’ve been doing this for 10 years. I’ve done

46:09
finances for e-comm based on my whole career. So I help people install financial operating systems in their business. Yes. So billda.com slash what? It’s just building slash coaching. Okay. Yeah. Well, Bill, thanks a lot for coming back on the show, man. I should have you back more often. I think you’ve only been on three times. I should have you back more often. Whenever you want, you know where to find me. I’m glad to come on and just run my mouth and tell me about your podcast actually, because that’s relatively new, right?

46:34
Oh yeah. Well, actually we’ve been doing for two years, believe it or not. Oh, has it been two years already? Good Lord. Yeah. Okay. Yeah. So the podcast is called Acquisitions Anonymous. If you are interested in acquiring a business, you know, be it another e-commerce business or even a business in another industry, what we do is twice a week, we break down businesses that are for sale and we say kind of what’s good about this business. What’s risky about this business. If I were buying this business, what are the questions I would ask in diligence? How would I value this business?

47:01
How would I finance the acquisition of this business? So if you’re looking at buying a business or for the first business of yours, or if you wanna add on a business, maybe do a business you already own, build a mini holding company, on Acquisitions Anonymous, we talk about how to do that. Dude, love it Bill, thanks a lot man. Thanks for coming on the show. Go check out that podcast. All right, thanks for having me Steve.

47:26
Hope you enjoyed that episode. Now if you haven’t done so already, make sure to optimize your bank accounts right now and start using the right credit cards and avoid predatory lending practices that charge ridiculous interest rates. For more information about this episode, go to mywifequitterjob.com slash episode 495. And once again, I want to thank Emerge Council for sponsoring this episode. If you sell on Amazon FBA or your own online store and you want to protect your intellectual property from theft and fraud,

47:52
head on over to emergecouncil.com and get a free consult. Just mention my name and you’ll get $100 off. That’s E-M-E-R-G-E-C-O-U-N-S-E-L.com. I also want to thank Chase Diamond. Chase is my go-to guy when it comes to email marketing. And if you want to learn how to run your own successful email marketing campaigns, check out his class over at mywifequitterjob.com slash chase. That’s mywifequitterjob.com slash C-H-A-S-E. And if you are interested in starting your own e-commerce store,

48:20
Head on over to mywifequitterjob.com and sign up for my free six day mini course. Just type in your email and I’ll send you the course right away. Thanks for listening.