Beyond Revenue: The Financial Framework Every Ecommerce Business Needs | #612

Matt Byrne, founder of Day One Advisory, works with ecommerce brands every day as their outsourced finance function, helping Shopify businesses understand their numbers, improve profitability, and make better decisions.

In today’s episode, Matt breaks down what actually matters behind the numbers. Not vanity metrics. Not revenue screenshots. But the core financial levers that determine whether a brand survives, scales, or quietly runs out of cash.

Today, we're discussing:

• Why revenue is a vanity metric (and what to track instead)
• The three numbers every ecommerce founder must know: gross profit, contribution margin, and breakeven
• What “good” margins actually look like in ecommerce 
• How to know if your paid ads are really working, or just burning cash
• The biggest financial blind spot founders have when making decisions
• The right way to approach tax, cashflow, and avoiding the BAS shock
• Why you should be paying yourself from day one (and how it changes everything)
• The truth about growth vs lifestyle, and what most founders are actually chasing

Connect with Matt
Explore Day One

Transcript

Introduction

SPEAKER_01 0:00

Revenue is a meaningless number. It doesn't help anybody. It's a vanity metric. You're in business to generate a return for you and your family. You are not in business for the sake of growing your business. Ask your accountant or your bookkeeper, hey, what's the average percent I usually pay in GST? Those are the two easiest ways. Put the money in a separate bank account. Don't touch it. I'm Matt Byrne from Day One Advisory. And on this episode of Add to Cart, I share the importance of having a good grasp and understanding on your numbers so that you can have more control over the direction that your business is going.

SPEAKER_02 0:38

If your revenue doubled tomorrow, would you actually make more money? If Meta shut you off next week, would your margin survive? And do you actually know what your break-even is, or are you just chasing a number that sounds impressive on LinkedIn? Hey, it's Nathan Bush or Bushy here, joining you from the land of the terrible people here in Brisbane, Australia. And today I am joined by Matt Byrne, who is the founder and the director of Day One Advisory. They are an e-commerce-focused accounting and advisory firm working with Shopify brands all across Australia. Matt and his team act as an outsourced finance department for e-commerce brands, managing bookkeeping, reporting, cash flow, forecasting, tax planning, and most importantly, turning messy numbers into decision-ready insight. He works directly with founders, navigating the crunches that come after peak, inventory debt decisions, making sure contribution margins look healthy, and the tension between going for growth and actually paying yourself. In this episode, I wanted to talk finance deeper than revenue doesn't matter. You've got to be concerned with profit, because we've done that a couple of times. I wanted to go the next level deeper, especially for those founders in the room. Today we unpack the three numbers that actually tell you if you have a real e-commerce business, why contribution margin is arguably more important than gross profit. We talk about how to calculate your break-even properly. We talk about when debt makes sense for your business and when it might be a slow motion disaster. And the uncomfortable truth, the awkward conversation sometimes around founders and whether they should pay themselves a salary. So a big thank you to Shopify and Clavio for supporting Add Descartes always and helping bring practical e-commerce conversations like this to life, especially when they're free. I mean, how good's that from an accounting point of view? All right, let's get into it. Here's my conversation with Matt Byrne from Day One Advisory. Matt, welcome to Ad Descartes.

SPEAKER_01 2:36

Hey, great to be here. Thanks for having me.

SPEAKER_02 2:38

Brilliant to have you here. I always love our financial conversations when we have our financial experts in because I always learn something new around the foundations of e-commerce businesses. So I'm excited to get into that today. I've got to ask you before we do, what gets you out of bed every morning to help e-commerce businesses with their finances?

SPEAKER_01 2:58

Well, I love the phone calls. I love having chats with people. That's my favorite bit. I mean, I'll I'll be the first to admit I'm not a big fan of doing tax returns. It's part of the job. But I like the phone calls. I like chatting with people, and I like being able to provide some insight to them that's going to make them enjoy their business a little bit more and hopefully extract a bit more profit out of it because I suppose that's what it's all about at the end of the day.

SPEAKER_02 3:19

Tell me about the types of phone calls you're getting so far this year. Are they good phone calls, bad phone calls? Are we in panic mode? Are we feeling optimistic?

SPEAKER_01 3:28

To be honest, I think most of them have been pretty bad. People are a bit pessimistic coming into the new year, but I mean it's a quiet time for e-commerce, right? Everyone's just had this massive peak. They've got a bit of downtime, they're starting to reevaluate things and think about what's happening in their business. And so naturally, as sales decline in January, February, it's kind of that is usually where these conversations come up. I mean, the conversations they're having pre-Christmas were opposite end of the spectrum. Everyone's everyone's stoked. They've just come off all the sales and numbers look really good. They've basically banked all their profit for the year. And yeah, now we come into January, February. Stuff gets real again. It gets real again, and cash flow hurts, and you start getting emails about your bass lodgments coming up from, you know, you've got to pay the GST for all of those lovely sales you made. And so there's a bit of cash flow crunch for the next couple of months. So it's kind of what happens every year. Everyone gets a little bit panicky, but you know, it's okay.

SPEAKER_02 4:21

Does it feel the same as every other year in terms of the level of panic? I'm just trying to get a gauge on where founders are at in Headspace for 2026.

Understanding Ecom Business Health Metrics

SPEAKER_01 4:30

I think that overall people are. I mean, business owners are optimistic people by default, right? That's why they're in it in the first place. But I think that there is now this it's not conservative, but I think people are more worried about things. And I think that they're more intent on protecting the downside of it. Yeah. And so they're starting to invest a little bit more energy and thought into how do they continue business, but continue in a way that's going to, you know, make sure that they're they're still here next year and the year after and that sort of thing.

