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Accounting Done Right With Profit First
Cyndi Thomason is the Founder and President of Bookskeep, which provides SmartCFO e-commerce business advising, Profit First consulting, and bookkeeping services to e-commerce clients worldwide. Her team coaches business leaders using the Profit First method she designed specifically for the e-commerce industry. This coaching helps business owners create a profitable business that allows them to enjoy financial freedom.
Certified as a Mastery Level Profit First Professional and a Fix This Next Coach, Cyndi is a well-known figure in the e-commerce industry. She authored the best-selling book Profit First for E-commerce Sellers and has an online course with the same name. A renowned speaker, she is frequently invited to popular webinars and podcasts. Additionally, Cyndi regularly contributes to Inventory Lab and eComEngine blogs and newsletters.
Here’s a glimpse of what you’ll learn:
- [02:57] Cyndi Thomason shares her background and the genesis of Bookskeep
- [05:16] Bookskeep’s Profit First methodology
- [09:53] How many bank accounts should an e-commerce business have?
- [16:05] Tips for managing cash flow in seasonal e-commerce businesses
- [23:06] Amazon accounting and bookkeeping strategies
- [27:35] The process of working with Bookskeep
- [32:23] Cash versus accrual basis bookkeeping
- [36:30] Bookskeep’s customer success stories
- [40:20] Cyndi’s accounting tools recommendations for e-commerce businesses
In this episode…
Managing bookkeeping for an e-commerce business can be a daunting task. It requires a precise understanding of e-commerce accounting practices that might be unfamiliar to many business owners. As a result, many business owners face difficulties keeping up with their e-commerce bookkeeping needs.
If you’re an e-commerce entrepreneur, consider hiring accounting professionals to help you with your finances. Working with bookkeeping and payroll services experts can help you scale your business and ensure that your financial records are accurate and up-to-date. Cyndi Thomason and her team offer e-commerce financial solutions using the Profit First philosophy, which provides entrepreneurs with the tools they need to move toward financial freedom confidently. Whether you’re just starting your business or looking to take it to the next level, partnering with experienced professionals can be a game-changer.
In this episode of the Quiet Light Podcast, Pat Yates sits down with Cyndi Thomason, President of Bookskeep, to discuss e-commerce accounting solutions. Cyndi talks about Bookskeep’s Profit First methodology, tips for managing cash flow as a seasonal e-commerce business, Amazon accounting and bookkeeping strategies, and cash versus accrual basis accounting.
Resources mentioned in this episode:
- Cyndi Thomason on LinkedIn
- Cyndi Thomason’s email: [email protected]
- Profit First for E-commerce Sellers: Transform Your E-commerce Business from a Cash-Eating Monster to a Money-Making Machine by Cyndi Thomason
- Quiet Light
- Quiet Light Podcast on YouTube
- Joe Valley on LinkedIn
- Pat Yates on LinkedIn
- Mark Daoust on LinkedIn
- Quiet Light Podcast email: [email protected]
- The EXITpreneur’s Playbook: How to Sell Your Online Business for Top Dollar by Reverse Engineering Your Pathway to Success by Joe Valley
- A2X Accounting
Sponsor for this episode
This episode is brought to you by Quiet Light, a brokerage firm that wants to help you successfully sell your online business.
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What are you waiting for? Quiet Light offers the best experience, strategies, and advice to make your exit successful. To learn more, go to quietlight.com, email [email protected], or call 800.746.5034 today.
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Pat Yates 0:32
Hello, again, and welcome to the Quiet Light Podcast. I’m Pat Yates. Today we have a great episode, it’s exciting to talk about accounting, we’ve got Cyndi Thomason from Bookskeep. Bookskeep as a company that helps do your accounting and bookkeeping for your e-commerce business. And they actually operate it from a standpoint of Profit First, at least for the clients that will use that, which is an interesting book on how to structure your accounting, based on different bank accounts that really kind of deep when people get in there, but it’s a cool process, and this company really focuses on it. So whether or not you actually need accounting is up to individual people. But think about this, whenever you’re coming to sell your business with Quiet Light, we always go through the financials first. We try to find our backs, we try to find mistakes. But if you have $10,000 mistake somehow or accrual problems, or posting issues, or whatever the thing is, and you’re selling it three and a half multiple, you just cost yourself $35,000. So the money that you spend transactionally with an accounting firm can go out the window really quickly if it’s not put together correctly. The nice thing about Cyndi’s business is they’re sort of giving you a philosophy towards your bookkeeping and your accounting and how you run your business as well as giving that feedback quickly doing the bookkeeping work. I think it’s just fascinating how people work and how their mindset is I’m really excited to talk to her about how profit first works then with this, and how the accounting can change if you work with Bookskeep. So as always, if you have any feedback from the show, my name is Pat Yates and you can email me at [email protected]. I’m really anxious to get to Cyndi Thomason here with Bookskeep so let’s get right to it. Cyndi, it’s great to have you in the Quiet Light Podcast today. How you doing?
Cyndi Thomason 2:09
I’m doing great, Pat, thanks for having me on.
