Podcast: Don’t Fall Victim to These DTC Finance Myths

Written By Sherilee Maxcy

Episode Summary

In this episode of the Free to Grow CFO podcast, Jon Blair and Jeff Lowenstein discuss common finance myths in the DTC (Direct-to-Consumer) world. They focus on three main myths: the necessity of a 13-week cash forecast, the need for overly granular financial projections, and the advantages of working with e-commerce specific firms over horizontal firms. The conversation emphasizes the importance of understanding the purpose behind financial models and forecasts, advocating for a more strategic and less rigid approach to financial planning in the e-commerce space.

Key Takeaways

  • You Don’t Always Need a 13-Week Cash Forecast

  • Granularity in Financial Models Should Serve Decision-Making, Not Complexity

  • Ecom-Specific Finance Firms Deliver More Value Than Generalist Firms

Meet Jeff Lowenstein

Jeff was previously leading M&A efforts at ecommerce aggregator Boosted Commerce where he was the 5th employee. He built processes across M&A, finance and operations to support rapid growth from 0 to 30 brands under management in 2.5 years.

He previously co-founded and exited an app for Shopify merchants and spent time in the Strategic Finance departments of Etsy and Caesars Entertainment. Jeff holds a BA from the University of Pennsylvania and an MBA from Harvard Business School.

He’s worked with hundreds of brands over his career and founded Free To Grow because of his passion for supporting entrepreneurs and helping them succeed. The analytical and financial tools he has developed over the years are specifically crafted for the modern consumer brand.

Transcript

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00:00 Introduction to DTC Finance Myths

01:29 Myth 1: The 13-Week Cash Forecast

12:38 Myth 2: Need for Granular Financial Projections

26:49 The Importance of Financial Modeling

30:06 Myths in Financial Forecasting

31:05 E-commerce vs. Horizontal Firms

39:15 The Value of E-commerce Expertise

44:57 Leveraging Network and Experience

48:00 Closing Thoughts



Jon Blair (00:00)

Hey everyone, welcome back to another episode of the Free to Grow CFO podcast where we dive deep into conversations about scaling a DTC brand with a profit focused mindset. I'm your host Jon Blair, founder of Free to Grow CFO. We are the go-to outsourced finance and accounting firm for eight and nine figure DTC brands and today I'm here with my co-founder and partner in crime, Jeff Lowenstein. Jeff, what's happening brother?

Jeff Lowenstein (00:28)

Good morning Jon, Happy New Year everyone. Glad to be back on. Let's do it.

Jon Blair (00:33)

So today we're gonna have, I think, a really fun conversation. We're gonna talk about what we see time and time again are very typical DTC finance myths. And so the point of this episode is for us to bust, myth bust, so to speak, three very common finance myths that we come across again and again in the DTC world, because we don't want you to fall victim to these.

So honestly, we're just gonna dive right in today and we're gonna get into myth number one and Myth number one. I mean this is something that we come across I mean constantly and I would say I'm even seeing it come come up more and more frequently this myth is I must have a 13 week cash forecast now before we get into talking about some examples of Where we've seen this?

come into play and how we've actually helped our clients in a different way. I'm just curious, where do you think the 13 week thing came from? Cause it's just like everyone seems to say 13 week. I have no idea, but I find it funny that that's such a pervasive idea. Is it cause it's 13 weeks is one quarter? I don't know, man.

Jeff Lowenstein (01:54)

I mean it must be 13 weeks is one quarter for those who don't know 52 weeks in a year Divided by 4 is 13 right and so that's an easy nice number But you know you could do it longer you could do it shorter

weekly cash flow is important for sure in some situations but there's no rule that every single brand needs exactly 13 week cash flow all of the time and in fact it's definitely a bit of a it can be a waste of time if it's not needed for your brand.

Jon Blair (02:30)

Well, okay, so here's something that's interesting. The reason why I asked that question, I was kind of joking, but it's like, where did that number come from? Who came up with that number in finance land and made that the prevailing idea? The question you should be asking yourself is, how many weeks of weekly cash visibility do I need and why? Right, you need to have a good reason. You don't just make an

This is gonna come up time and time again in this conversation, but what's the reason behind why you're creating such a forecast or such a report? Jeff, do you have any thoughts or like examples of where you've seen weekly cash forecasting being needed or not needed?

Jeff Lowenstein (03:21)

Yeah, it's a good question and I mean there's a couple brands that we work with that come to mind. Just recently this question came up. When you're fighting...

day to day and cash is real tight, then yeah, it makes sense to have a weekly cash flow plan to show all the ins and outs, right? It's gonna show all your receipts coming in, all your payments out, meaning could be for inventory, could be for overhead like payroll, could be paying off credit cards. It's important to get the timing of those right when you are in a cash crunch.