SPEAKER_02 4:58

I suppose there's a lot of businesses too who, especially in e-commerce, who came through that COVID era and experienced the highs of the highs and then post-COVID the lows were the lows. So now got scars on both sides and being a little bit more balanced around approach, knowing that it can be really good, but it can also be really bad. And we've got to set ourselves up for a solid baseline. Yep. No matter what the world throws at us.

SPEAKER_01 5:19

Yeah, and I mean there's been plenty of turmoil and uncertainty in the last couple of years alone. And so I think, yeah, people are naturally worried about that, which is a good, it's a good thing to do. It's a good thing to be to protect your downside risk.

SPEAKER_02 5:31

All right, we're gonna dive into some numbers to help unpick what good looks like. But before we do, can you give me a little bit of an overview on day one advisory and the types of e-commerce businesses that you're helping so we can get some context around our conversation today?

SPEAKER_01 5:45

So we work with Chopify brands using Zero. We are effectively end-to-end accounting and bookkeeping support. So we deal with the day-to-day transactional stuff, the bookkeeping, payroll, those types of things, through to monthly reporting and closing out the books. We manage their sort of finance app stack as well to make sure that everything's talking properly, make sure that their inventory reporting is right, et cetera. And then we go through to things like tax planning and tax returns. So we tend to work direct with founders and we work with them from, you know, where effectively they're our source finance function for their e-com business.

SPEAKER_02 6:17

Okay. And you mentioned Zero there. Is Zero the only financial software platform that you use?

SPEAKER_01 6:22

It's the only one we use, yep. I mean, the other one is QuickBooks that you'll hear about, and certainly in the US, it gets a bit more traction than it does in Oz. As an accountant, there's some functionality that's missing, and so we find that Zero is the better option. And to be honest, 95% of businesses in Australia are operating on Zero already anyway. So we rarely come across anything else.

SPEAKER_02 6:43

Yeah, okay. One of the things around Zero that we often hear is being able to reconcile on an order-by-order basis for e-commerce is not as easy as when you're doing B2B reconciliation.

SPEAKER_01 6:56

Yeah, it's horrible. I would never recommend it unless you fancy spending all of your time sitting in front of your computer doing bookkeeping. It is a horrific way to do your books, and there are much easier ways to deal with things. And there's wonderful bits of software like A2X, for example, that will go and get that Shopified data and it'll bundle it up nicely and it'll just park it in zero in, you know, a few payouts each day, and it will make everyone's life a lot easier.

SPEAKER_02 7:21

Beautiful. Good tip there, straight out of the gates with a brilliant tip for anyone who's reconciling order by order still. Now tell me, when you go in and talk to a new e-commerce client for the first time, and like you said, you're probably speaking to a founder. What are the three numbers that your eyes go to straight away to try and understand where this e-commerce business is at, whether it's a healthy business?

SPEAKER_01 7:42

Yep. The starting point is always gross profit. I mean, very rarely will we look at revenue in isolation. It's a uh uh tends to be a useless metric most of the time. So we are always looking at gross profit. So do the products that they sell have enough margin in them so that they can advertise them and sell them to the customers? And then there's enough left over that it's going to cover their overheads.

SPEAKER_02 8:04

What does a good gross profit look like to you?

SPEAKER_01 8:06

Oh, I mean, it depends on the business, right? Like I've got a client who sells digital products, their gross profit is enormous. They have no product cost, no delivery costs, etc. Right. So their gross profits like must be 90% plus. If you've got a standard sort of typical e-commerce business that sells and delivers products, I would say a good one is in the sort of at least 50% mark. Our client base that sort of does really well, and the ones that have a lot of margin available that ultimately leads to profit and net cash, they tend to be doing around the 60, 65% mark, which is pretty good.

SPEAKER_02 8:39

And do you find most businesses have that margin from the outset or do they build towards it? Like we hear a lot around people who are looking to buy an e-commerce business or launch a new e-commerce business. Do you find that they go out with the margin predetermined, or do you have to work your way towards that 50, 55, 60, 65%?

The Importance of Breakeven Analysis

SPEAKER_01 8:58

No, I think gross profit margins should generally work from the beginning. From day one. Your unit economics have to work. Yes, you're gonna get some benefits of scale. So as you start ordering bigger volumes, your suppliers will give you some volume discounts and you might, you know, you're proportionately your freight costs are gonna be less. But ultimately, I think that is a few percentage points. It's not 20% or 30%. So if you're going into business with a 20% margin or 80% product cost, and you're thinking that there's some magic bullet that at five million dollars of revenue that's gonna end up being, you know, dropping by half. I think that's probably a little bit too optimistic. Yeah. And I think unit economics should work from the very first day you start selling. And if they get better, awesome. But if they don't, well, you're still okay. You've still got a business. Yeah, absolutely. All right. So number one metric, gross profit. Number two, contribution margin, which is basically gross profit minus your direct ad spend. Yeah, exactly. So really we're looking at, well, you can call it a few different things. Contribution margin, you can express it as MER or blended ROAS or whatever you want to look at it as. But basically, are your selling costs low enough that they're going to leave some margin left over? Right. I've actually seen quite a few businesses where they have a reasonably healthy gross profit margin, but they spend so much money on acquiring the customer that actually it's all gone. Yeah. And so the number that really matters is your contribution margin because that is how much is left after you've done everything that you possibly need to do to deliver that to the customer. And the reason, I mean, I actually don't know if this is a real thing or not, but I I say that contribution margin is how much is it contributing to paying your overheads and your profit? Yeah, okay. So that's the way I look at contribution margin. It's how much is it actually contributing to the business? Everything above that, it's not really your money. It's just the cost of getting that product out. So gross profit margin is important, but you have to then have some left over after you've acquired your customer. Okay. I would argue contribution margin is more important than gross profit, but they're sort of all interconnected a little bit.