Pat Yates 2:12
I’m always anxious to talk to people, especially in accounting. It’s one of my classes I hated when I was younger, like the old school people like, especially some people may not realize this, there was a time when I had to draw those T graphs, we had to actually draw them out and do all that when we’re going through accounting class. I’m dating myself, Cyndi.
Cyndi Thomason 2:28
I still do it. So I’m right there with you.
Pat Yates 2:32
Anyway, it’s great to have you in today. I am so excited to talk to people because I can’t tell you how many times I’ve had clients at Quiet Light that come in, and they have all their stuff on a spreadsheet and they a box of receipts like can I mail it to you and all these different things. They just come in semi-organized or not organized at all. And that’s really where people like you come in. So I’d love to hear about you first personally and where you’re from and tell us all about your company.
Cyndi Thomason 2:57
Okay, well, I live in the middle of the country, North Central Arkansas, honestly a stone’s throw from Missouri. So we’re real close to Branson, Missouri, the country entertainment capital. I have a remote practice. We’ve been in business since 2014. And we got started just because we honestly I needed something to do while my daughter was being homeschooled. And I needed something that was flexible because I needed my time with her. And so from my corporate career, I had done accounting, I jumped in here and started doing some work locally. And then I met Mike McCalla wits from Profit First. And he really kind of guided me to focus on the niche. And so since 2015, I’ve been focusing on clients in the e-commerce space, helping them get profitable with tools like Profit First, and a variety of other cash flow management type of consulting activities that we do with them. We have a team of about 25. They’re distributed all over the US and yeah, we love working with e-commerce businesses. They’re kind of like us, there’s their value, their flexibility they like technology. And so there’s a lot that we have in common.
Pat Yates 2:57
That’s really good. First of all, the people in Nashville are gonna take issue with a comment about Branson, Missouri being the country. I used to live in Nashville. There’s some people pretty fanatical about that. So I think there’s some people might disagree with that. But we’re gonna…
Cyndi Thomason 4:30
Well, they got to come out here and check it out right.
Pat Yates 4:33
Now, you mentioned something right away that I’d like you to comment on, because your company’s about bookkeeping. But there’s also a philosophy like I can see it behind you that you actually adhere to. And it’s really interesting because my dad will tell everyone that Profit First is a complete rip-off of his budget growing up. When he was younger, he used to legitimately keep envelopes and if there was no cash in the envelope, he didn’t do it. My dad talks passionately about that. I think they still do it. He and my stepmother share And they still do that same kind of thing. So when the money wasn’t there, they couldn’t spend it. So I think that this, that’s a rudimentary explanation is really the foundation of what Profit First is about. Tell us about that. Because I am still really curious about that and how it’ll tie into the bookkeeping we’re talking about later.
Cyndi Thomason 5:16
Okay. Well, your father would be exactly right, it is a complete rip off. And Mike gives credit to the envelope system and in all his material. I think his grandmother was the one that taught him about it. It’s just putting a modern twist on it, we can do that now with bank accounts. And we can do it for our business, not just for our personal lives, which is how most of us are familiar with it. I can’t tell you how many people come to me as clients, and we start working together and they’re like, I do this in my personal life, it just never occurred to me to do it for my business. And so it’s really just taking that concept and applying it to business. And here’s why it’s so important. Profit First is based on this theory called Parkinson’s Law. And Parkinson’s Law is you use what you got, you may remember, as a kid, maybe you weren’t this way. But I was just way, I got a little bit of money in my pocket. And then I couldn’t wait to figure out what I could spend it on. And my parents would say that money’s been burning a hole in your pocket. And it’s that kind of thing, we start to see money showing up in our one bank account. And we think, oh, things are looking really good. Or if we don’t have money, we start to really panic and start to worry. And what Profit First does is it gives us different bank accounts for different purposes. And the one I specifically find very important for e-commerce clients is a bank account for inventory. Because inventory, most of my clients will buy a big load of inventory, and then they’ll sell through that over a period of weeks or months. And then they’ll have to come up with another big amount of cash to make a down payment, pay it off, and then they’ll sell through that. So this inventory, cash flow is like a lot goes out the door, and then you start to build up some money, and then a lot goes out the door. When all of that money is placed into one bank account, what tends to happen is we start thinking, wow, I’m doing pretty good, I’m making a lot of money. Look, my bank account is big. Without thinking about in two months, I’m gonna have to spend some money to get my next load of inventory here. And so the idea of just segregating that inventory money into a separate bank account, so you know what it’s for, you’re putting money in it based on what you’ve sold, you can look at your cost of goods sold and know, okay, for this $10,000, I had $3,000 in product, put that $3,000 over in that bank account, and let that money just continue to grow until you have to replenish and buy more inventory. And that takes out a lot of this up-and-down craziness that you might be seeing in your bank account, with all your OPEX, your OPEX bank account will make a lot more sense. Plus, your inventory bank account will make more sense. And you’ll just have a better handle on your business. Now, that’s just kind of a rudimentary way we do Quick start. And there’s other accounts that you can use, I’ve got one client that was with me for a number of years, he sold his business not too long ago, but he was up to 23 bank accounts, and he kind of did use it as a budgeting tool. He said, okay, my advertising budget is 20%. And he would put that number in, and he could tell when he started spending more on advertising than he was replenishing. That would give him a clue. And he would say, hmm, my advertising is not being as efficient as it was because I’m running out of money now. And if I were selling as my advertising should lead me to do ought to be banking a little more money there. So it is a budgeting tool. It’s also a cash flow management tool. And what’s really beautiful about it is you don’t have to wait until the end of the month, and your bookkeeper gets her reports done or his reports out to you, sometimes that’s as much as a month later than when the activity took place. You can log into your bank accounts and see your balances and know at that moment how you’re doing.
