The E-commerce Leader

[00:00:00] Michael: consider talking to your accountant first. They’ve often seen a lot of small businesses go through their books.
[00:00:04] And they’ve seen some of the basic things that can go wrong. So a little bit less risk averse and possibly a bit cheaper than lawyers. Don’t talk to UK tax lawyer about us sales tax. That’s just a silly thing to do.
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[00:01:18] Michael: job number one for any business owner is keep your business alive and thriving. And part of that responsibility is to avoid or at least reduce risks.
[00:01:26] So in this episode, we’re share six ways. Smart business owners are doing just that. Jason, are you ready to jump into this fun topic? I
[00:01:33] Jason: love this topic. This is a good one. And. People approach life with two things psychologically either or desire to avoid risk, you know? So we, we either avoid.
[00:01:45] Drama pain problems, or we want to go for, you know, increase abundance you know, income, whatever. And so this is more on the side of avoiding drama and, you know and pain. So, but I think it’s gonna be a good conversation and we’ve got six tips here for people who can really re I think all of these are really applicable for every business type and business model.
[00:02:07] So, yeah, I’m really excited about.
[00:02:08] Michael: One of those things where it can feel what’s the word, not sexy, not attractive, not like a real entrepreneurial behavior. That’s for ordinary people. I would, I would beg to differ the most famous British entrepreneur I can think of right off the top of my head is Richard Branson and he’s very, very.
[00:02:22] Reducing risky famously, you know, actually very, seems like a risk on person. He’s flown weather balloons up to ridiculous Heights has always done crazy sporty things. But for example, when he bought, when he went into the airline industry, which is famous for losing people money, he reduced the risk by going to St.
[00:02:38] Boeing. Like if we don’t need these planes, we’re gonna give them back to you after a year. So he thought about reducing risk before he even started the business going. And of course, that’s why he’s got multiple successful businesses. So. I really would urge anyone listening, who thinks that it’s not smart or sexy entrepreneurial to re reduce rested.
[00:02:55] Jason: Yeah. I love his approach to that kind of thing is very down to earth actually. Isn’t he, you know, even his story about buying Necker islands for so cheap, but then wanting it to be profitable. So he has events that happened there and it’s turned into this. Lifestyles of the rich and famous destination type location, but he’s made it make sense financially as well.
[00:03:13] So anyway, this is a, this is a, that’s a good, a good example for people. And I love his writing as well, so people should check him out. Okay. So
[00:03:21] Michael: six ways to avoid or reduce risk. And this is very much your, your work, by the way. I’ve got to be honest about that upfront. And I know you’ve got a profit and workshop coming up, say, this is really your focus right now.
[00:03:32] Isn’t it? Yeah. Yeah. So what what’s way.
[00:03:35] Jason: Yep. The first way to avoid risk in my view is to upgrade your financial operating. And what do I mean by that? All of us have systems we use in our business and our financial operating system. Sometimes as kitchen table entrepreneurs can come straight out of our personal work habits and work life and checking checking a checkbook prop, you know, practices and that kind of thing.
[00:03:59] We just, we poured all that over into business and we think, well, you know, I haven’t starved. As an adult. And so I, you know, I can apply basic financial logic to my business. But the more you study and the more you look at really amazing entrepreneurs who have scaled to, you know, multi-millions hundreds of millions, billions, what you find is that they operate with a financial operating system that is.
[00:04:24] World-class and, and that is the, that is what has allowed them to unlock massive value for themselves in their business and to reduce risk radically. Now, sometimes people, you know, get too fancy and they’re too smart by half and they try to fly too high. And they end up ruining themselves. And that of course would be the opposite of what we’re proposing here.
[00:04:44] But what we’re saying is that. Financial practices that you need to learn and adapt and implement into your business. And that first step is one of the primary ways that you reduce risk. And how does it reduce Gris? Well, one of the things I remember from being a, you know, kitchen table entrepreneur, 2007 and 2008, and E-bay one of the things that you just don’t know at the very beginning is whether your business is even going to work financial.
[00:05:14] How to approach it financially, even though the basic mechanics of how should you be setting yourself up? The the process of learning that basic business operating financial system, I think is a crucial first step. And it really allows you to take risk off the table, real risk in, in the real world, but also just mental fear.
[00:05:34] And the fear of ruining your business or the fear of losing your business, because you don’t know what you’re doing financially. So there you have it first first way to reduce.
[00:05:41] Michael: a lot of this a lot. I think a couple of thoughts first of all, to the idea of getting too clever and ruining ourselves, I think that this story of Icarus comes to mind is obviously one of the Greek myths Icarus, his dad said to him, don’t do this, but Equis is a very ambitious young man.
[00:05:55] He wanted to fly as high as the sun and he created some kind of. Wings with feathers and held together with wax. And he dad said, don’t do it in the flu to hide this. Unmelted the wax. He fell to the sea and drowned. So now the traditional story is just a lesson in hubris. Like, you know, don’t get above yourself, but an engineer would say, it’s a lesson in the ineffectiveness of waxes and adhesive for wins and the aerodynamic stress.