SPEAKER_02 10:57

But I suppose you've got a little bit more to play with with contribution margin. You can pull it back and you've got a few more levers in there, don't you? Rather than gross profit is your gross profit. There's probably not much in there unless you change your product range.

SPEAKER_01 11:09

Yeah, I suppose you can go down some different ways of selling your product that maybe don't cost as much, et cetera. But yeah, you're you're right. But ultimately, you've still got to have the contribution margin available in order to use it to cover the cost of your business and pay yourself some money.

SPEAKER_02 11:21

And when you are working with businesses, roughly, what percentage of revenue would you say is healthy to be spending on marketing and advertising?

SPEAKER_01 11:30

Again, it ranges. I I think I don't know, I tend to see businesses like less than 30, 35%. I think as soon as you start going above that, you're really going to start to struggle. But again, it it depends entirely on what your unit economics look like. So going back to my example before, if you've got a customer who sells a digital product with no deployment costs, well, they can afford to have a ROAS of two times because they don't have other costs to deploy, so they can sell that. If you've got a product where you've only got a 50% margin, well, you are going to struggle if you spend 45% of your revenue on ad spend, right? So if your business is healthy and it's doing, I don't know, 65% and then you go and spend 25% on marketing, I think that is probably a pretty healthy number. I'm no marketing guy though, right? That's definitely not my department.

SPEAKER_02 12:19

You're the guy who comes in and slaps the marketing team around when they're spending too much.

SPEAKER_01 12:23

I think that you need to have clear expectations of what your budget is on your marketing, so then you can keep people to account, right? So they don't go and go crazy with the spending.

SPEAKER_02 12:34

There's a big line of thought around e-commerce at the moment around scaling marketing when it's working. So doubling down on campaigns or ads, especially in meta, that are working, especially to acquire new customers. How do you feel about that from an accounting perspective? When you talk about that, it's like having a really clear view on how much you're spending and the contribution margin. If you've got a team that's like, actually, if this campaign's working really well, just keep going until you're stopping seeing that return.

SPEAKER_01 13:03

How do you manage that? Well, again, that's not usually my department, but I've had this conversation, I think, at least four times this year already, where my advice has been to spend more money. And that's not usually the advice that comes from accountants, and certainly a lot of accountants who don't deal with e-commerce. I was having a conversation with a client the other day, and the conversation from their existing accountant or their previous accountant was you actually need to spend less money on ads. Like you're spending too much money on ads. And it's like, well, that's great in another business, but it's driving the sales and it's driving the contribution margin. And this was a business that had good margins, like it could afford to do it. So my view is kind of well, if if it's working and it's within your margins to do that, then yeah, keep going. Because for every dollar that you spend, as long as you've got the product to fulfill it and the customers that are going to keep buying it, well, go for it. In real dollar terms, it's profit. Happy days.

SPEAKER_02 13:56

Great. Okay. So we've got gross profit, we've got contribution margin. What's your third metric that you're really keeping an eye on?

Mindset and Motivation in Ecom Entrepreneurship

SPEAKER_01 14:03

Break-even. So the breakeven point is effectively how much product do I need to sell at my contribution margin in order to cover all of the overhead cost of the business. And this is one that I think doesn't get looked at very often. And I think it's a really good metric to track because what it does is it gives you context in terms of what revenue is a good target for you. I mean, you'll hear everyone jumps online and every guru will talk about what their sales are. They'll spin up their Shopify dashboard and it's like, well, fantastic. I've done five million dollars of sales over the last, you know, five years or what have you. And you go, that's great, but it's meaningless. Like revenue is a meaningless number. It doesn't help anybody. It's a vanity. It looks great on LinkedIn. It looks great on LinkedIn, but it doesn't provide anything in terms of free cash flow or profit or anything like that. So having your overhead cost and understanding your breakeven in terms of sales dollars and product volume and that sort of thing, then gives you purpose. Like, why are you trying to sell a million dollars of product if you can actually make the profit you need to at 600? You know, so it's context. And I think that it's a helpful, I think every business owner should know their breakeven. And then you should be obviously trying to sell enough product to cover those costs and make some profit.

SPEAKER_02 15:18

And those overhead costs are predominantly team members, stock, warehousing, physical premises.

SPEAKER_01 15:25

Anything else? Not even stock. So stock's always going to be above the line, right, in terms of your growth profit. But yeah, it's going to be your general subscription costs, wages, rent, those tend to be the big ones for e-com businesses. I mean, these days it's subscription cost is probably second on the PL behind. I I would I would hazard actually even probably overtaking rent for a lot of businesses. You know, people are spending five grand a month on subscriptions and stuff. Yeah. Well, you think about, I mean, you think about what Clavio costs, for example, Shopify, those things they add up pretty quick. So those are your overhead costs. The thing that people notoriously forget to include though, which is I think is just boggles my mind, is their own salary.

SPEAKER_02 16:04

Yes, I was going to ask you about this and what you're seeing from founders when they get to that profit line, when we're covered cost, when we're at profit, are you finding founders are actually taking a salary or are they reinvesting back into the business? Like, how are most thinking about that profit? Because I can imagine when you're scaling, the excitement is high. There's always more stock you can buy, there's always more ads you can run to keep growing that business. What is your advice to founders when you're like, actually, you need to live as well?