Pat Yates 9:11
So let’s do this. I wanted to jump into some accounting. But now you’ve sort of opened up with Profit First, which opens a whole lot of questions. Now, you mentioned and I understand the concept of being able to have extra bank accounts. And these days, it’s kind of easy, because you can go to the same bank and have like seven or eight sub-accounts, and you just hit and transfer tech two minutes. So to me, I can see how this is easier than it used to be in the past. But here’s the question. Can you give the listeners a little example like of the guy who had 27? That’s a pretty complex p&l, but how many do people let’s say if you have a half a million dollar e-comm business, and you run Amazon, Shopify, everything, how many bank accounts is typical? And what are those usually consist of? What are roughly the ones you would set up if you’re a bass customer?
Cyndi Thomason 9:53
Okay. If you’re primarily an Amazon business, Amazon’s collecting all your money, right? They’re gonna keep it for a couple of weeks and then they’ll send it to you.
Pat Yates 10:02
If they feel they’re in a good mood, they’ll send it to you.
Cyndi Thomason 10:05
Yeah. So once that money comes into your account, then we recommend the first account is replenish your inventory account, move that money from your settlement payment over to your inventory, whatever that amount should be. I know we were talking earlier, and you’re a middle-of-the-line guy. So you’re gonna look at your gross margin and know how much your cogs were. And once you know that, move that over so you can do that, again, that’s your lifeblood keeping that business going. Then I recommend people to have an account for profit. And the profit account does a couple of things. One, it ensures that you are profitable. And it’s not this paper profit that you might see at the bottom of p&l. It’s true cash dollars in the bank account that if you have a family need, you can take the money out of the business and you’ve got that profit. The other thing is, it’s starting to build up a little bit of a savings account a little bit of a rainy day fund should something go wrong, maybe Amazon doesn’t send you your settlement check as expected. Or maybe they’ve lost your inventory. It gives you that rainy day fund so that you have a little bit of runway to think a little clearer and make better decisions. Then, of course, we have OPEX, which we’ve talked about, everybody’s kind of got this basic checking account where everything runs through, we call that OPEX. And then there’s two other accounts. One is for taxes, and one is for owner pay. Taxes, of course, is setting aside some money so that come April, you’ve got money to pay that tax bill for your business, because you may be paying estimated taxes along or maybe you’re not even doing your bookkeeping along, and you just get a surprise come, March or April and your tax accountant tells you you’ve got a big bill to pay. Well, if you’re doing Profit First, you’re preparing for that, and you’re setting those dollars aside. And then of course, if you’re working in your business, you are your business’s most important employee. And when things happen, if something you know made you where you weren’t able to work, maybe you got sick or a family member got sick, you would have to turn around and pay somebody else to do the job that you’ve been doing. So you want to be creating some money that would flow to you, as an owner, working in the business, the person working in the business, not the business owner collecting the dividends, so to speak. So those are the main accounts. I mean, it’s pretty basic accounts that we talk about in my book and my talks about his book, with the exception, I add inventory into the formula, because it’s just so critical to understand inventory cashflow.
Pat Yates 12:47
That makes a lot of sense. So let me back up and give you a practical example. Let’s say one month, you do $100,000 In sales, and you already had all your product, you’ve already bought it paid for it and the cost of goods that accrual, let’s just say for the sake of saying it for that month was 30,000. You already had it. So we know the cash basis is zero if you’d already if someone’s doing that. So are you suggesting that if someone went through that month that they take that $30,000 accrual amount and transfer that to their cost of goods? or whatever you call it for product? Is that as simple as you would say it is?
Cyndi Thomason 13:22
Yeah, that’s it. That’s what it’s all about. Just knowing that you’ve set that money aside, so that when you have to replenish that inventory, you’re not going to have to rely on saving it in this one account that you’re just kind of thinking, Okay, I’m looking to buy inventory. It’s actually earmarking it, put it somewhere. So you know you’re preparing for that next inventory.
Pat Yates 13:44
That totally makes sense. And the operating expenses the OPEX is you’re talking about as any it’s a catch-all for everything. Do you ever segment that? Are there reasons people would segment it?
Cyndi Thomason 13:53
Oh, yeah, that’s where the 23 accounts come in. One account would be advertising. Advertising can get, besides inventory, advertising is where a lot of our clients money goes. So we like to understand how efficient is our advertising? So if you tie a allocation amount in the way we do that with advertising is we say okay, let’s come up with a percentage. What’s your percentage? Is it 10 per two? Is it 20, 40? What is that number? And then whatever dollars you get from your payout, let’s move that percentage to that advertising account. And then as you pay for your advertising, you can start to see am I running out of advertising dollars? Because I’m paying more than I’m getting into replenish it? And if so, that is a big red flag that your advertising is not performing as you expect it to. I mean theoretically, if you’re getting the row as an and return that you’re expecting, you should be getting a return that’s actually allowing you to put more in that advertising bucket so that it’s growing, and you theoretically have more money to use for advertising going forward. But if that’s not happening, then your advertising dollars aren’t working for you like you expect.