[00:06:16] And I would say you can fly very, very high if you really, really, really know what you’re doing. And the point is to make sure if you’re going to fall into the sea, because wax turns out not to be great to TCU. Do it from 10 feet up, not 10,000. So I, in other words, get there in stages. Couple of more pragmatic thoughts.
[00:06:32] First of all, cashflow projections are not a sexy word, maybe for most of us and everyone should definitely get profit and loss measurement in place in, in the first instance. And that’s often the most important thing. Cashflow projection is not another thing that only fancy businesses need. If you’re in e-commerce and you’ve got physical products, which many of us have myself included, then you really are tying up so much cash that you need to know what’s going to be happening with your cash needs over the next few months, because quite likely, you’re going to get to the point where the funding runs out.
[00:06:59] And if you don’t see that coming, then you won’t be able to get a loan from the bank very last minute, because banks lend to you when you need it. They lend it to you when you don’t need it. And if they see that you’re not managing your finances, they’re also very unlikely to lend to you. So that’s one of the most important things you just need to project forwards you know, at least a quarter, preferably six months, then see what your funding needs are and then go and get your funding or dial back your plans so that you don’t blow your business up.
[00:07:24] Jason: No, I love that. I totally agree. Love it, Chris example, that is awesome. You’re totally right. It is about the engineering of it. And this is businesses are built on financial engines. And that that’s just as simple as it is. And the better you are at being a financial engineer, the better you can do. And so I think that’s an important first suggestion.
[00:07:42] Okay. So the second second way to reduce risk is manage debt more widely. And I didn’t say eliminate debt, although some people would have that preference and that would be their desire and great. That’s fine. I, you know, I have business people that I talk to all the time that have different opinions, but my fundamental you know, con comment would be manage your debt more wisely.
[00:08:05] And that means if you have any debt, that’s a super high interest. And you want to, you want to migrate that to. Interest better terms. Sometimes you have obligations that you actually can get out of completely. So for example, if you have to use, for example, just as an example you have to have a minimum order quantity for your inventory and you’re using a credit card, but you don’t really get the payments done all the time every month.
[00:08:27] So you end up carrying a balance. Well, what if you ask the vendor for 90 or some other favorable terms. You know, sometimes if we just manage our debt differently, we can literally, you know free up tons of cashflow and, and reduce risk in our business. So these are the objects of attention inside this whole category of managing debt.
[00:08:47] And again, some people would be like, Hey, I don’t want any debt. So I hate this. Well, that’s fine. That’s your maximumly safe managing of your debt. Other people would say, Hey, I’m taking a big loan and I know exactly what I’m doing and it’s amazing. I know a lot of people right now are working on the idle loans in the U S and you know, working through that process.
[00:09:06] So fair enough. Other people will take a mortgage strategically to buy a building, which lowers their rent payments, that kind of thing for the facility. All of that in my view comes under this big topic of managing your debt more wisely and really understanding how to do it well, and do it safely if you’re going to use leverage in your business.
[00:09:27] Okay. Yeah.
[00:09:28] Michael: There’s a lot. There’s a lot of wisdom there. I mean, on the basic idea of debt or not debt, I guess debt increases financial risk most of the time, although I’d like to nuance that in a second, but I would say there’s always finance risk. So I suppose it depends why you’re not doing it. I mean, I know some people have moral Arguments with it.
[00:09:44] I don’t know anyone in the UK by that. I think that’s a us thing. I think the UK, we have, we use that or we don’t use that, but I would say one thing you mentioned that’s really important then to finance or supplier debt or supply credit, maybe let’s use the word credit. That’s a really the best type of debt, because obviously they’re in the same boat as you.
[00:10:02] They want you to succeed because you’ll buy more of their stuff. So it’s really, really good. Also it tends to be interest free. So it’s effectively, you know, free money. And the thing is if you’re important from S from. Certainly, but also in other situations you may find that the factories are reasonably free with credit in a level that a bank or any other lender would never be.
[00:10:22] So the best thing you can do is, so as you said, and negotiate with your, your suppliers, absolutely. Right. I would argue there’s one place where I think that decreases risk, which is when I was saying, if you, if you project your cashflow and you see you’re going to be. $10,000 short of money in, you know, September typically or August.
[00:10:40] If you’re ordering for Q4 from China, for example then it’s actually riskier to your business than having debts that you pay off at, over, you know, fairly low, monthly payment over some period of time. I would argue. I mean, and these things you’ve got to calculate for yourself, but there are situations where having being underfunded is the thing that’s going to kill your business.
[00:10:58] Not that necessary.
[00:10:59] Jason: Well, the question that you’ve just sussed out is what is the risk you’re reducing? Is it short term risk or long-term risk? So, and there’s a big difference because, you know, you can have an amazing, absolutely fantastic business. That is a cash machine. But if it doesn’t help you pay your staff next Monday, when you owe them their paychecks and they all quit on you, then you have a short-term crisis.
