Unlocking Financial Success in Online Business with Jon Blair

Transcript:

Jared Ward 00:08

Alright, this one's been a long time coming. This is John Blair from Free to Grow, cfo. John, welcome to Ops Unfiltered, the podcast where we have raw conversation about the operations and messy beginnings of e-commerce companies.

Jon Blair 00:25

Welcome, yes thanks for having me, man. I can talk for hours on all of those things you just mentioned, so I'm looking forward to it.

Jared Ward 00:34

Well, I want to dive into exactly why I was dying to have you on the podcast. You have some I really like your views towards e-commerce, operations and finances. So just to give some background on John he's actually one of the first people I've met that is a true hybrid COO and CFO for e-commerce companies, and this experience and this knowledge has led him to start his own company called Free to Grow CFO, where you guys do outsource CFO services, but you have a very unique take on operations, the intersection of operations and finance, so let's dive into that. So your background is two companies that I found so SureStop and Guardian Bikes. Walk us through that. How did you become CFO and COO of those two companies?

Jon Blair 01:29

So, interestingly, they're actually the same company evolved. So back in shoot 2009,. So it's making me feel old. 15 years ago, I was going to business school at a place called Cal Poly, san Luis Obispo in California, and actually a friend of mine in business school had invented a bicycle brake that prevents you from flipping over the handlebars and actually canceled that. We weren't friends at first. We were in the same cohort but I had never. We knew all the same people but I'd never met him.

02:04

I was the kind of accounting manager part-time in my last year of school for a local entrepreneur who was the judge in a competition on campus called Innovation Quest and this guy, brian Riley, who again was a business school cohort of mine. He invented this bike brake, submitted it in Innovation Quest and he won. And this guy that I worked for, who was a judge, was like hey, john, you've got to meet this guy, brian. They invented this coolest brake. It prevents you from flipping over the handlebars, they're going to crush it, they need an accountant. And I told him that he needs to talk to you. And so 15 years ago, on this fateful day, I meet Brian at a coffee shop in downtown San Luis Obispo and he brings me this stack of just like documents that need to be recorded from a bookkeeping standpoint, and that's how I started with then what was SureStop, and so, interestingly, the guy that I worked for, ron Merritt, who was a serial entrepreneur. He took Brian to China and to Taiwan to, because that's just where most bikes are made, that's just how the bike industry works. He took him to these OEM manufacturers and helped him kind of source a supply chain, get the first like take this thing from a prototype to an actual brake. And so, starting back in 2009, I was moonlighting for SureStop, as their call it, like part time bookkeeper, right.

03:29

All the while I was taking full time jobs working for early stage companies and where the intersection of operations and finance really came into play, as one of the one of the companies I worked for just a few years after graduating was a manufacturing company in Southern California, and so they were fully vertically integrated. They actually manufactured everything from scratch in four different buildings all right next to each other. They made decorative plumbing fixtures, and so this is like high end, expensive, like shower heads and faucets and things like that, and what they did was they would take raw metal and even like pour like brass ingot into castings. They had a foundry and they would take that raw metal and they would turn it into like really expensive, like multi thousand dollar, like high end decorative plumbing fixtures. They hired me as a controller and I got into their ERP system. Well, first off I looked at their financials and they were just like all cost a good soul and inventory was just all over the place and I'm like what the hell is going on.

04:33

And so the company, were they at that time, that time they were doing about 10 million top line revenue, but they were growing super fast. The year before they were doing 4 million and the year before that they were doing 1 million. And so the founder, or the president, had acquired this company after starting and scaling up to about 40, 50 million. A different decorative plumbing fixtures manufacturer that got acquired. So he knew what he was doing right and basically financials are all over the place and I'm like well, I got to swim upstream, I got a free like what is going on in the factory, like all these people who are or are not recording transactions, like what's going on. And so I basically became known as the controller who was never at his desk because there was no point in being at my desk. The numbers were all wrong. I was on the floor talking to receiving guys, talking to guys in the machine shop that were closing out work orders, talking to guys in the plating shop or the assembly shop that were putting together final assemblies, the shipping desk and like putting together the pieces of why garbage in was producing garbage out on the financials. And so for that, like two years, I got a PhD in like how the flow of inventory transactions connects to the general ledger and drives financial statements and so, like that was, that was really fast forward.

05:56

Several years later, I'm taking other early stage high growth positions, as usually head of finance, and then Guardian decides to go on Shark Tank Sorry, surestop decided to go on Shark Tank, but they brought this kids bike brand that we wanted to launch called Guardian, where basically we were going to launch SureStop breaks into the market as a direct to consumer play of our own kids bike brand, which we named Guardian right.