SPEAKER_01 16:30

I am always a big advocate for taking a salary at every stage. Now, it might be smaller or it might be larger. It depends what where your business is at. You're in business to generate a return for you and your family. You are not in business for the sake of growing your business. I think people get tied up too much in the I need a business that does a million bucks because then I can tell my friends I've got to that, you know, that's what success looks like. E-com businesses are incredibly capital intensive, particularly when you're growing, right? Because you are just constantly reinvesting your profit into your next stage of growth through inventory and new staff and what have you. There is always going to be something else, as you said, to put money into. At some point you have to take something out. And so I'm a big advocate for doing that at the beginning. And then there's times in your business when you do need to make, you need to reinvest, right? And you need to push for growth in it. I find that if you have a salary and then you need to make the choice to stop taking it, that's a very different mindset to never having it in the first place.

SPEAKER_02 17:31

Yes. Or waiting for the day where you go, actually, there's a bit of money there. I can take a dividend out of this.

SPEAKER_01 17:35

Yeah, yeah, exactly. I think that you should be on the books for whatever it would cost to replace you. And I know, like from the very beginning of my business, I've always paid myself a wage. And that wage has changed over the journey. I mean, when I started, it was nothing. It was, you know, it was we were paying the mortgage and that's about it. And it's grown over time, but it changes my mindset around how I approach my business and how I approach the growth in my business. And I think, like personally, I've made the decision to actively slow down the growth because, well, I don't want to forego extracting something out of it in the interim. Particularly if, like, let's say it's going really well and then one day it doesn't and it stops for some reason. If you get to that point and it's not worth anything and you haven't taken any money out and what have you, then it's sort of a hard pill to swallow. Whereas if you've taken a living wage out of it the whole journey and then it still goes to shit at the end, you go, oh, well, look, you know, at least I paid myself along the journey as well.

SPEAKER_02 18:31

I think it's a really good point. And I'd love to dive into founder mindset here with you as well, because obviously from the publicly listed companies, there is always going to be pressure for growth. Publicly listed, as well as if you've got PE behind you or other investors, there's always going to be that push for growth. But when you're starting out, and maybe you're between that zero and ten million dollar mark, you're probably going to own most of the business yourself at that stage. That desire and that pressure for growth, rather than paying yourself and living a good life, and like you said, not scaling for the sake of scaling, where do you think that comes from? Like what kind of mindsets have you seen there?

SPEAKER_01 19:09

I think it's ego and it's people wanting to impress other people, but not really understanding why they do it. You know, we we have this conversation all the time with people is they'll give me their target, like it's 10 mil, right? Like I've got to do 10 mil of revenue. And you go, cool, awesome. Why? Like, what's the point? And they go, well, because at 10 mil I'll make a million bucks and then I can do this. It's like, okay, well, what do you why? It's like, oh, I want to spend more time with my family. It's like, cool. What if you just did that now? Like, what do you need to do that? Well, I'd love to make 150 grand a year. It's like, okay, cool. Why don't we just do that? Why don't we just aim for the why why not start there? Like, why not do that now? And so I think part of the job is like, what's the target and why is that the target and what's important to you? And 99% of people I talk to just want a business that can provide them the lifestyle so that they can spend more time with their kids and earn enough money to do it and be proud of what they do and enjoy their business. And that, in my experience, rarely requires you to do 50 mil or 100 mil or anything like that. You can you can do that at two million bucks or a million bucks.

SPEAKER_02 20:17

Yeah, because there's plenty of big, shiny stories, the LSKDs of the world, where you look at what Jace has done, an incredible business, blown it out, 30 stores now, going international, White Fox, you know, like there's so many great Australian stories, which is fantastic. But they're the rarity, aren't they? Like in terms of there's this big gap in between. So setting your sights on running a sustainable business that can pay you a wage very comfortably, let you sleep at night, and then if you find the opportunity to grow it and scale it, fantastic, chase it. But setting your sights on being one of the 0.01 percenters from the outset is probably a hard thing to get your head around.

SPEAKER_01 20:57

Yeah, but I also think that there's no you can scale, but just why does it have to be right now? Like why does it have to be tomorrow that you hit that target? Why not do it a little bit slower? The other side is I think you can do that, but I I think you can do that by still taking a wage. Like more often people will sacrifice and take nothing out of their business and put everything back in. I think that you can sort of have your cake and eat it too. If you're talking about a business that does five million bucks or 10 million bucks, I mean 150 grand salary is really not a huge amount of money in the scheme of things. So if you just choose to prioritize that and treat your wage as an overhead cost of the business that just needs to be there, like it would with any other employee, then I think that scale after that. Like use everything after that to scale. But at least you're getting something out of the business.

SPEAKER_02 21:44

There's also a mindset thing there, isn't there? Especially as you're growing and you'll bring on new team members, whether that be customer support or whether you bring in GMs, when you're paying other people, if you're not rewarding yourself for how much you're putting into this business, it almost becomes a bit of a tension piece. Isn't it that I'm paying you to do all this?