[00:11:25] So this is a, you know, the business of the boss to say, you know, what risk am I? What am I currently resolving? And what are the other risks out? I think that this is a good point for me. I think in the conversation of mentioned one book as a resource for people, and that is Nicholas Nassim Taleb’s book, the black Swan Impact of the highly improbable, if you haven’t read his stuff.
[00:11:47] It’s a great book to to, to read his other book fooled by randomness and then antifragile are all books that are super pop popular you know, in the trade publications for business and worth listening to a rating. The black Swan thesis is basically. There are things as Donald Rumsfeld said that you don’t know, you don’t know.
[00:12:08] And when those hit you in the face in your business, it can ruin you. And so, you know, he has a whole framework and How to understand that and think about it. And so, anyway, I, I do think that’s something for us to think through is this short-term long-term and highly improbable, you know risks that we have to manage as a business.
[00:12:26] So, anyway let’s keep going on our list here, but any other thoughts on that or response to just a
[00:12:30] Michael: quick talking of levels of risk with debt? I think. From low risk to high risk for you as a business owners receivables purchase. So they’ll take money back out of it when you earn it as expensive for you, because it’s lower risk to you, but high risk, the lender, unsecured loans on a repayment schedule.
[00:12:45] So you’ve got to hit the repayments, but if you don’t, they can’t take anything from you as collateral secured loans on your business assets, which is much more serious and loans on your personal assets, such as your family home. And obviously those needs to be entered into with extreme circumspection.
[00:12:59] But I do know, frankly, that. Anissa. I know that that take on serious debt in order to scale a lot often do have that. They’re just very mindful about it. And they’ve sat down with their chief financial officer or, you know, financial director and really, really thought it through before they said yes.
[00:13:15] Jason: All right, let’s keep going here. Tip number three to reduce risk is upgrade your CPA or tax professional. Now this one in the next one, after it follows on is a similar, but let me just suss out the difference here and speak for one moment about your, your tax professional.
[00:13:31] Or as they say in the UK, your what do they call it? Your what’s your name for a CPA chartered accountant. And the S in the UK. So the upgrade of your chartered account in our CPA in my view is one of the smartest moves rookie business. People can make frequently. We have a situation where, you know, maybe we’ve had a decent income in a nine to five job.
[00:13:54] And we have had the practice of having someone else do our taxes. And when we start a business, we just logically go to that person and say, Hey, I’m starting a business. I started selling this year, whatever, and they walk you through in the U S going from a schedule C reporting you know, sole proprietorship to then having legal structure involved.
[00:14:13] But I’ll just tell you that having a really crisply, current and well considered CPA is and a huge investment because the sad truth. You can pay for a CPA and pay, you know, let’s just say cost. You let’s just use some number $1,500 for the year for their services. And you can get dismal or wrong.
[00:14:40] Or you can pay someone the same amount and get literally life-changing advice, tips, outcome, and service along the way. And so the difference is just finding the quality professionals. So I would really encourage everybody, especially if you’re just starting out and you don’t know really a lot of business professionals in your community.
[00:14:58] Talk to people. Who were in business say, just say to them, Hey, who do you use for your as your CPA? Do you have a tip or a recommendation for a local CPA that you trust and, and do that multiple times and get yourself networked into meeting with somebody. And I would just say, do a 30 minute phone call or sit down where you.
[00:15:15] And it’s basically an interview and they are interviewing for a job. And if they blow you off or not interested in that level of discourse at the beginning, then it’s a good tip that they’re not the right person for you anyway. And so that would be you know, a really, really impassioned suggestion because I, you know, I have had, you know, it’s important.
[00:15:34] I’ve just seen situations in which it wasn’t done well, and people pay the price personally for the incompetence or lack of knowledge of their CPAs.
[00:15:42] Michael: absolutely true. I would say first thing first They’ve got to get e-commerce. So to your point, it’s really, really important. And it is a very different business model.
[00:15:50] Even somebody, you know, who’s familiar with Amazon if you’re a single channel, it’s going to be quite different from somebody who’s very familiar with Shopify because the cashflow characteristics are very different and the way that the business model works. The other thing I would say is a dog is for life, not just for Christmas, an accountant is not just somebody.
[00:16:04] You find it at the end of your taxi or let’s face it nine months later, whatever the rule is in the U S. And you find out that 18, 19 months ago, you made horrendous decisions and you only just found about them. Now, I really think the key is to get that monthly accounting, which means also not just an accountant, but a along with your accounts as blessing a bookkeeper.
[00:16:24] And again, two simple points, which I’ve managed to mess up a few times. So I can speak from experience of doing the wrong thing. Here, get a bookkeeper understands. E-commerce get a bookkeeper who. Within the framework that you’ve agreed with your accountant, because otherwise you’re going to be the person stuck between very different approaches and very confused.