06:24

And so Brian and Kyle the other two guys on the team I was still part time at that time they went on Shark Tank back in 2016. We got a deal done with Mark Cuban when we closed his funding that gave us enough money for me to jump ship and come on full time, which we had been planning for years. But we finally had enough capital and Brian was like listen, dude, kyle and I have been, you know, hustling, trying to get this business off the ground since business school. You have since gone out and, like, worked in house and at all these different inventory based high growth companies, you understand inventory and you understand accounting and finance. Would you come on board and be our COO slash CFO. And so that was back in 2017. And so I ran all bookkeeping, fpna, debt fundraising, supply chain inventory planning, 3pl fulfillment and that was the birth of me being a CFO slash COO.

Jared Ward 07:24

That's really interesting. So you brought up something that I also see all the time. It's basically any company that I, any e-commerce company that I run into doing between call it like 2 million and 20 million. Their financials are all over the place. Something has gotten out of control. So two part question Number one what are the biggest issues that happen in your finances for company, for e-commerce companies, like what specifically got out of control? And the follow up question is why, like why do you think that is? Why is that so common for a 20 million dollar company to have finances all over the place? They don't even know their COGs. They can't tell you where a product is.

Jon Blair 08:11

Yeah, I come across this all the time and I actually have. First I had kind of like some hypotheses as to what the causes were, but I think, now that we've been doing this for a while, at free to grow, like I've got some empirical evidence and like the most common thing that I find that's out of control on the bookkeeping is seven and eight figure brands doing cash basis accounting and what that means is that inventory and COGs really there is no inventory on the balance sheet. A cash basis books meet basically mean there is no balance sheet and so they carry no inventory on the balance sheet and their COGs all expenses, including cost of goods sold hit the PNL in the month that they're paid for, not in the month. That lines up with the revenue that that cost supported. Right, and so that's the first thing. And why does this happen?

09:01

There's a lot of different reasons why this happens, but the most common one that I see is because the brand is using a CPA firm that's doing the books specifically for tax purposes. They don't care about the operational reporting. They're trying to get the books closed to prepare a tax return and cash basis is a whole lot easier for them to manage. But if you double click into why do CPAs do it that way? But besides just the tax piece, they don't get e-commerce. They don't know how to read a Shopify statement or an Amazon seller statement. They don't know how to like take the transactions of an e-com brand and build what's called a cruel basis financials and there's like a.

09:47

Cpas are the most common corporate, but they're also just independent bookkeepers and bookkeeping firms. That what they do is they. They say we work with all industries and so they try to be everything to everyone, but the reality is you get placed with a bookkeeper who has maybe never done e-com and never managed inventory, or maybe has one client they do that for, whereas, like us at free to grow, all we do is e-com consumer brands, so we're experts at managing inventory accounting.

Jared Ward 10:16

So it's the next, the specs. Next question, which is what are the main differences in e-commerce accounting versus, say, like, just a standard companies accounting?

Jon Blair 10:28

Yeah, so there's a couple things. One is like the the, the most front and center. One Is thinking about knowing how to treat the transactions that pass through the common Um sales channels for an e-com brand, so Shopify on Shopify all those shops exactly.

10:46

And so here's the thing I know it seems like if you're an accountant you should just get it it's that Accountants are taught in school and in public accounting firms. They're taught to to reconcile transactions on the basis of statements and source documents. The trick with Amazon and Shopify is you have to build your own source documents, you have to export the data and you have to create your own statements. Like a guardian, when I built out the accounting playbook, I was like, okay, I, I would export several reports from Shopify, several reports from amazon seller, and we built our own statement to reconcile to. And what ends up happening is because, like the typical bookkeeper doesn't understand what's economically happening in those transaction reports, they end up booking it on a cash basis, meaning when the cash hits the bank account, that's when they record the revenue and the cost, and it's just, it's just flat out wrong. That's the first thing.

Jared Ward 11:47

And the other. How should it? How should it be? How should they record it as?

Jon Blair 11:51

opposed to what. So the way that it should be recorded is that, from a revenue recognition on the p&l standpoint, you should record the revenue in the period that the order ships, because from it, from a gap, what's called gap accounting, a cruel accounting Revenue is recognized and earned when the, when, the obligations fulfilled by the, the company, and, and it's usually fulfilled when, when the order is fulfilled right and so, as opposed, you may get paid in a certain on a certain day, but if you fulfill the order later, that's the day that you're supposed to recognize revenue, not the day you got this cash.