SPEAKER_01 22:02

Yeah. I'm not taking anything myself. Oh, it's crazy. And I I've done the same thing in the past. You know, I've employed, you know, managers who in accounting firms get pretty good salaries, and I haven't been paying myself as much as them. And I, as soon as I go to put their like I'll be setting their payroll up in zero or whatever, and I put the number in and then I, no, you know, fuck this. I I immediately I put mine just a little bit above because I think, no, I'm not, you know, this isn't the purpose. Like the purpose of this business is not to make other people wealthy. The purpose of this business is to give me a return and my family a return and to hopefully outweigh the opportunity cost of what else I might have done. And so I always tend to prioritize and encourage business owners to prioritize paying themselves something. You know, it's not going to be half a million bucks or anything like that, but enough. Like pay the mortgage, take the stress out of it, put some stuff in your personal bank account. Then I think it it changes your. I think the other thing, it changes your mindset in your business because you start making different decisions about your cash because you go, well, my family likes, like me over here, my family, we get our money come into our personal bank accounts every week or month or what have you, and we deal with that. Then you're over here as a business owner and you're going, well, what am I going to cut? Am I going to cut my salary? And then as a person, we go, hold on a sec.

SPEAKER_02 23:16

You're arguing with yourself.

SPEAKER_01 23:17

Yeah. Whereas if it's never in there in the first place, I think people tend to find it easier to reinvest it for some reason. Whereas I think you have to get a return out of it just for your own sanity, I think, and stress and that sort of thing.

SPEAKER_02 23:29

Makes sense. At least play the tax thresholds to the right level.

Decision-Making in Business

SPEAKER_01 23:32

Oh, 135 is the number at the moment, you know. That's the take take the salary. Obviously, you don't want to go and rip half a million bucks out and not think about how you're going to manage the tax on it, obviously. But there's a sweet spot and a combo there.

SPEAKER_02 23:45

One of the things that we've been talking a lot about on Ad to Cart so far this year is decision making. Because I feel like this year, more than ever, decisions will need to be made quickly, but with great visibility to the numbers and the consequences of them. You know, we've got a world that's changing so quickly. And the ones that will get ahead are the ones that can make clear, consistent decisions in their business. How do you help your founders and business owners make those decisions?

SPEAKER_01 24:14

I think visibility is the biggest thing. So many clients come to us. Like in the discovery call, I'll be talking to them and I say, well, what's your gross profit on your product? Which SKUs make money, which ones don't. They don't know. Sometimes business owners don't know what gross profit is. So they actually don't know even how to calculate it, let alone what it is. I think that if you give people the visibility over their numbers at a unit level and at a whole of business level, then it gives them context. And then when they're making a decision, they can go, right, this is going to work. And a perfect example of that is discounting, right? So people will get caught up in the trap of discounting because everyone else is doing it and it's sales season. So let's jump on board. But if your business has a 15% contribution margin on a product and you go and slap a 20% discount on it, then you're stuffed, right? Like you're going backwards. So if you know that your contribution margin is 15% on that particular product, then you know that you might maximum discount 10%, or instead of a discounting model, maybe go to something like bundling or what have you, or free something. So it gives people information to make a better decision that makes sure that when they go and implement that, it's not going to send them backwards, which you see far too often.

SPEAKER_02 25:26

What's your view on the founder who comes to you and says, Look, I know this is going to be unprofitable in the short term, whether it's Black Friday or otherwise, but we're going to acquire all these customers that will spend with us over the next two or three years?

SPEAKER_01 25:40

As an accountant, you know, loss leaders make sense in some circumstances, don't get me wrong. But I think you've got to be careful of is it blind optimism or is there some genuine science behind it? And if it's, you know, I'm going to go and acquire these customers that are lost, but they've got a lifetime value that's going to contribute ultimately to profit, then if you've got the numbers behind you to support that, then sure. But that's like an informed decision that people are making with the stats and they're going to take the risk and have a go, but they're doing it in an informed way as opposed to, well, we're just going to do this and hope, and we don't know if it's a loss leader or if it's profitable or we don't know what our lifetime value is or what have you.

Best Practices for Monitoring Financial Health

SPEAKER_02 26:23

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SPEAKER_01 27:54

I think zero and accounting software is not good for daily reporting. No. Right? It's terrible, right? Because things aren't reconciled and you don't have live data. The approach that I see that tends to work the most, particularly when you've got a more maybe a more static business or a consistent business, is you have monthly reporting that comes out of zero that looks at on a whole of business basis, what was your revenue and discounts, et cetera, what was your gross profit margin, contribution margin. We'll send a zero report with MER in it as well, EBITDA, net profit, the whole lot. Look at that on a monthly basis in conjunction with your cash flow e-balance sheet. And so you get a whole pack out of zero that is tailored to e-com businesses, not the standard report because they're crap and they don't work for econ. But then on a day-to-day basis, people tend to be in their Meta and Google accounts and Shopify just looking at what is ultimately their marketing efficiency. So if you know that your target is that you need, I don't know, a return of four times or five times, and that's your target because you understand what your gross margins are, et cetera, then you can monitor that on a day-to-day basis across campaigns and what have you. And then when you get to the end of the month, you go and say, right, what happened last month? Did it work? Did it not? Where did we go? Where did we go wrong? What worked well? So I think the combination of monthly reporting, anything more frequently from zeros, it's either inaccurate or it's too expensive to maintain. Yep. And then your day-to-day finger on the pulse stuff is your Shopify reporting and straight out of Meta and Google.

SPEAKER_02 29:26

Okay. And are you finding most business owners are looking at the numbers from just a whole of business perspective, or are they looking at it from a category perspective or even a single product perspective?

SPEAKER_01 29:38

We rarely do single product perspective because again, it tends to be a little bit overkill, but we will often segment things in terms of uh either geographic. So if you are selling in Australia and in New Zealand or in the US or what have you, then we would tend to report on country by country. We will tend to report on retail versus wholesale versus online. So if you know we have clients that have all three, it's helpful to understand what their margins are at the store versus what they're doing with their wholesale customers, et cetera. So usually segmenting it to that extent is probably as far as we usually go. On a product-by-product basis, I mean, you need to understand your unit economics. And so often I find that that's tends to be done when you're working out, when you're sort of onboarding a new product or creating is do the numbers work? If they work and they fit within your threshold, then fantastic. Yep, that makes a lot of sense.