[00:16:40] And I think the key is to get your CPA involved before you set up your accounts and system, get them involved in the bookkeeper choice and make sure that they check in and make sure that that the system is being run by the bookkeeper. And then it’s all got a unity and it makes come some kind of stuff.
[00:16:54] Jason: Yeah, totally agree. And if people are listening to this and you say, I don’t have any idea who could do bookkeeping for me that knows anything about e-commerce and you need a tip, just reach out to us through the contact form. I have a referral. I’ll give you, I have no affiliate deal or anything like that, but we have a, a service we’ve turned.
[00:17:12] Clients onto repeatedly and, and, and people love the bookkeeping service that we will you recommend that we personally use in our business as well. And so if you need a resource recommendation, just, you know, to, to have somebody to interview or talk to, we’re happy to give that out to you.
[00:17:26] Just go to the e-commerce leader.com and reach out through the contact. And while
[00:17:30] Michael: I think of it, I mean, cause I don’t think there’s any conflict here because obviously you would know that the U S tax advisors, if you want to get UK tax advisors that I need standard, e-commerce again, reach out and mention me, Michael.
[00:17:41] And I’m not putting them in touch with people. Yeah. Good. So that’s, that’s very obviously critical stuff. Now, the next one you were saying is somewhat different. So getting a profit minded business coach or mentor is your next thing. So I’ve given away the secret here. What is, what is the difference between that and the CPM?
[00:17:56] Why do we need both?
[00:17:58] Jason: Yeah, I think the biggest. Thing people could do for this one. And again, the tip is find a business mentor, that’s profit minded, and this is a real, you know, you know, this can be a real trick, but I would just say the difference between that and a professional CPA is a professional CPA is going to charge you for every half hour.
[00:18:13] You meet with them and they’re going to be looking to file papers or, you know, do something legally, technically for the IRS or department of revenue in your state or whatever it is. And so that’s very different than having a. Now your CPA can give you great advice every time you meet with them. And we’re fortunate to have a CPA that does do that for us.
[00:18:32] They did. He just gives us fantastic, you know, commentary about our business. Every time we meet with them and it’s in our best interest to meet with them frequently for that reason. But he’s not my business mentor. My business mentor is somebody I go to breakfast with every Saturday and who’s been in business for 30 years.
[00:18:48] I’ve only been in business for 12 years. He knows. Well, a lot more now than a lot more years than I do of knowing stuff. And so, and my business mentor is profit minded and he had asked me hard questions and challenges my logic and cuts through the. You know, bull and you know, doesn’t really doesn’t really like the marketing and sales promotional, you know, word choices I use sometimes when he asks pointed questions about how it really works.
[00:19:16] And you need somebody like that in your life. I think everybody does. And having a local person. Who is a savvy entrepreneur that’s successful that can meet with you is is a huge benefit to your business. Finding somebody like that. Even if you take them out to lunch once a month or whatever.
[00:19:34] You know, I think that’s hugely valuable, you know, I’ve, I’ve been going out to breakfast at the same guy for like eight, nine years now, something like that 10 years. Well, usually we don’t, I mean, we talk about everything and we talk about business almost all the time, but not always, but you know, like yesterday morning we were talking about crypto coins.
[00:19:52] We like, and stocks that we like and then you know, personal, personal life stuff. And so, but, you know, he gives me great advice and when I have hard questions he does have good insights. He did show us how to set up the the QuickBooks for our business originally and came over to our house, helped us set it up.
[00:20:13] And that was years and years and years ago over a decade ago. And so you, you need somebody like that in your life, and I would encourage you to try to network, to find somebody and then ultimately be that person to somebody else.
[00:20:25] Michael: Very cool. I mean, it’s kind of like what you’re ending up being really.
[00:20:28] Yeah, I would say also that there’s a phrase. It takes a village to raise a child and I think it takes kind of a multiple experts to raise an entrepreneur actually. I believe that tiger woods who may be not flavor flavor of the month anymore, having lots of his copy, but publicly, but he, at one point when he was the top of his game, he had seven coaches.
[00:20:45] It’s not because the guy can play golf clearly, but there’s one for the swing and one for whatever else you do in golf. So I think having a CPA, having a mentor, having a former. That is not necessarily a mental, but somebody can reflect with you in a more formalized way. All of these things can really give you a space at a mastermind.
[00:21:00] Obviously we both run masterminds and see huge benefit there. All of these things give you different takes on different spaces, different types of interactions and ways to think. Yeah. Just a couple of thoughts on, on coaches or mentors. I think it helps if somebody understands e-commerce, it’s not necessarily the same, I guess your mentor has a different background to you.
[00:21:19] And again, if they don’t have understanding of a particular business model, but they force you to articulate it, that’s good. If they give you advice that would apply beautifully to an Amazon business, but you’re running Shopify. That would be less ideal. So you need to have somebody who knows their limits and, and has some understanding of your life, I guess.