Jared Ward 12:26

This reminds me of an issue that we had at at qualtree. So when I was running qualtree um Running into this exact issue, we were. We were changing from recognizing the revenue when it was shipped. But the problem was um we figured out that our our trigger to change the status to shift in ship station. Was when the label had been printed and not when the actual order had shipped.

Jon Blair 12:52

So um, I remember that's common and that's it's it's making.

Jared Ward 12:56

It's making sense now exactly why that was such an issue with our outsource CFO at the time.

Jon Blair 13:02

Yeah, that's interesting and we see that a lot.

13:04

So we even got down to the point at guardian bikes where we were like, shoot, shopify is in this time zone and our 3 pl is in this time zone, and most of the time throughout the year it doesn't matter.

13:16

But if you like, look at black friday weekend, where you have this big spike in orders and and oftentimes you could have a backlog that pushes into the month of december, where those orders all came in At the end of november but they didn't get fulfilled until the beginning december, depending on when december 1st is. And we we the way that we could tell there is an issue is our shipping, our margin Like changed massively in the month of november. And as we dug into it was like, oh shoot, there's a bunch of shipping costs that got billed in december that we need a pull into november, and there's a bunch of revenue that hit in december that we have to pull into november. And so we kind of figured it out by trial and error and then eventually created systems to Be able to pull the reports, to book the right entries every single month.

Jared Ward 14:06

But to some of this point, it's recognizing revenue when something when, when those when it has shipped, not when the transaction occurred. So that's exactly first step. Uh, what about the next one?

Jon Blair 14:19

I kind of derailed you well, the second one that I was going to mention was inventory accounting, and now inventory accounting, doing it the right way, based on, like on, what's called an accrual basis, meaning that you recognize the inventory on the balance sheet when it's economically purchased, meaning when the title transfers to the purchaser and then you recognize the cost of goods sold in the month that the order is fulfilled, so it's matched with the go ahead.

Jared Ward 14:48

Run me through an example of that Like let's okay because a very common Examples. I purchased goods from china. I put down, a 30% deposit went, so walk me through the change of ownership. Like when does that happen? Is it normally? At the port Is it? Is it a trigger of a certain document?

Jon Blair 15:05

So technically. But so there's two, actually two different things you brought up. There's the deposit accounting and then there's the transfer of title. Right, and on the deposit accounting, if you're making a deposit on something you don't have title to yet because it's still in production, right, um, let's say that 30% deposits, 30 grand, that 30 grand just gets recorded as an asset that we typically call prepaid inventory right or inventory deposits. Now, if per your contract or per whatever the it's, whatever the inco terms are on the commercial invoice meaning like is it?

15:45

fob or g in is a dvp. That's that technically. Technically, that is what tells you when title gets transferred. We'll just use fob origin port because it tends tends to be fairly common, right, um, all of the tariffs, that's the whole. Another story has changed with the inco terms that people like to use, but anyways, um, so it's fob origin port when that means when it gets on the boat in china, technically the brand owns it at that point, right, per those inco terms. That's, when titles transfer, the bill of lading transfers Um ownership to the freight forwarder for the brand that's purchasing it. So let's say, the 70 percent is 70k, but you don't, you haven't paid it yet. Regardless of whether you paid it or not, you need to recognize another 70k, because you've already recognized the first 30k. You need to recognize another 70k as an inventory asset, right? So now you've got on your balance sheet an asset of a hundred thousand dollars, what we call in transit Inventory, right? And?

Jared Ward 16:49

so once it prepaid it's prepaid deposit on inventory then it goes to. Then you have a hundred thousand, say you, so you put down the remaining $70,000. It goes out, it's transferred to your ownership, it's shipped out from the port.

Jon Blair 17:03

Now it's, it's in, it's the in a in transit account yeah, and the reason with the reason we keep it separate from on hand inventory is because, uh, if you want to reconcile to a physical count, right, so let's say that that's destined for a 3 pl in the us, right?

17:20

If we were to receive that hundred k on the general ledger To on hand inventory and then we'll do a physical count at the 3 pl and compare it to on hand, that stuff's on a boat and so we'll think we don't have it and we'll write it off. But in reality it's a separate bucket. So we always keep in transit, separate from on hand, so we can tie to a physical count at a 3 pl or a fulfillment center At any point in time. And so once it gets received into the fulfillment center, that's when we'll transfer the value from in transit inventory on the balance sheet To on hand inventory on the balance sheet and it stays there until it gets sold. And as it gets sold it comes out of of on hand inventory and it hits cost of goods sold in the month that the order is fulfilled, hence the same month that the revenue hits the p&l.