Impact of Different Business Units on Each Other

SPEAKER_02 30:31

When you have clients that are growing and they're opening up, say they start a Z comm, go into wholesale or maybe even go into their own retail stores. Are you seeing those different business units impact each other? So are you seeing the investment in one uplifting the other, or do you see them as still operating very separately?

SPEAKER_01 30:49

In all honesty, we tend to not it's hard to track and it's hard to track from the numbers we're looking at, which is like the zero data, right? Like it's very, I don't know, it's yeah, I don't think I have enough detail to know. I mean, I imagine it would. Yeah, yeah, yeah. I imagine that the the brand across all of those segments would improve. You know, we have a a client that sells in the beauty space. I know that they receive retail customers as a result of their wholesale into other businesses' retail space. So their repeat customers might come direct as opposed to from the the wholesale, but it's probably business by business.

SPEAKER_02 31:26

Yeah, that makes a lot of sense. I suppose it's the same with marketing, right? Is that you don't see the individual channel or campaign level and attribution there is still horrible.

SPEAKER_01 31:34

Awful. Yeah. I was talking to a client the other day who their attribution reporting between Meta and Shopify was like 30 grand out on a hundred grand a month worth of revenue. And you just go like the if you looked at the return on ad spend in terms of what Meta said, it was 1.8, 1.9, maybe, and that's was a a good number for this particular business. And then you go and have a look what Shopify's saying, and it's like 0.8. And you go, like, who knows? And I didn't know that I don't know the answer to that question. I mean, I'm not sure. Who are we trusting here? Well, exactly. And I know Meta's obviously going to inflate their numbers because they um want to promote, you know, you they want you to sell more stuff through them. But it it's if I was an e-commer business owner, I would find that that would drive me nuts.

Planning for Tax Obligations

SPEAKER_02 32:18

Yeah. Oh, it drives everyone nuts. We can't believe we're in the age of AI and we still haven't solved attribution. It's kind of like we've left that one behind and it's like, well, I don't think we'll ever get the answer for that. Yeah. I'm curious to pick up on a conversation, and please, no one falled asleep when I mentioned tax. But you mentioned right at the start the surprise that comes at this time of year in February, March around Baz, because it catches up from all the massive sales that we have in Q2. What are your tips for your founders on planning for tax, especially around just making sure that you've got visibility of what's coming up, that you've kind of put money aside, that it's planned for and doesn't catch you by surprise. Because I know there's a lot of businesses that have gone under purely by being surprised by tax.

SPEAKER_01 33:06

Yeah. And it's a horrible trap to get into because as soon as you miss one, particularly a big one this time of the year, there's a payment arrangement with the ATO. And then the next quarter comes around, and all of the money that you would have put it to that quarter is paying your payment arrangement, and it snowballs, and it's like it can be really hard to get out of. I think there's some super easy wins that you can do to be visible. So the first one is in zero, you can have an account watch list sitting on your dashboard. So as soon as you log in, there's an account watch list section. You can add accounts to that. Add your GST account, your POYG account, and your super payable account. That is going to cover off on most of the things that are in your Bass Lodgement, basically, and your quarterly super payments to stuff. If you look at the year-to-date column on that, that's how much you owe, basically. Yeah. So start there. The second thing is go and get a separate bank account. Don't lump all your cash in together. My recommendation with bank accounts is generally you've got your your day-to-day trading stuff, so pay your expenses, what have you. You've got a savings account for your tax and bass as well. Usually some kind of rainy day account. So just stockpiling some cash in case it all goes to shit. And then a profit account. Like park some profit in there and set it aside, and that's the fund account. That's the one you want to build up. But if you start tipping cash into your Bass every time a Shopify pays you out or you just do it on a weekly basis or what have you, you'll just build up a cash reserve there. And then when the Bass comes around, you've got the money set aside. Don't touch it. And don't touch it. Yeah. So that's, I mean, yeah, that's the dangerous thing, right? Some big inventory order will come in and you just go and dip into that to pay it. It's a dangerous game. The other thing that you can do is if you've been in business for a little while, you'll generally know what percentage of your sales goes to GST. Unless you, well, it's it's rarely ever 10%, right? It's somewhere between there. So you could basically say, right, for every dollar that comes in, historically I've paid 5% to the ATO and GST. So every day or week or month or what have you, as soon as the money comes in, put 5% into that bank account. That's a really simple way. If you're running payroll, when you run the pay run, the P Away G number is said, it's listed there. Take that, put that in the bank account, save it. Is this all still manual? Is there any automated way to do this? There is no automated way to do this, regrettably. It's still a manual intervention in terms of like you've still got to go into internet banking and do the transfer. Some people will set up like recurring transfers and that type of thing, but you know, e-com business is rarely consistent enough to know exactly how much to put aside. But I think that the worst thing you can do is ignore it because it will bite you in the ass. And when it does, it's a like a really hard thing to get out of the ATO debt. So just from the very beginning, just get visibility over the numbers, zero dashboard, ask your accountant or your bookkeeper, hey, what's the average percent I usually pay in GST? Those are the two easiest ways. Put the money in a separate bank account, don't touch it. Great tips. Great tips.