[00:21:35] But what are your thoughts? How does that relate to your mentor relationship you were
[00:21:38] Jason: describing? Yeah, you’re totally right. I mean, I think what you’re looking for in a business mentor is someone who has Sage business thinking and advice from the trenches, not somebody who’s a corporate mid-level manager or somebody who’s like, you know, the was the CEO CEO of some company or whatever you want somebody who.
[00:21:59] UN on a ground battle, hardened entrepreneur that made it work. Now it doesn’t have to be an e-commerce in my view, but and in fact, as I’ve reflected on my own conversations with Ron, one of the things that I’ve realized is my requirement to explain to him e-commerce. Has helped me tremendously because he just doesn’t, it’s not his world.
[00:22:22] And so when I say something, he was like, what now? How does that work? Why do you pay all those fees to Shopify or PayPal or whatever? He’s like, that’s outrageous. We’re like, well, you know, so his mind is just attuned to profit and business, you know, longevity and sales success. And I have to adjust to. The e-commerce business model to him in a way, you know, just in conversation.
[00:22:44] I mean, he’s not a jerk or anything like that. He’s, he’s just curious. And and so that to me is productive because then it makes me not just drink the Kool-Aid from somebody who was some guru online who sold some shiny objects to us and were like, oh, do it, do it this way, where, you know, you, you really just parroting someone else that, that won’t work.
[00:23:03] If you have a mentor who says. How does this, how does this benefit you now? Why are you giving all this stuff away for free? Or what, why, why are you doing, working with these people who you don’t even know and, you know, wherever, so those, those con those are. That’s the gold yeah. In a mentoring relationship.
[00:23:25] Michael: This is for once he slightly, the conversations I have with my wife about e-commerce he’s. I mean, as, as my you know, my landlord is who was 60 years, a, an investor in the stock market is retired now, but he said, yes, you’d be a great business person. You’ve got a lot of common sense, which is two. And She’s a freelance musician.
[00:23:39] She’s not run the business, but I mean, she does. She’s my challenger of why would you pay somebody X for Y? And you know, as you say, you’ve got to be able to justify that. Yeah. It sounds like a fun relationship. I mean, I don’t really have someone like that, but it comes to come to think about, I live in north London, I’m surrounded by successful business people.
[00:23:55] Yeah. I really should go and find myself, someone like that. It’s a really cool idea. I like it a lot.
[00:24:00] Jason: Yeah. Lizeth is listening said, wow, I need a mentor, but I was already doing. By trying and Michael Beard said a good morning, by the way, I’m from Iowa. So yeah, th this question of finding a mentor, like what, you just let me respond to what you said and what was that said?
[00:24:13] As it happens in my search circumstance Ron was in a church, small group with me, so we had other things in common. We had outside. The the business world, things in common as mutual ground to connect on. But and that’s how I, that’s how I met him. I didn’t know him before that. So I, if I hadn’t met him through that context, it would have been, I never would’ve met him.
[00:24:35] And so the question is how do you meet your ideal mentors? You know, this is the kind of situation. Networking and just being friendly and meeting with people I think is, is key. Not asking too much, you know, you’ve all, we’ve all been in those situations where you meet someone or you see something on a TV show or something like that, where he’s like, they meet someone for the first time and ask if they’ll be their mentor or whatever, that’s a, you know, you have to be relationally smart about it.
[00:24:59] Why don’t you just start by saying to somebody who you really admire? Hey, could I, could we just, could I take you out to lunch and ask you questions about your. Or in business in general, because I’m new to it. And I don’t ask them about their business and and, and people who are courteous and gracious with their time have probably say yes to that.
[00:25:15] And depending on where they’re at in their life and, you know, kind of energy level and all that. So I think that’s the, that’s the trick. And then to the extent that. Gotten trapped or feel weird about it, or it’s not working. If it’s just relational, you can find yourself too busy to meet up with them, or you can, you know just kind of, you know, let it wind down naturally.
[00:25:34] If you’re in a paid program or a paid system, of course you can. If you got shoehorned into an expensive paid system and you’re not feeling the benefit of it, then of course that’s a risk financially. You know, you got to untangle yourself from that. You know, and, and we all joined different programs.
[00:25:49] I’m in strategic coach right now with Dan Sullivan. And I’m liking that this year I was in Dan Miller’s you know, mastermind year before that. So to your point, Michael. You know, tiger woods having six coaches. I, I’m not tiger woods, obviously. And, but I do feel like it’s wise to have a multitude of advisors and input and, and people you can ask questions of and whether they’re paid or whether they’re doing it for free.
[00:26:13] Cause you just buy them breakfast every other time you meet or whatever, then, you know, that’s, I think that’s a good way to go, Rhonda. Take turns paying for breakfast, just in case you wonder
[00:26:22] Michael: that the critical question that come like module three of the template, how to find a mentor, because I think what you say is, is it.
[00:26:33] The resurgence of common sense. If you have no kind of social connections and you’re isolated, that’s a difficult place. And, and weirdly enough, it’s so common now with COVID or post COVID, but also it can be common to people in the online space, but not fully kind of launched. I think sometimes having a conscious place where you can find people like a mastermind can be useful.