Jared Ward 18:11

I think this is probably one of the most valuable conversations for any young, young e-commerce companies. If you're listening to this like that was that's amazing. Um so after that, now I just have, out of curiosity, questions Um so, once it's received, what about? What's also common with the e-commerce operations is I don't get the bill for that freight forwarding shipment until later. I don't pay off tariffs until much later. So this concept of landed cost, which I feel like you start caring about that when you start caring about your margins, like when you're hitting that five, ten million dollar mark.

18:47

When, when you're evolving as a company and starting to care about profitability, then all of a sudden, e-commerce companies are they're. They're. They're trying to understand what the landed costs are. Walk, let's finish out that scenario with landed costs and how that affects it.

Jon Blair 19:02

So here's the thing Um, there are accountants who attempt to do this, and where they miss the mark Is that they try to get actuals to record landed costs. But the problem is you, like you just alluded to I don't know in my experience 20 of the time you have the actuals, meaning you have the actual freight bills and duty bills in hand in time to record the landed cost. The reality is you have to record the landed cost the day it hits the warehouse because that's the day it's on hand and it could potentially get sold. So if you don't have it at landed costs, if it gets sold the next day, you're expensing to cogs less than landed costs.

Jared Ward 19:44

To be super clear to anybody listening, that's the issue is With the e-commerce. With the e-commerce companies you have such quick inventory turns, you receive goods you might sell out of them next day and you technically don't even have a landed cost to to to attribute that to. So that's the issue, right there.

Jon Blair 20:03

It's a huge issue, and so here's the thing. There's a couple of things I wanna say. One is what a lot of brands do is they just say, oh, forget it, I'll just expense my freight in and my duties straight to cost the good sold. They'll basically do it on a cash basis. When I pay it, I'll expense it. That's a problem, because what happens if you look at the gross margin one, if you look at the SKU level gross margin, it's overstated because COGS doesn't include freight and duties. But secondarily, in a month where you have a lot of shipments, your gross margin at the company level appears to be a lot lower. And then in months where you don't have a lot of inbound shipments, your COGS appears to be lower and your gross margin appears to be higher. It's super distorting and it's super. It's so hard to like explain to a brand what it all means and, quite frankly, it's just a distraction. And so what you need to do and I learned this from doing a couple ERP implementations and then also at Guardian we did this manually in a spreadsheet which I've talked to you about in other settings, like how we did this. But you have no choice but to use your best estimate at the time, the best estimate at the time, that inventories received at the fulfillment center, and you have to receive it in at landed cost. And so there are several different things that you can do. Like what we did is we built kind of like a.

21:34

The technical term from an accounting standpoint is that you need to accrue the duties and accrue the freight and accruals, by nature, their estimates, because they're recording a transaction, an estimated value of a transaction, before you have the actuals available to you, because it needs to be recorded right. And so what we would do and this is what a lot of ERP systems attempt to do is that you can set up standards of like, for example, like the duty rate tends to be for this item, 10% all in or 11%, all in 11% of commercial invoice value right. And usually when you're getting quotes, spot rates for inbound freight, you've got a quote that should be fairly close to the actual. Now the trick is you can't, like this might be getting a little too in the weeds, but like you can't, you can't forecast like drage and like you know fees, because you've got a, you've got a container sitting waiting for a truck and the truck doesn't show up. You can't forecast that stuff, and so that's fine.

22:39

You accrue your best estimate based off of the standard duty rate that you see on a skew level and then what you got quoted for freight, and you just you build that into the landed costs and then, when your actuals come in, when there's a delta between what you accrued and what you actually got billed, that gets expense straight to cost a good sold. But here's, here's what cause you can never get it perfect. But here's what the benefit of accruing an estimate is that the delta between the accrual estimate and the actual should be much smaller than just expensing outright all of your freight and duties. And so you're going to have a very small distortion to your financials and you're going to have a mostly correct cost, a good sold by skew.

23:26

And the reality is this is where a lot of accountants get hung up. Accountants want to reconcile to the penny and the problem is 80, 20 rule 80, 20 rule 80, 20 rule Right, like we just need to nail the 20% of variables that drive 80% of the decision making value, and then you've got to let everything else go. Because you're a fast growing e-commerce business, things are going to change. You just got to make a decision and you got to move on, and so we use accruals based on historical data and then, when the actuals come in, we compare it to the accrual and the delta gets expense straight to cost a good sold.