SPEAKER_02 36:04

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SPEAKER_01 37:13

Well, the thing that I take away from it that I like is that you should be doing this to create a profit. So that goes back to my comment earlier about don't just not pay yourself anything, investor. You have to make sure that you are getting something out of the business. So that profit could be in the form of, hey, I'm paying myself a wage every month so I can live. It might be that you put away some cash in that profit account so that it's there. But e-com businesses are notoriously expensive to grow. You need to spend an ungodly amount of money on stock that might take 90 days to land. You're buying stock from a lower profit period to fund a more profitable period as you grow, which is really tough. So you, you know, you need more cash than what you're actually bringing in in order to fund that. So, like deliberately saying, well, I'm going to put 15% in this account no matter what, and then only spend what's left, it might be helpful now, but it might actually hinder growth. So I think that helped you. Yeah, I like the idea of it, but I think that if you're going to make an educated decision with the right numbers to go and invest in your business to grow, personally, I don't have a problem with reinvesting that profit. As long as, like I said, you still take something out of the business.

SPEAKER_02 38:26

What's your take then when a client comes to you and says, hey Matt, we see a huge opportunity coming up. We actually don't have the cash with us right now. We'd like to borrow some money to buy inventory. What's your first reaction?

SPEAKER_01 38:38

I don't have a problem with debt. I think that debt used wisely is actually it's leverage, right? So it's leverage to go and grow this business. So debt is helpful, particularly when you're thinking about it in the context of inventory, is that you can then service that debt out of the profits from selling that inventory. So to me, I've got no problem with debt. But where I see the problems with debt is if you're putting debt behind a product that doesn't make any money.

SPEAKER_00 39:02

Yeah.

SPEAKER_01 39:02

Which is crazy. So as long as you have good unit economics and you know that this particular cohort of inventory is going to generate me the return, then as long as you set aside some of the profit from that to actually repay the debt, I think debt can be a very helpful tool to grow the business.

SPEAKER_02 39:19

And any tips from what you've seen, and I know this is not your specialty at all, around structuring debt for inventory, any rules that you like to play by or advice from clients that you've seen go down this path?

SPEAKER_01 39:33

Most clients that I see are just taking Shopify loans, PayPal loans, that type of thing. I mean, it's it's easy capital to get, usually. It's forced payback from your sales as well. The downside risk on a lot of debt is personal guarantees. But we're in Australia, and in Australia, you can't get debt without security or personal guarantees. So it's kind of a necessary evil. I don't often see clients get bank debt for inventory, and I think that's just because banks won't lend on cash flow. So unless you're willing to put your house up, it's not going to be possible. So I don't think there's anything special with debt. I think, like I said, as long as you have margins in the product that is going to create profit, then debt's okay.

The Role of Forecasting in Ecommerce

SPEAKER_02 40:15

Yeah. And it would be remiss of me not to mention one of our partners this year is Cogsflow. And they're they're specifically there to help fund and lend money to e-commerce founders for inventory. So specifically for e-com, because you I think you're right, is that banks aren't set up to do it. So a lot of people default to Shopify, PayPal, because it's structured for e-com. So it's good to know that there are more options opening up there from a forecasting perspective, because I think this is the one thing that is really hard in e-commerce is forecasting what it is. Because when you're talking about, oh, what's what's the next year going to bring? Is it going to be 2% growth? Is it going to be 15% growth? I've had crazy years in the last few years where it's been 50 to 100% growth. Yeah. How do you approach forecasting with your clients?

SPEAKER_01 41:01

I'm going to be honest, we don't do a massive amount of it. I think that forecasting for clients in e-com really is more a marketing thing than anything else. Right. So ultimately, growth in a lot of e-com businesses driven by paid advertising. So you need to have the plan with your marketing team around what that paid ad looks like and what the potential return is going to be. And then you need to ensure that you've got inventory to make sure that if you're going to go and spend the ads, you've actually got the stuff to fulfill the orders. Like worst thing you can do is spend money on ads for products that you you don't have, right? You've run out of. So I think if you've got a good marketing team who are forecasting what the campaigns look like and how much money you're going to put behind it, and that they're doing that in an informed way with the right numbers so they know how much they can spend on these products because you know what your unit economics look like, then you let that marketing drive what your capital requirements are in terms of inventory and those types of things. And so that's why we don't do a massive amount of it, because we're not the marketing team, and it all really hinges on how much money you're going to put behind ads, because that drives sales, and obviously that then drives how many products you need to sell and what you need on the shelf at any point in time.

SPEAKER_02 42:14

Yeah, I hear what you're saying. I think from a founder's perspective, that can be can be really scary, right? Because if we talk about founders being optimistic, marketers are wildly optimistic.

SPEAKER_01 42:26

Absolutely. Yeah. Yeah. I mean, anytime we've done any modeling, we always have an aggressive version of it, which would probably be what your marketing tape is you to come back with. You've always got a conservative one, and then you kind of take the average of the two, and that will give you three different options about which way it might go. Now, if you can survive and things are going to be okay if you have the pessimistic view, then go for it. Like happy days, right? If your pessimistic view is like it's all crash and burn and you know it's not sustainable and you can't do it, then I think you've got to be maybe a bit more cautious about the way you go about the growth. And again, your growth has to be chasing contribution margin. Yeah. Don't chase revenue. It's again a vanity metric and it's not worth anything to you, really.

SPEAKER_02 43:09

And I think too, you've got to think about why you're forecasting in the first place. It's not forecasting to try and pick the right number. It's forecasting to what you were saying before around helping speed up the decision-making process. So if it's scenario A, B, or C, here's the path that we're going to come down. If it's really bad, if it's the pessimistic version, we've got some pre-thought of plans that we'll put in place that aren't emotional or reactive because we've kind of envisaged this scenario. If it goes gangbusters and it's our wildly optimistic version, we've already got some things in our head of ways we'll double down and expand that growth and take advantage of it.