Pat Yates 15:14
It’s interesting because it really makes sense what you’re talking about, the more you think about it there, one answer begets another question of how you do this. Because companies that are struggling, let’s say they’re not making money in a month, or if you’re seasonal, and you’re doing a lot of investment of things early in the year, and then you get most your sales late here. This can be a difficult program to adhere to. I mean, because you either need a bunch of cash that you can put in place to be able to hedge those expenses for when your busy season comes. Or you have to start robbing Peter to pay Paul, which is where everyone takes one account, and it dwindles down. So how do you see people handling that kind of situation? I know that’s really two scenarios, but if your light on cash in a month, and you can’t just transfer it? How do you see doing it, is that where you see that you’re transferring money back into your business and it worries you, what is the outcome when you’re flipped upside down and can’t do it this way?
Cyndi Thomason 16:05
Well, that’s where it does fall apart. And that’s where you really have to do a deep dive and understand what’s going on in your business, is it because you’re starting Profit First, in the middle of the summer, and your busy season happens, you know, from November 1 to Christmas Day, and at that point in time, you’re going to be flushed with a bunch of money, and then what to do with it. I like to be talking about profit first right now, because that is the case for a lot of our clients. And they tend to then just use that money in a variety of different ways. But it’s not setting themselves up for avoiding this pitfall in the summer of not having any cash. So let’s say you’re seasonal, and you have a great summer season, I mean, a great winter season to look forward to, in January 1, you’ve got a big payout in your bank account, what we recommend is looking at your profitability for the whole year. And setting aside some dollars for those months that are slow, that we put in what we call a drip account, we put it in this account, and segregate it. And we know that we’re going to pull it out of that drip account whenever things are slow. And we’re having trouble being able to make the rent or whatever it is that gets hard in the summertime, because all our dollars are going to inventory. And we just don’t have the dollars coming in to keep the business going. And that’s where clients end up in debt. Now, there’s a different situation you described. And that is maybe you’re upside down, maybe you’re relying on a lot of debt, maybe your gross margin is just not high enough to be able to afford all the expenses that you have in your operating expenses. Advertising can eat up your gross margin in a hurry, looking and getting yourselves involved in subscriptions and things that are not really bringing a return for you, that can put you in a situation where all your dollars are going out the door, and you don’t have any to put in these buckets. And so what happens is, you get the money in you allocate it, and then a bill comes due when you pull it back. That is the quickest way to come away from the situation and say, well, Profit First doesn’t work. Because you haven’t really addressed the problem in your business, because it’s pointing to a huge problem in the business, which is you don’t have enough of a gross margin to cover what it takes to run your business. And there’s a couple of ways we can address that. One way would be what can we do to beef up this gross margin? Is there some way you can get, save on shipping or reduce prices with your supplier? Or perhaps you can raise prices? What are the things you can do at that level, but then there’s also look at what you’re spending money on and go through an exercise. And we try to do this at least four times a year with our clients, where we pull out all their operating expenses and say, all right, what can we cut? You just signed up for something. You tried it, it didn’t work, but you forgot to cancel it? What are those things? What are those things that maybe there’s a way that we can replace it with something cheaper? Or we can reduce it, maybe you got the whiz bang subscription but you really only need this basic park? Can you cut back on some of it, and then you’re left with those things you can keep. So systematically looking at your business understanding OPEX, understanding how you may be able to make some adjustments, so you actually do have the money to put the system into place.
Pat Yates 16:30
I really like that. I mean, when I saw Profit First I thought this is something that is fantastic in theory, and then it becomes something completely different in practice. I just have this feeling like I know myself, and I know how I do things and this would actually be a really good check and balance for a lot of people in a lot of ways, and actually keeps you in a position to where you wouldn’t be doing anything. But this is great information. Obviously, people can pick up a profit first book, and I know that it’s the backbone of what you’re talking about. And what’s great about it is no matter how good or bad your business is, this sort of gives you a roadmap to how to make it good. It’s like it sort of forces you in a position to where you can be successful. So let’s talk a little bit more as we go for really profit first there about your company Bookskeep obviously, a great company, still hiring people have a lot of clients, tell us an overview of what books keep does your company.
Cyndi Thomason 20:36
We primarily do bookkeeping from start to finish. So we will take on our clients get them set up with a good chart of accounts and good practices for doing their accounting. And then we do it for them, it’s a done-for-you service, every 15th of the month, which just happened yesterday, we make sure that all of our clients get their financials, so that they have the data that they need to make decisions in case they’re not doing profit first. And so they’re getting their financials, they’re able to understand what’s going on, it’s more from a management perspective, so that they can manage their books effectively. Also, we’ve worked with a number of clients that have sold through Quiet Light, and we know what’s expected for a successful business sale. And so we understand the need to have the books organized in a way so that the accounting is done in accrual basis for at least do the gross margin line. And so it looks good for a potential buyer broker or whatever. And then for clients that are really ready to start selling, and they’re entertaining offers that kind of thing. We work with them through that due diligence process to get their seller discretionary earnings segregated on their p&l, so that it’s clear what the potential buyer would be looking at from a profitability standpoint.