[00:26:54] As long as it’s running a cool kind of way, I’m going to try to run things in a way that is not, I don’t kind of pitch my members. I sometimes offer them stuff that. I’ve been offered by some of my business partners. I don’t do a hard sell it’s. It’s not a kind of pack them in and then pitch them. It is genuinely about creating space and it’s not exactly, it’s more of a peer group than a mentoring group, but if you, if you hang around enough sort of social gatherings like that, you may find people like that.
[00:27:14] But to your point, I think sometimes it’s more organic social groups that you’re part of where you can, because there is no agenda, either side, the, you actually find the people that you genuinely resonate with. And I may be to your point, having church in common or music or a charity that you’re involved with, you know, might be a very natural way to do it.
[00:27:32] I like, I like that thought
[00:27:33] Jason: already. Yeah, totally agree. Okay, so let’s keep going. So number five on the list is a very practical one and that is create a cash surplus. Or emergency fund now many people in the U S will be familiar with radio personality, Dave Ramsey, and his baby steps and financial peace university and all that.
[00:27:49] And one of the, his steps in his system is create an emergency fund. I think that, and that’s for personal finances, but I think that logic applies clearly to business. And what you want to think through is what is a category. Outage of sales look like to you. And how long could you foresee not having any sales?
[00:28:07] You know, the whole COVID thing is like, it’s amazing. Isn’t it like a black Swan event in a way that. I guess P you know, people technically predicted there, there would be such things but COVID was a real black Swan event for brick and mortar retailers. For sure. Many of them have gone out of business because they didn’t have a big emergency fund.
[00:28:26] Others that have big emergency funds, whether the storm and you know, managing go, going back up the the list here, managing debt. I would tie into this as well. Yeah, having a cash emergency fund or, you know, instantly accessible fund is important. Also having a credit in my view is part of strategically managing your debt, having a, you know, Available to you before you need.
[00:28:51] It is one of the Sage wisdom advices from Paul Hawkin and growing a business. I love that book and he says, when you need a alone, you better have gotten pre-qualified for it before you need it. Because at the point at which you need it you will not be qualified for it. And so having good business credit line of credit or whatever at your bank, and that kind of thing is important.
[00:29:11] But anyway, to this point, emergency fund is, is is central I think. And that’s the question is how many months in advance of cash on hand? And that’s unique for every business, but I would just say that is a wise way in which to run your business so that there’s always a buffer. There’s always a you know, a pool of resources that you’re not running it down to E in your gas tank, if you will, for your business to mix a whole bunch of metaphors there.
[00:29:39] But I think that’s an important, simple, practical thing. Now, this. Presupposes that you have a profitable business and you know, go, go listen to other episodes if that’s not the case. But obviously that means that you’ve got you’re running profitably and that you just literally manage that profit wisely so that you have a good, solid or emergency.
[00:29:58] Yeah,
[00:29:59] Michael: to the, to that point flipping that on its head. If you cannot put any cash reserves aside, that means your business isn’t working profitably enough. It’s it’s also sometimes a litmus test. Isn’t it? Especially if you’re not, if you’re still working towards let’s put it politely working towards getting your profit clear and your numbers clear, then it may be that the cash is a sort of early warning sign.
[00:30:18] The fact that you cannot put a service to. I would say a couple of things about this. I would say in this exact thing to a client the other day, who’s scaling very fast. So you’ve got a Shopify business. I told him I’m really Amazon focused guy, but he said, no, still wouldn’t work with you. I said, okay. And he’s doing really, really well, but he’s got ambitious and, and doing, you know, very smart operator.
[00:30:35] And I said, look, emergency fund for really great reasons. First of all, it creates different relationships and dynamics and decisions. I think it changes your mentality. It means you’re not going to smell of desperation. Next time you try to approach somebody, whether it’d be to buy from them in a wholesale relationship or to sell.
[00:30:49] To a customer and always offering discounts every five seconds. You know, those are sort of ways that it can show up if you’re feeling a lack of cash in the bank. The other thing is the keeping your money as reserves and then possibly using other money to, to run the businesses, something to think through.
[00:31:03] But. Th the main thing that strikes me as the example from Jim Collins’ great by choice, which is about companies that in the period that he looked at them were highly successful at succeeding and very, very choppy waters, very difficult industries. Microsoft had at that point on, I believe maybe still has 12 months worth of cash in the bank which would mean.
[00:31:21] Obviously as a public listed company, a lot of investors to be knocking at your door saying, why aren’t you putting your money to, to greater use, you know, return on capital employed is too low. But bill gates was a big fan of what he called productive paranoia. And to your point, the black Swan events cannot be foreseen.
[00:31:36] So I think it’s really, really wise advice.
[00:31:37] Jason: Yeah, totally agree. It is one of those things where it’s it’s discipline you know, and, and you’re right. It is bellwether as to whether you’re pro running profitably or not how easy it is for you to accumulate that cash surplus and, you know, people it’s it’s a wonderful situation in which.