SPEAKER_01 43:47

Yep, absolutely.

Preparing for Uncertainty in Business

SPEAKER_02 43:48

It's not about being right or wrong in our forecast, right?

SPEAKER_01 43:50

No, it's about being prepared and it's about being or at least feeling in control of what's going on. Like I'm when I run my business, the worst, the worst times have always Being where it's out of control. Maybe that's a personality type. Maybe I just need to be in control of things. But I tend to find it like giving business owners the information, even if it's bad, right? So even if you're on the pessimistic path and it's not looking really good. If they've got the information, then you feel like you've got control and then you can make decisions that are gonna help you rather than just like flailing around hoping that something works.

SPEAKER_02 44:24

Makes a lot of sense. And that's why people pay you the big bucks to be on their side. You don't need to laugh at that.

SPEAKER_01 44:30

Yeah, no, that's alright. I was uh laughing about something in my head there. I said I probably should charge half. Probably should charge more, I think.

SPEAKER_02 44:38

Matt, tell me about the next 12 months. What does it have in place for for yourself and the team at day one advisory? Where will your focus be?

SPEAKER_01 44:46

Our focus is, I mean, the interesting thing in accounting at the moment, and every industry is the same, is AI is coming right and and all your jobs and academic the things in the past that were needing to be done, like the reconciling and stuff like that, is getting easier. We're spending a lot of time on integrations and building automations in so that we don't have to spend as much time on that. And the upside there is that we're then gonna start repurposing our time into things that are gonna add more value. So, for example, like at the moment, all of our clients that we do the bookkeeping for get a monthly report out of zero, and it's a formatted report and it you know, it looks good, but it's still ultimately just zero data. So then it's like, okay, well, we're gonna start building out our own dashboards that visualize that data a bit better for people. So for us, it's about how can we help e com business owners get more visibility and clarity over their numbers, and so we're gonna start spending a bit more time on things that add more value rather than like click reconcile in zero, right? Which to be perfectly honest, nobody gives a shit about. And even we don't even we don't know. It's a necessary evil that thankfully is getting easier, and my time is all spent at the moment on automation and improvement and how are we gonna take the things that we've already got and the data we've already got and make it more usable for clients.

SPEAKER_02 46:00

And give you the business insights. I mean, that's a lot more fun for you as well, right?

SPEAKER_01 46:03

Way more fun, way more fun for everybody. Yeah, absolutely.

SPEAKER_02 46:06

Matt, well, thank you so much for joining us on Ad to Cart today. You have given us a lot of insights there from both the practical but also from a mindset perspective for founders around how to run their business. And every time that we have these conversations, there's always a one or two things that I pick up, even though we talk a lot around gross profit and contribution margin, everyone has a slightly different angle. So really appreciate you sharing that with us today. I I've got no doubt that some of the things we've talked about, even the little implementations, will have huge impacts on the businesses that are listening. So thank you very much.

SPEAKER_01 46:39

Nice. Uh fantastic. Thanks for having me.

SPEAKER_02 46:44

I don't know what it is, but I've got a thing for those financial conversations every time we have them. I have a little breakthrough, a little bit of clarity around what makes an e-commerce business really healthy. It's always fun to talk the tech, it's always fun to talk the marketing, but this is the real nuts and bolts stuff. And the more you can get your head around it, the better your business will be. All right, there are three big takeaways that I took from that conversation with Matt. Starting with number one, I think there was a big thing there around deciding whether you are chasing revenue or contribution margin. I'm not even gonna throw profit in there at this stage. We've talked about that before. I think contribution margin is worth talking about because Matt was very blunt. He said that you can have a 60% gross margin and still make nothing if you're overspending on acquisition. I think we've all heard those stories. Contribution margin is gross profit minus ad spend, and we know how significant ad spend can be. So whatever is left over is your contribution margin, and that's the number that pays your team, your subscriptions, your rent, and eventually, hopefully, you. So it's really important that you know your blended MERF and what margin is left after ads. Don't just celebrate top line growth. And the second one is related, but you need to decide what revenue actually needs to be, but based on your break-even. Matt's point on break-even was really powerful. If your overheads are 50k a month and your contribution margin is 30%, you need roughly 167k in sales just to stand still. Not 1 million, not 10 million, that's enough to cover the machine. So once you know your break-even sales number in dollars and in units, you can then pick a revenue target that doesn't just sound good, but you know that's your safe number. Once you know your safe number, you can make better decisions. Third thing that I will leave you with is probably a little bit more psychological than it is financial, but you need to decide why you actually want to grow. And I think we all relate to this whether we are running an e-commerce business or not. If your goal is$10 million in revenue, you've got to sometimes ask yourself, is that because you need$150k a year to live comfortably, or you want to spend more time with your family, or just because$10 million? That sounds like a pretty impressive number, right? Matt sees how much found has sacrificed in salary, sleep, in sanity to chase a vanity metric. And his view is always make sure you're paying yourself. Treat your salary like an overhead and then grow. Make the decision on whether you're building a business to impress other people or to fund your life. It's kind of important. Now, if this episode hit a nerve or made you open your PL straight away, that is a good thing. That's exactly the kind of conversation we continue inside the Add to Cart community. You can join us over on adducart.com.au. It is free to join. We have over 600 e-commerce professionals in there, trading tips, questions, thoughts, and you can continue this conversation there. Sign up over on adducart.com.au. Alright, I'll see you next week.