Pat Yates 22:11
That makes a ton of sense. So you take the same profit first stuff, you apply to this, and people come in, and you help them maintain their accounting. So let’s talk a little bit about let’s say, like, if we’re talking about Amazon, it just cracks me up every time I have someone come in, that post their actual net deposit number as their top-line sales number. And they assume that their Amazon is there. And I’m like, no, you’ve understated your revenue, and you’ve understated your expenses to get to a net number, talk a little bit about philosophy and things that have to be done, especially for e-comm people, because I think this is a big part. People don’t understand how to post Amazon and subsequently don’t know. And people have different philosophies on Amazon fees, should they be in cost of goods? Should they be in expenses? Where should it be? Talk a little bit about some of the nuances of Amazon and why it’s important if you’re an Amazon seller, to at least understand these bookkeeping methods if you don’t have a company like Bookskeep?
Cyndi Thomason 23:06
Well, one of the biggest things that we see, well, there’s two, one is, as you described, people come in, they think their deposit is their top line number, and it’s not, Amazon’s already taken out those fees. From our perspective, we put these in cost of goods sold, because it’s not an option you don’t get to go and say, well, I’m gonna put this off or next month, it’s operating expenses, a lot of times we have some flexibility about how we’re going to manage it. These are direct costs of doing business, so we put it in cost of goods sold. The other thing that happens, though, and everyone should be aware of this, we get clients come in, and we start working with their tax returns from the prior year to be sure we’ve got a good starting point. And a typical scenario is their CPA has taken their 10.99 from Amazon, and used that to book their income for the prior year. And the problem with that is that the number that Amazon reports is product sales includes your sales tax. So if you’re a very big seller, and you’ve got sales tax being reported out for multiple states, that income is grossed up and you’re going to end up paying taxes on something that really was just a pass-through number going to a government agency, you’re holding it until it gets to Amazon. Well actually you don’t even hold it now, Amazon holds it, so it’s not something that you even got in your account. But because of the way Amazon books their income, sales tax is included in that product sales number, and if you turn over on the back, it explains all of that on your 10.99 but most many CPAs the ones that we end up working with their books, what we see Is that they haven’t segregated out that sales tax. And as a result, the client is paying sales tax or paying income tax on revenue that was actually a sales tax out.
Pat Yates 25:12
Let me ask you a question about that. So you can see where the sales tax comes in transparently when you got to a product sales, sales tax in total, you’re saying it doesn’t come off any of the expenses on the report that you’re getting.
Cyndi Thomason 25:24
On the 10.99, Amazon locks your sales that sales tax passed through as an income item on your 10.99. It’s included in product sales.
Pat Yates 25:34
At the end of the year, but what about in your normal monthly reporting?
Cyndi Thomason 25:38
In the recording, it’s pulled off. But what I’m seeing is that CPAs are or tax preparers are taking those 10.99 without understanding and looking on the back where it delineates that out and using that product sales number from the 10.99 to put that as an income number on their tax return. Yeah.
Pat Yates 26:06
So most people when they come in, I don’t know if you do it like this. And you may teach me something here, when I get my Amazon statement, actually just create a journal entry, I show the sales, then I deduct the advertising to its own line, its fees, Amazon fees, I really don’t break them out to another line. And then it gives me a net number. That’s the difference, which I put to a ghost bank account until I get back to where the actual monthly report is posted. And I posted like one to 30 or one to 31 and then offset? Is that the kind of process you all use? Or how do you guys post Amazon monthly reporting?
Cyndi Thomason 26:38
We do it using a tool, A2X Accounting, it’s a software tool that allows us to integrate Amazon Shopify, multiple channels, they connect into those different accounts and connect back to the software. And then they can post it on an accrual methodology. So our job is really to map it properly. Make sure the accounts are connected, make sure it pushes over properly. And then that gives us our rule entries when we need to make them throughout the month.
Pat Yates 27:14
That makes great sense. So when you get into accounting, let’s assume that someone’s coming as a brand new client, they have Shopify, they have Amazon, they do eBay, maybe Walmart, a little bit of wholesale, what is the process to work with you guys? So they just sending you stuff during the month, you’d have an end-of-month wrap-up? Do you have an interface? Tell me how the client interacts with you?