Jared Ward 24:03

Dude this. This is like a masterclass for specifically for e-commerce operators, accountants, cfos. My next question is something that we're sort of describing the issues that you start feeling when you start prioritizing margins as a company. Like it's like I compare this to, you've gotten past the product market fit phase of your company. We're like, okay, I can sell this thing, and I know I can sell it for a profit. I might not know what my margins are, you've kind of just been winging it the whole time. But then it's kind of like, okay, I actually have a company here.

Jon Blair 24:39

And normally that's.

Jared Ward 24:40

It's between like three and 10 million ish dollars. So then you start prioritizing what your actual margins are. So I personally see this a lot. I don't know if this is common, but I see a lot of e-commerce companies. They hire or founders, rather e-commerce founders, they hire a CFO who's outside of e-commerce, even a fractional CFO who doesn't come from e-commerce ops, but he's a super sharp guy or girl and he really drives a lot of changes that aren't necessarily the best fit for the operations of that company. So have you seen the scenario and I guess, what is your recommendation to that company, the one who's starting to prioritize margin? They need to evolve on their accounting and their margins and closing the books. What is the best choice for them? Do they hire a? Do they try to find, like a hybrid COO CFO? Do you try to find a firm like yours? What do you think is best?

Jon Blair 25:47

Yeah, so this is actually a really great question. We see a lot of prospects that we talk to are people who have used a fractional CFO before, who didn't know E-com and it got them into a lot of trouble or it just straight up wasn't valuable. And here's like the rub that I hear all the time Is that, like when you're not and I wanna be clear here we're talking, I'm talking about a fractional CFO who understands not just E-com but scaling an E-com brand right, because there's a difference between scaling and just like, being defensive and being like we're gonna just stay the size we are and we're just gonna harvest profits. Right, like when you there's a specific CFO that it takes to help run a scaling E-com brand and what we see is that, look, the holy grail is, if you can find a full-time COO, slash CFO. But and I'm not saying this because, to toot my own horn, I'm saying this because I have seen many clients that we work with try to find this.

27:02

Those are more unicorns, like they're that's like Not on the unicorn baby, that's like a perfect world, right that you can find that, and there are some well-known DTC brands who found that and crushed it. But I would say that's the exception, not the rule, right? And so I think what's more practical is, that is, to outsource it to a firm that knows how to scale an E-com brand and like. Here's the thing. Obviously, I'm not trying to like, shamelessly plug our company. The reason why our company started is because I tried to replace myself at Guardian Bikes as CFO and I couldn't find a fractional CFO firm that could hang, and so, like, when I left Guardian, I was, like, on this quest of like, why didn't that work? And like the conclusion I came to is that, like, when you're doing like, you're saying three to 10, $15 million a year in revenue, you don't have the need for a full-time CFO Like.

28:03

I see very few brands that do.

28:04

Usually, if they do, it's because they are trying to raise a ton of money and they need, like, a fundraising CFO or they're doing their own manufacturing, and a manufacturing company is just more complicated than one that's buying finished goods or buying from a contract manufacturer right, but I would say the vast majority that we come across they're not doing their own manufacturing or end fulfillment and they don't need a heavy hitter fundraising like XI Banker CFO and so what they need is their bookkeeper that has gotten to this point, can't help them with FPNA.

28:41

So that's like financial modeling, cash management, debt fundraising, being a partner to the operations and marketing teams, and then also understanding scaling, meaning like scaling is imperfect, scaling is messy. You don't ever have 100% of the information that you wanna have. As you're scaling a D to C brand, you get like 40 to 50% of the information you need and you check your financial model to make sure that like it's not a zero sum game that if you place this bet you're gonna go out of business, there's some limited downside risk and you place the bet on that inventory or that ad spend or hiring that person and you go for it and you quickly get feedback and iterate and do it again right and like that's where we're uniquely. Oh, go ahead.

Jared Ward 29:25

I would how I would classify that from an outsider's perspective. Is you especially hearing you talk? You have empathy for e-commerce operations and how messy they can be. All of the things that you talk about how you handle COGS, how you handle your inventory accounts it shows that you, instead of saying no, it shouldn't be this way, you guys get your asses into net suite so I can like fix you guys.

29:53

It's. You can tell you you have a lot more empathy about like. No, I understand how e-commerce operations are like. There's just a certain level of messiness that comes from being a founder with like a four person company. You know you just gotta get your shit done, whatever cost.