[00:31:54] A good solid cash flow business that you can have those choices. And, and then obviously if you’re not in that situation right now, we’re making it all sound so easy. And we’ve been where we’ve been in times when it’s not easy. And we understand the pain of trying to get from not profitable to profitable, to profitable with the surplus that you have to manage there strategically.
[00:32:12] And those are amazing milestones to go through. Yeah. Okay. So let’s do the six one. So the sixth one is. Do a self audit of any legal issues. And ensure that you’re in maximum compliance. Now, this could be a gamut of, of specific things. It could be your operating agreements with any partners or vendors.
[00:32:32] It could be tax related for the in the U S IRS or any local state tax or, you know, county, state taxes, sales tax, et cetera. And what you want to look here for is. And ask the question, worst case scenario. These people show up and say, I’m out of compliance. What’s the worst thing that can happen to me.
[00:32:52] And there are varying degrees of risk depending on the situation that you find yourself in. And the biggest risk you can be in is. Operating in a way that’s not legal in which case people can take away your, your business from you. And that can happen. I mean, I, you know, I remember watching the social network and the saddest part of the whole story about Zuckerberg starting the the Facebook was with his business partner who basically got wound down to owning 0.0% of the business, even though he was.
[00:33:25] 30 or whatever percentage owner at the beginning. So, you know, those, those legal agreements that you signed with people and vendors and the like, I think, or something to look through. And a lot of times we avoid the minutia of that because we’re just not wired to do it, but a good, solid risk assessment says where are we exposed and how can we clean up any mess?
[00:33:45] Proactively because I can guarantee you one thing, you’re way better off cleaning up messes proactively than you are cleaning them up reactively when you’re under the gun from somebody else in that counterparty situation, who’s mad, upset, claiming something, you know, taking you well, you know, whatever to court putting legal documents in front of you, that’s a much more stressful situation in which to clean up any Risk.
[00:34:10] So that, that last one is a kind of scary to some people who are new to business. But over time, what you realize is you just didn’t know about something and then you find out about it. You’re like, oh, okay. This is how that works. This is the law. This is the process. This is the contract language. And you have to go through the hoops to get.
[00:34:27] Tidy up. And I think that’s a central part of running for the long-term with safety and risk reduction. So there you have it, Michael, what are your thoughts on that one?
[00:34:37] Michael: I think this is really, really wise thoughtful grown-up business. Only advice. I think, first of all, if your family’s income comes to depend on your business at a certain point, if you developed it to that point, you owe it to them as well as yourself to really take it seriously.
[00:34:51] The other thing say legals are part of due diligence when you sell your business and if you can’t get them in place, it may block the. Or you may find that holding back money, I’m talking hundreds of thousands of dollars, and this is not theory. I’d one of the mastermind members, solid business recently for seven figures, which is wonderful though.
[00:35:06] Seven figures of the total amount he’s going to get when the process is done, but there’s several hundred thousand dollars being held back because they haven’t got some documentation sorted. That’s a bit of a major shame. That’s a very solid business reason, have some legal documentation. A couple of thoughts as well.
[00:35:21] I mean, you’re saying, doing a self audit, I would S I would turn to the professionals reasonably quickly for this stuff. I would say one hack, I would say, not hack. That’s not the right word, but one starting point for me is consider talking to your accountant first. They’ve often they’re not a substitute for a lie, but they’ve often seen a lot of small businesses go through their books.
[00:35:37] And they’ve seen some of the basic things that can go wrong. So a little bit less risk averse and possibly a bit cheaper than lawyers. Even though you’ve got to get a lawyer and I would say, make sure they’re as best this, don’t talk to UK tax lawyer about us sales tax. That’s just a silly thing to do.
[00:35:51] If they’re really selling themselves, they’ll even advise you. If they’re smart, they’ll say no way. I don’t do that, but get a specialist and contracts to your point can be really critical part of a business that people tend to. Do I, why I tend to DIY, but less than I used to, I tend to look at them more carefully.
[00:36:07] And I am really meticulous. If somebody says you can’t do X, Y, and Z in the contract these days, I will go back to them and say, I don’t find this acceptable. Would we, could you remove this? I don’t want it staying in the document and then I’m not complying with it. And then there’s a disconnect between how I act and what’s in the document.
[00:36:23] Even if, sometimes they will say things like, oh, I lawyers just want it in there. I always say. This is the, the written basis on which we’re going to operate. So I want there to be no mismatch and eventually, sometimes it will just walk away from a deal because I don’t want that kind of mismatch because that becomes something that somebody could use against me in future as a sort of, you know, a hostage support gene, if you like.
[00:36:43] Jason: Yeah, no, I totally agree. There are categories of risk that you want to have people help you with. You know, one, one is. And tax-related. So there they’re your chartered accountant or CPA would would help with IRS or, you know, federal or state or, you know, a sales tax, all those issues. The other is a contractual agreement.