Cyndi Thomason 27:35
Well, onboarding is a big thing, because honestly getting started right is critically important. So they go through an onboarding process where our onboarding specialist understands all of these different accounts, do they have enough volume, say in eBay, to justify a subscription to a tool like A2X? Or is that just a passing-by thing, and maybe they have a return, they sell one a month or something, we can do that in a more straightforward manner, and save the client a little money. So this onboarding specialists sets up their chart of accounts, connects all of these stores to the QuickBooks and the interface A2X. And then she goes through and make sure everything flows through properly, that we have the proper coding setup, if there’s payroll, we get that going, if there’s bills that we pay, like throughbill.com, we get that going. All of those pieces are set up, both working with the client and for the client, but also setting them up in our internal system so that our bookkeepers, when they start working, going forward, they’ve got everything they need to be able to manage that account smoothly going forward. The onboarding specialists just have a lot more experience in working with a number of different accounts, a number of different bank accounts, they just have seen it all. And so they’re the best ones to get things started and moving smoothly, then the bookkeepers take over at that point. Once we get everything working like we want it to, we have what’s called our first statement review. And my husband who’s a partner in the business, he will meet with the owner and just go through everything that we’ve done. A lot of times, there’s questions we just don’t quite, we made some assumptions. We do want to check it out. We want to be sure we’re right. And so that first statement review is critical to knowing that yeah, we’re in good position here to move forward. It usually takes us six to eight weeks to get through that. And honestly, inventory is the piece that’s a challenge because clients have a struggle keeping up with their inventory. So once we get all that dialed in, then it goes into monthly bookkeeping, they’re assigned a bookkeeper, that bookkeeper is honestly already started work with our onboarding specialist is starting to help her and learn the account. So they’re not like brand new at that point. But they’ve had somebody to ask questions to as they’re getting used to this new account, then they take over, they do the done for you bookkeeping they watch all those bank accounts, they record all those transactions, they push all the stuff from Amazon. And then at the end of the month, they do all the reconciliations, they generate the reports. And then they will meet with the clients every quarter to go over the reports and be sure we’re all on the same page and answer any questions.
Pat Yates 30:32
That’s really great. So a new client is going to come in and you guys are basically on a handhold how you set it up. So you give feedback, like I don’t know why you have five different lines for this, let’s combine it, let’s clean your QuickBooks p&l up like this. And then the first time you get you go back and you get feedback on those things, as well as maybe some guidance as to how to make it better as you’re going forward. That’s really good that they get that feedback early. So you mentioned something I do want to make sure everyone out here understands we have such a big struggle with cash versus accrual when it comes to cost of goods and inventory. And you just talked about it. It is really one of the biggest struggles and I’ll give you a personal example. I had a business I won’t say who it was a couple of years ago that he came in and he thought he was making like 300, 325,000s what his p&l showed and went through it and we’re gonna think about listing I’m like something doesn’t seem right. You’re soul Radek? And I said are you on cash basis. Last minute I check on this, as we’re getting ready list of business. Turns out, he really didn’t understand what cash basis or accrual was, he had no idea. Turns out he was on cash basis, it was really kind of understated in the p&l is because you could barely tell it, he went back and did a rework of it and turned out as ST was like 600,000, he sold the business for 2.2 million. So there are a lot of big mistakes here, people that don’t understand this out there, I let the accountant, I’m not an accountant. But I did stay at a Holiday Inn Express one time, that’s a shameless plug here on the podcast, by the way, Holiday Inn, but I’m just dangerous enough to know how to screw it up. But cash is what when you post it to your p&l, when you pay for it. Like if I buy 1000 units today, and they’re five bucks, I pull $5,000 today, but if I only sell 100 of them in the month, and they’re 500, you’re truly supposed to post the 500 and leave the other $4,500 in your asset inventory account. So maybe you can talk a little bit about the pitfalls and what might be a good thing for people to do. Even if they don’t have a bookkeeper, they’re coming in to see you.
Cyndi Thomason 32:23
If you’re gonna just run this business, and it’s retirement, it’s just gonna be something you play with until you decide you can’t deal with it anymore, and then you close it down, then do cash, it’s easy, but if you’re ever going to sell, and if you’re really wanting to grow, you need to understand your profitability. And you need to understand that at the gross margin level, you can cut all your expenses at the operating expense level. But if you’re not making money at the gross margin level, then you don’t have a business is going to support your life or support the growth of the business. So by doing the accounting and an accrual methodology, that’s what gives you the visibility into your profitability on a month-by-month basis. Yeah, over time, cash would work out and you would be able to say, well, sort of towards the end of the year, I can see I made some money. But that’s a long time to wait. People that are in this to grow their businesses need to be able to look at their performance from the prior month, and understand where their problems are, and then make a plan for doing something different. And if you don’t understand your accounting at the gross margin level, you’re not going to have the data you need to run your business. So to me, that’s the number one pitfall. I mean, yeah, from down the road for selling. That’s a long time off to wait for a payday. But let’s manage your business all the way along so that you’re not depending on your broker helping you solve the problem at the last minute where, maybe if you had known that all along, you would have run your business different. And who knows, maybe they’d have gotten 4 million for it because they operated different to create a business that was performing better.
Pat Yates 34:13
Right. I mean, that’s amazing stuff. See, I think the one thing and I’m the biggest offender of this and I can remember so many years where the last thing that I ever wanted to work on were my financials, I just didn’t have time for it. It’s working on my store or new product or whatever it is, and people leave it and then they binge QuickBooks because it seems easy, but then you’re three or four months past it and you forget a little transaction and so things are tough. How do you do your customers work with you? Is it all basically electronic? Or do you do that one meeting a month when you submit it or do they have a portal? They just go upload all their invoices? How easy is it to work with Bookskeep?