Jon Blair 30:08

Well, actually, when you say the four person company, what you're touching on something real there, which is that most of these e-com brands that we work with, dude, they're scrappy, they're super scrappy, like, I work with one brand that's doing $50 million a year and I think there's only like seven people full time on it. Right, like on staff and like, and so, because of that, they do need someone scrappy and the reality is that, like, going back to your question about like, what is the right solution from a like, what is the right solution in terms of like, outsource finance or just a finance resource? The reason why we see like using a fractional CFO firm is being so helpful is because all we do is work with like free to grow. Specifically, all we do is work with scaling e-com brands and so the pattern recognition of like, how to place bets on ad spend, how to think about reporting on inventory, how to think about making inventory decisions.

31:08

All of our clients are struggling with the same exact scaling challenges in the e-commerce context over and over and over again. So you can actually get a lot more helpful advice faster and actually, crazy enough, cheaper than hiring someone full time who you know because you're strapped and you're trying to be profitable, you can't hire the heavy hitter right. You're probably hiring someone who's like an first CFO role. Maybe they were a controller before and so they're learning on the job team. Like us, we're not learning on the job. We've done this over and over and over and over again, and so we can actually provide insights faster and with higher value at a lower cost. But it's cause. This is all we do all day long.

Jared Ward 31:58

So I think you're part of the new wave of companies Cause.

32:02

So I talk about this in my content, which is the evolution of an e-commerce company.

32:08

They start out in their garage stage or like their home office stage, where it's just the founder, so the producer, doing everything and they're just trying to find product market fit. Then they go to their growth stage. Like in their growth stage they're basically out Like if they can outsource it for cheap, they'll do it, or not even cheap, just a cost effective way. They outsource everything, the bookkeeping that now we're seeing people outsource CFOs pretty early on. They outsource fulfillment to a 3PL. They'll outsource marketing to a firm that specializes in the meta ads and then what I see later on is once say, they crush it and they hit like $100 million in revenue, then they'll take everything back in house. So they'll like contract and just do the bare minimum and focus on a good product and building the brand and exploding and then slowly they'll take everything. Then they'll hire a CFO internally when they're like 50, 60, 70 million and they've figured out their margins. Sometimes I see brands take back in house fulfillment.

Jon Blair 33:05

For sure.

Jared Ward 33:06

It's just, it's interesting to see that and I do think you're part of the new wave of companies that either they're in that growth stage and now they actually have an option, a CFO who understands e-commerce, and they can outsource for a fraction of the cost, totally. And it's also for I would say it's for brands who you know shamelessly, they have like a $20 million ceiling. They probably will never bring in a CFO in house. It's not feasible. But yeah, that's kind of how I see the market.

Jon Blair 33:37

Those are all really really good points, like, and one thing that I always say is like we do not provide a service that is a substitute for the need of a full-time CFO. We occupy the gap between where you just had a bookkeeper or accountant only and where you actually reach the need for a full-time CFO, and that gap is actually pretty large. What we find is it's about five-ish million in revenue, plus or minus five million in revenue, to about 60 to 70 million. There's exceptions along the way, but like that's the but there's a large concentration between five and, like, say, 15. And there's a huge concentration, I would say that's where most of the clients we serve are there. And then we have several, but less, that are between 15 and 65 or 70.

Jared Ward 34:37

All right. My next question is I've been excited to dive into this with you intersection of technology and operations, specifically financial operations. What would you recommend to let's go back to like the evolution of you commerce company? A solopreneur, he's just hustling in his garage, or maybe he uses a 3PL and he's just hustling in his office, but he's largely doing it by himself. What are the things? Because obviously he can't have perfect books unless he's a bookkeeper or unless he hires somebody like you, which at that stage they can't. What's the technology that somebody should implement and what are some of the practices and processes that they should implement at that solopreneur stage to make it easier when you're scaling to that growth stage? You know three to 10 million.

Jon Blair 35:33

That's a good question. So interestingly there's a newer accounting software called Final Loop. That's actually it's a substitute for QuickBooks Online. We're partnered with them. We still have probably two thirds of our accounting clients are on QuickBooks, but the other third and growing are Final Loop clients.