[00:37:01] So they’re a lawyer. W we work with an intellectual property attorney who has helped us with many, many issues over the years. And, and as it relates to. Businesses we’ve purchased. She gave us basically the template and then every time, you know, we’ve, I think cinnamon and I have acquired 13 brands and businesses where every time we do that, we use her template, but then send it to her and say, Hey, here’s our, here’s our, our info plug, the new info plugged in to her template and let her look at it.
[00:37:28] And that way it makes it very efficient. And so, but there are other categories, you know, the, the sloppiest stuff can just be where you didn’t include any. As a professional in the mix. Like if you just have a gentleman’s agreement, as they would say over email with somebody you’re doing stuff with you better dig those out and make sure that you’ve kept them and remembered them rightly because you know, a lot of drama can ensue.
[00:37:51] So anyway, so that’s a, I think that’s an important final tip there. So that’s six.
[00:37:57] Michael: I like it. Yeah. And by the way, gentleman’s agreement is fine. I think we should act as a gentleman or gentlelady, whatever the female equivalent is anyway. But I, I would just suggest really simply with this in terms of relationship with the other person, always have a written document, always like never, ever, ever just do something verbal because we’ve all done that in life, not necessarily in business.
[00:38:17] And it always comes back to bite you. It actually spoils the relationship of the future. But what I would say to the person that’s look, I ought to have it really tied down legally. But I’m going to be trying to be gentlemen about it. And so you have things that are pretty rigid, written on paper that within reason, but you agree that, you know, you’re going to be sensible in how you deal with it.
[00:38:36] And that’s the best way that I found as a sort of middle ground. But having nothing in writing a promise and I’m sure you’ve been there, Jason, and you’ve seen it. It’s just a hostage to fortune. Just don’t do it. Not wanting to totally, totally agree. Well, look, this is a great list. I really like this topic.
[00:38:51] It’s really proper. Ownership focused as opposed to just kind of in a flash in the pan, get excited. We sold into a course and then fall apart.
[00:38:58] Wrapup: Thank you very much folks for listening to another episode of the e-commerce leader podcast. So hopefully some thought provoking stuff here. This is not staffed for anyone who’s just started, but if you have a business that you and your family depend on, I think this is wise stuff from a lot of experience.
[00:39:14] Particularly from Jason, I’m saying it’s very wise. Cause I suppose I’m referring to Jason stuff on a call him myself wise, although I’ve seen quite a lot of clients, I guess, and myself also done quite a lot of unwise things. And between those things, I guess they say wisdom comes from experience.
[00:39:28] Experience comes from bad judgment. So hopefully you can learn from our experience and our client’s experience. So you don’t have to go through that steep rather painful learning curve just to quickly summarize Jason’s points. Number one, upgrade your financial operating. Number two, manage debt more wisely.
[00:39:44] Number three, upgrade your CPA or tax professionals or chartered accountant as we call it in the UK. And number four, get a profit minded business coach or mentor, and quite interesting discussion about mentors. I think as we’ve discussed really. There’s no single person that’s necessarily going to be the only person you turn to for advice, an accountant, a lawyer, a mentor, somebody who’s been in business for decades and perhaps a specialist coach in e-commerce spring to mind is the obvious people to call on not to mention of course, a mastermind as well.
[00:40:14] If you want to check out the masterminds that Jason and I offer, basically on opposite sides, not just to the pond, but obviously Jason’s in the west coast in Seattle. And I’m in the UK. This is a Western end of Europe. So quite different physical locations. Jason’s mastermind is part of what they offer at winning on Shopify.
[00:40:30] So just go to winning on shopify.com and if you want to check out the mastermind that I run with an element of physical meetings in London every two months, but also online meetings. Go to the Amazon mastermind.com. Both of those are for established businesses, not those who are just starting out.
[00:40:46] If you are just starting out then that’s not really this a specialist area that Jason and I tend to deal with, but there are things that Jason offers from time to time that will really appeal to you. Particularly. I think the call-in show, we cover a variety of topics, everything from those really new comer friendly, all the way to establish business owners that we have a hot ticket.
[00:41:05] Episode live on the call in app, which we’ll also put onto the podcast every Tuesday at 8:00 AM, Pacific 11:00 AM Eastern 4:00 PM, UK time, 5:00 PM central European time. So if that interests you to hear some hot takes that may be for you, if you are in the early stages or some hot takes that can apply to very established businesses, then check it out with our friends.
[00:41:27] Kyle Haimer, who is Jason’s partner in crime in coaching businesses and Chris green, who is very well known. Amazon sellers, particularly for his retail arbitrage and the book of the same name. So that’s where you can find us, of course, as ever, don’t forget to subscribe to the show on whatever podcast player you’re listening to right now.
[00:41:46] And if you’re on apple podcast, we’d love a star rating out of five stars for now. It just remains to say thank you very much for listening and have a really profitable quarter.
[00:41:57]