Cyndi Thomason 34:48
Well, mostly what we do is we’re watching activity come through the bank feed and we can we know when your settlements are we’re connected into Amazon as admin, so our approach is do as much of it as we can without having to bother our clients. At the end of the month, we obviously need some information to be able to get inventory and cost of goods on the books correctly. So at the end of the month, we’re interacting more. But if you’re working on payroll, if you’re working with invoices, etc, we can handle all of that through those types of tools. And it’s very simple to work with us because those platforms were created with this exact model in mind. We use a bank account that is relay bank, I don’t know if you’re familiar with relay. Relay it’s got our relationship with profit first. And so we’re even able to get into Relay Bank and work with our clients through relay to manage Profit First, so that our clients don’t have to work on moving money between their Profit First account. So technology’s come a long way from the days where we had envelopes and shoe boxes.
Pat Yates 36:04
Well, it’s amazing. It’s funny, because when sometimes when people let down their guard, and they allow people to come in, because solopreneurs, and entrepreneurs in general have a death grip on everything they do. So sometimes, it’s better to lay this down, because not only are you going to get something done that most people don’t understand that, well. It’s not the easiest thing in the world to do. And you’re gonna get quicker and better feedback about where your businesses, correct. I mean, I think that this is a positive for many standpoints.
Cyndi Thomason 36:30
Well, we had something happened last week, and this is not the first time it’s happened. It’s like the fifth or sixth time it’s happened. But it’s always exciting. We got into a client’s Shopify account, and we’re looking at it and we’re like, why is this money sitting out here? Why haven’t they taken the money? And usually Shopify, send you your payouts every couple of days, why are they not taking their money. And so we did some digging, and we realized that their bank account wasn’t connected, that this was an acquisition. So this client had just bought this business, had acquired it, the seller, of course, disconnected his bank accounts. But something happened when the owner, the new owner didn’t connect his bank account properly. And so the money was just sitting out there. Now this is at a time when the seller is also working with us because he’s cash strapped, he’s like, I don’t know what happened. Sales have slowed down, he attributed all to sales slowdown. But in addition to the sales slowdown, the money that he was making was staying at Shopify. And this has happened multiple times. So an e-commerce bookkeeper, somebody really knows how these platforms work can get in there. And they can see when things aren’t connected and working properly. And so the client didn’t know this, they felt they had done everything, right. And if they hadn’t loosen that grip up just a little bit so that we could help them that $40,000 would have still been sitting there. And they would still be working through what’s going on with my cash flow. And so, there’s a benefit to working with somebody who’s used to working with these platforms. And the biggest payout we’ve ever found was over $100,000. And it was all we could do. My bookkeeper was working in the evening late, she has children at home and her husband had gotten home from work, and she started her day. And it was about 11 o’clock at night. She was so excited. She knew what she had found she had found this in one other client before. And she wanted to send the client a message. But she’s like, it’s midnight his time, I think I should wait. But she worked her husband up and her husband was like, I don’t care. So, that was a pretty exciting day to find $100,000 for a client.
Pat Yates 38:51
Wow, that’s really amazing. It’s hard to believe that somebody didn’t realize that was coming in. It’s just one of those things, but it’s always good to have checks and balances and that stuff’s important. Like, some of the things we’re talking about people think are kind of small. But I can explain this to people that if they’re accrual cost of goods sold, say, of a million-dollar business, and somehow it’s off by $15,000 in a full year sounds like a small window. But if you’re selling that business for say, three and a half X, you just cost yourself what $57,000. People don’t understand that every dime that leaks out when you’re not doing good accounting and Profit First, maybe the best way to optimize that. It’s definitely going to hurt you in the end. So that feedback is actually probably gonna make you money long-term if you’re looking to sell, correct?
Cyndi Thomason 39:33
That’s right. Yeah, I mean, makes you money at the time you solve the problem, but just think about how that money can then work for you to help you grow your business. I mean, it kind of compounds at that point, because not only did it not go out the door, you were able to put it to work to something that’s going to actually grow your business.
Pat Yates 39:52
One of the predetermined things I had in my mind when I was setting up QuickBooks was that I didn’t want Shopify and Amazon to be flowing into QuickBooks because if you try to tie it back to a statement or a pay date, you may not know which ones. It seems to me that was something I was concerned about having everything flow in versus pasting it as full journal entries. What’s your philosophy, when you use A2X? Obviously, it brings in everything, is that a pretty easy thing to navigate, or how’s it set up?
Cyndi Thomason 40:20
No, it does not bring in everything. And that’s one reason I love it. And you control what you push, and it pushes into as a journal entry. So you push it, and then you’d like this is a right, this mapping is off or whatever, you just delete it, go fix it and push it again. So it is separated and all that they push through is the summary data, they do not push in every transaction. And I really strongly recommend you do not want to be pushing every transaction every order over to QuickBooks. It is a cloud system, it does amazing at what it does, or N02. But every transaction if you grow and become a successful business with 1000s of orders on a weekly basis or daily basis for some of our clients, it’s just gonna slow down that system. And then it makes it impossible to get in there and actually do the rudimentary things that you need to do. The data is already saved for you in another system, Amazon, you can always go there and get to your data. Shopify, you can always go there and get your data, you just need something to bridge and make it easy for you to bridge that data over into your QuickBooks without bogging down your QuickBooks.