35:54

And Final Loop is very slick. It's basically automated e-commerce accounting and, like you know, the founder is like he's a really interesting guy. His name's Leo, he's super awesome. He is a PricewaterhouseCoopers like big four accountant who also founded a brand and was like why is this stuff not more automated? Because all my e-commerce brand has just run off of other people's systems Shopify, amazon, a 3PL like why can't I connect all that stuff to my accounting system and have most of the bookkeeping done for me? And so the way that we've partnered with them is like for the larger brands we'll call it, like you know, seven healthy, seven, figure, eight, figure plus.

36:40

We actually provide a light service on top of Final Loop, because the bookkeeping gets more complicated and Final Loop handles like call it 85% automated and we help manage the last 15%. But when you're solopreneur in that early stage, before you get to growth, final Loop can basically do all your accounting without needing a bookkeeper at all and the beauty of it is it's real time. It's mostly not I'm saying mostly because it's not completely but it's mostly cash basis, although they have a feature where, like it, can recognize cost of goods sold when products are sold as opposed to when they're purchased. But when you're in the early stages, like, it's only a few hundred bucks a month and you just can bypass having a bookkeeper and it's like a total no brainer.

Jared Ward 37:31

I have heard of Final Loop, One of our potential clients is. You just tell me all about it and I looked it up. Looks like a really, really cool piece of software we will probably integrate to it, since their values are so aligned with luminous.

Jon Blair 37:45

They're great. And I mean, there's a lot of accountants who are skeptical. Because they're skeptical, they're like is this gonna replace me Exactly? But we take the view of, like the long game view, which is like, look, accounting has to get. We'll call it bookkeeping. Bookkeeping has to get more automated. It has to. It's just where the world is headed right and there's still a place for accountants in all of this because, like, there is still some oversight of the machine. But it's gonna be way less labor intensive and, to be quite honest with you, it's better for everybody, because everyone's just getting stuff, getting data in more real time.

Jared Ward 38:28

Yeah, now I'd be remiss if I didn't ask this question. Ims is inventory management systems. What are obviously most people who watch my content? They know my opinion on big ERPs for e-commerce companies. What's your opinion on that? What's your opinion on small brands going to NetSuite? Or Acumatica like big ERPs. You see it a lot. I think, it's gonna be the solution to their problems.

Jon Blair 39:00

I know this well because I've been through two ERP implementations and even at Guardian Bikes we were in. I shopped Dynamics 365, acumatica, netsuite those are the big ones. There's a few other ones Sage, yeah and so Guardian had to go that route at some point because they were vertically integrating and they were bringing manufacturing in-house. I would separate that from the vast majority of brands, and when I say the vast majority of brands, I mean the brands that are contract manufacturing, outsource fulfillment through a 3PL. Those are not the same situations, and we so I used to get the question all the time from our CEO, brian, like John, when is the time to switch to an ERP system? And I used to always say let's please hold on until we get into manufacturing, and, like I think we will need it then because that is when you should do it. But keep in mind it's not just if you're doing what I call simple manufacturing, which means just assembling, I don't think you should waste your time going to all those big ERP systems. But if you have what's called work center management, which means that, like there's stuff, what that means is that you're not just tracking. When you have simple manufacturing, you just have a bill of material right and you take a bunch of components or sub-assemblies and you do a build order in whatever system you're using and it just takes all those out of inventory and creates a new assembly part number. You know that I would just highly recommend to not going to Netsuite or Acumatica to do that.

40:48

But if you have to track inventory by work center so like for example, that manufacturing company, that decorative plumbing fixtures company I work for, we had four buildings. Raw metal came in on one side and got formed, then it went to a machine shop and then it went from a machine shop to a plating shop and then do a polishing shop and then do an assembly shop, and so every single one of those work centers had its own work order. Where you're transforming a part number to a new part number and when you're doing that kind of inventory control you do need something more robust because you have to be, when you run what's called MRP material requirement plant or materials requirement planning when you're running that in the system, it, the system has to know where all those parts are in the factory, are they at plating, are they at assembly, are they in the machine shop. And when you have that kind of flow you do. That's, in my opinion, that's what those heavy lifting, heavy lift ERP systems are made for.

Jared Ward 41:49

But when you're it's specifically because what you're describing requires a certain breadth of feature of a company that's been building for decades and decades.

Jon Blair 41:58

Exactly.

Jared Ward 41:59

You're gonna really only find that on the massive ERPs and it's like Luminous, we have basic production and work order management exactly what you're describing. It's like, hey, if you're just doing some basic assembly manufacturing, like yeah, you can use Luminous's, but anything more complex than that, where you need advanced work order management and costing, it's like, yeah, you probably should go to like a net suite.