Pat Yates 41:35
So people have the ability to choose where they’re posting it daily or monthly, or does it just automatically do it daily?
Cyndi Thomason 41:40
No, you set all of that up, you can set it up to post it on a daily or weekly at the time of settlement. However, it makes sense for how you’re running your business. The other thing while we’re on this topic is and this is where I see a lot of clients thinking that they’re really automating and doing great things. They want to automate and connect their inventory management system or their ERP system into QuickBooks. And I absolutely say no do not do that, you would never want your warehouse person to come in and do your accounting and QuickBooks right, they’re worrying about something different. But their ability to go in and adjust orders and information in your ERP or your inventory management system allows that data to go directly into your financial records if you connect it. So we need two numbers at the end of the month about inventory, we can log into your ERP pull the report and plug that information in QuickBooks with a journal entry. That is infinitely easier to fix, if we get it wrong, than if somebody on the floor pushes something through, and it was incorrect, and now your whole ERP system is corrupted, and your financial records are too. So just don’t go there. Don’t do that.
Pat Yates 43:01
I agree with that. It’s a great check and balance. So I know we’re coming close to the end here. And we talked a lot about profit first, which is amazing. Obviously, people can buy that book on Amazon. I know you have a link on your site as well. I’m actually pretty sure I’ll have it here somewhere.
Cyndi Thomason 43:14
Okay. Yeah, My book’s talking about inventory. I want to be sure people understand the inventory is a little bit different twist and regular profit first. And that’s what I try to go into in that book.
Pat Yates 43:29
Yeah, definitely. I think that people get challenged with that. But it’s not difficult. I find it better to do either a system that already has your cost of goods in there, you can pull it up or some sort of spreadsheet system that shows your beginning and ending inventory. I’m sure that if they’re working with you guys at Bookskeep then you’ll teach them how to do that, too. So as we wrap up, I’m sure we haven’t touched on everything with Bookskeep what other things can they take advantage of if they come in to work with you guys?
Cyndi Thomason 43:55
Well, unfortunately, this has been a hard year for e-commerce clients. COVID was like everything going gangbusters. And then all the government programs for PPP and EIDL. That came into play. Now that money is starting to disappear. And clients are really struggling much more with cash flow, and with understanding how their business should operate to be able to be profitable. So we work with clients in our smart CFO program, where we take them down a path, we make sure they have a good foundation with their goals and their planning and understand where they’re trying to go. Then we work to be sure their financial data is serving them well. We make sure that their cash flow is working well then ultimately get to the point where we can start forecasting, looking at your financials kind of looks backwards profit first looking at today, but you also need to be thinking about where you’re going and being sure that you’re set up for looking into the future. And then what are you doing operationally, to be successful, how are you managing inventory? Are you correlating your inventory and your advertising to each other, so you’re not advertising something that you’re actually out of stock on, or in danger of running out of stock. So making sure those things are working operationally. And then finally getting ready for that exit or expansion. But getting ready now that you’ve got things optimized, how are you going to grow? Or is it time to exit. So that’s the other piece we’ve worked for years around profitability. And by doing that, we’ve started to see that it’s this path that you go down to get a business that really is going to be operating and humming. And then set you up to make a successful exit at the end.
Pat Yates 45:44
It’s amazing. I mean, anyone out there listening understand, I can just tell that if someone’s running a business, they’re eventually going to sell, you’re going to find a way to get all this money back, plus some because they’re going to help you get in a position where your expenses, your cost of goods and stuff are in line. It’s just amazing that you guys do such a great job doing that. So if someone really wanted to reach out and reach out to the team at Bookskeep, how do they get in touch with you?
Cyndi Thomason 46:07
The website bookskeep.com. Or they can reach out to me directly. It’s [email protected]. And I’d love to chat with anybody that’s listening, see how we can be of help?
Pat Yates 46:24
Well, Cyndi, it’s been amazing you have been in the show today. Obviously you’re a friend of Quiet Light, we’ve said a lot of people each way to people, it’s always great to have you as a vendor partner. And if you folks out there need help with your accounting. Obviously, you have a lot of different resources amazing to me how many people will not do their own legal work. They won’t draw their own contracts up, but they’ll do their own accounting work. That’s an interesting mindset. Most people probably need someone like you, and hopefully everyone will reach out to Bookskeep. Cyndi, it’s been great having you on the Quiet Light Podcast today. Appreciate you joining us.
Cyndi Thomason 46:52
Thank you Pat. I’ve enjoyed visiting with you.
Today’s podcast was produced by Rise25 and the Quiet Light content team. If you have a suggestion for a future podcast, subject or guest, email us at [email protected]. Be sure to follow us on YouTube, Facebook, LinkedIn, Twitter and Instagram, and subscribe to the show wherever you get your podcasts. Thanks for listening. We’ll see you next week.