Jon Blair 42:22

But if you and so going back to your question of like, my recommendation on like the we'll call it the average D to C brand or the average Ecom brand they should not go to any a net suite or or Acumatico or Microsoft D365. Something like Luminous, where I see like the real value is that like just because you don't have super complicated manufacturing operations doesn't mean that you don't need something to manage the flow of your inventory. It's something more robust than spreadsheets, right and like. So where Luminous, where I see Luminous like really fills a nice little void in the market, is that like what you've tend to see is either spreadsheets or nothing, spreadsheets or nothing. And then the nets, like the ERPs of the world, and there's like nothing sitting in the middle.

43:20

Again, kind of like us when I was talking about like before us, you only need a bookkeeper. When you get to like 50, 60, 70 million, you probably need a full-time CFO. But what do you do in the middle? You hire a fractional CFO. Like Luminous covers that similar spot, it covers a similar gap in the market and like the reality is that like it's it makes when you're doing contract manufacturing or simple assembly and you're outsourcing fulfillment, like you still need that system that manages your inventory if you really want to keep costs and, honestly, cash flow under control as you're growing your Econ brand.

Jared Ward 44:01

And, side note, we're trying to recruit John as an advisor to help us, to help us finish out the costing side and automate that specifically for Econmerce companies. So you know I I found today's conversations very enlightening. Obviously, we've talked a lot offline. We hope to continue to talk in the future. But my last question, because we have about three minutes left. How I always ask, I try to ask like some sort of personal question at the end, quick, like two-minute answer. How does and I know you are a, you're somebody who prioritizes faith in their life how does your faith shape how you show up in business in your day to day life? How? How has that helped?

Jon Blair 44:47

You know that's a really good question. I was actually this morning like full transparency. I wake up at five o'clock five days a week, I read my Bible and I have my kind of my quiet time and I was actually like kind of like really reflecting on this this morning, which is that like, actually I left Guardian Bikes was an incredible experience and I recruited a lot of great people there and I just got a PhD in scaling a brand. But I ultimately started free to grow because I wanted to have full control over the business's guiding principles. And, like when I started free to grow, actually before I ever even made a call to a prospect, in my CRM I wrote down the purpose of this business is to build a profitable business that truly cares for people, and I put dot dot dot clients, employees, partners, owners alike and what that amounts to is that, like we've all been there before I know you have, I know probably everyone listening to this has we've all worked in a place where the culture was like toxic or a place where the culture was like pretty good but just not quite there. And the reality is that, like I believe that like we are created by a God who wants us to be in community and relationship with people and to be in healthy relationship and that relationships they really matter. Actually, the first core value of our business is relationships, and it's because everything's built on it. Without relationships, you have no trust and without trust you can't freely speak your mind in a way that's loving for the greater good, right. And so there's a lot of different things that we do. That comes from my faith, but, like we've built the businesses guiding principles around it, I try to build my boundaries and in life being a dad of three little kids and being a husband versus being a business owner around that and I'm very imperfect at it, just as we all are, but I strive every day to go.

46:57

Like you know, I was explaining this to my team the other day. I was doing a training on our core values and I said look, I know, not everyone here is a Christian and that's totally fine. We don't have to be a company of all Christians. We never, I don't expect us to be. I just want you guys to know that this business was founded on this premise. There's something bigger to life than work, and what we do here is about more than money. It's about relationships and it's about the impact that we have on each other and that we have on the clients that we work with. And I know this is a long answer, but I want to say this one thing, which is that, like we do this, I'm not like a huge fan of being a consultant personally, but you know why I got into this?

47:39

Because being an Ecom brand founder is so freaking hard, dude. It's so freaking hard. You're in a tough space in a fast paced environment, and I know this from being an operator and being on the founding team of Guardian Bikes. When you're at the top of an Ecom brand, no one's ever telling you you're doing a good job. No one's ever helping you. Everyone's always putting their hand out and asking for help from you or asking you for money or trying to pitch you on something. And so I just felt like this what we do at FreeGrow CFO is the place where God's got me to come alongside Ecommerce brand founders, who just have the hardest job in the world, and help them along in their journey. And so that's a little bit about like where my faith comes into, what we're doing and why I'm doing this.

Jared Ward 48:29

I love that. That was an awesome answer. Thanks, man. That's the best way to end the podcast, all right? Well, thanks guys. Thanks for listening. That was an excellent podcast, a master class in Ecommerce, accounting and finance. We got into the weeds, but it was fun getting into those weeds with John, so we'll see you guys next week. Bye.