But that doesn't mean it needs to be 13 weeks exactly. In fact, it often is really only helpful in the next four to six weeks, I would say. You don't really have such great visibility beyond the next four to six weeks, and the accuracy drops off substantially.

when you don't have that visibility, right? So I think that's an important caveat is like shortening the timeframe, making it easier on yourself and having much more conviction in the numbers is one area where it could be very helpful. And then I would also add, like there's another nuance here, which is a lot of businesses are very seasonal and in your slower months.

you have less revenue coming in and you're also building up inventory ahead of the busy season. And so in those times of the year, it might make sense to make sure you're not flying too close to zero in your...

in your bank accounts. there could be like seasonal times, there could just be tough times where it's needed. But I would never say that like it's always needed all of the time as like a blanket rule. What do you think, Jon?

Jon Blair (05:12)

Yeah,

a couple of really great points there. One is seasonal use of weekly cash flow. I have a client, one of the very first clients at Free to Grow CFO. I served them as a fractional CFO for like the better part of two and a half years. And there was twice that we needed to use it. And we, in that case, we tried six week visibility. And we said like, hey, six weeks is really easy to pull together. We can pull together quickly.

If we decide we need more, let's tack on additional weeks, but let's not like pour over spending all these hours on a 13 week cash forecast if we really need to know how are we gonna do in the next two to six weeks, right? And so we activated this forecast twice and guess when they both were? The weeks leading up to Black Friday, right? Where we had a lot of inventory on hand and we knew sales were coming, but we were...

Things were tight because we had a lot of cash tied up in inventory, but we knew it was for a good reason. That was Black Friday, Cyber Monday coming up. And as soon as, you know, the, the faucet of cash inflows turned on during the holidays, we stopped running that weekly model. And again, so like it had, there's a good why behind that. There's specific situational questions we were seeking to answer as a management team. Right. I do want to point out one other thing too. That.

is we're assuming, Jeff and I are assuming here, that you have a monthly financial model that you're using at the same time, right? So like, I don't want to differentiate, lot of the brands, and I think you'll have something to say about this, Jeff, because you have a couple very recent examples. There are several brands who come to work with us and they have no monthly model and they only have a weekly model, right? And so, and it's 13 plus weeks, I've seen one that was 53 weeks, which is crazy. And...

Jeff Lowenstein (06:58)

Yeah.

Jon Blair (07:05)

And so again, this assumes, think about using both of those models for the time horizon that answers the questions that you want to answer with each of those models. So think about where they overlap, but don't waste time duplicating the visibility that you get in each of them, right? Like I know you've got some examples and thoughts around that too, Jeff.

Jeff Lowenstein (07:30)

Yeah, mean, so we started working with a brand just this past fall. I think we started in November. And there was both a very detailed weekly forecast.

for cash flow purposes and also a monthly financial model. And what we found was that the monthly was not really getting any attention and was basically not used, even though people were spending time preparing it. The weekly one was very detailed and it had a lot of assumptions, a lot of...

complexity. And when we, you know, we had an honest conversation with the owner and we said like, Hey, you're in a good enough place where you're not fighting every day to make payroll. We think there's a lot more strategic value in this monthly model. If you can look out three, six, nine, 12 months, understand seasonality, understand your margins from a higher level, you're probably going to get a lot more out of that. And so we actually, in this case,

put both the weekly and the previous monthly to the side and started from scratch with our own Free to Grow version of the monthly. And it's been going great. It's been going much better. We can have really in-depth discussions about strategy and product launches and things like that, rather than just reviewing numbers. In this case, the weekly forecast, they weren't fighting to make payroll. they were reviewing all those detailed numbers, but it wasn't really moving the needle.

or the brand owner. So in this case, we found it helpful to put that to the side.

Jon Blair (09:15)

Yeah, and like going back to asking the question why. Why do I need any given financial model? What questions am I seeking to answer, right? So like if you're saying, hey, I fear I'll go out of business, then there's a use case for a more detailed, maybe longer time horizon weekly cash model. Do I need, or let's just say that your why is I needed to make AP payments this week.

Well, oftentimes I see a two to four week weekly cash plan is plenty fine for making AP payments, right? At Guardian Bikes, we didn't, the reason why I think the 13 week thing is funny is because we didn't go look up how far out our weekly cash model should go. We chose 13 weeks. I read this book called, it's actually called Future Ready. And it's not about the numbers behind forecasting. It doesn't teach you all these models.

Jeff Lowenstein (09:50)

Sure.

Jon Blair (10:13)

It's about the theory and the strategy behind forecasting and what it tells you amongst many other things. It's a fantastic book. I recommend anyone read this because it's not just for finance. It's not just for finance nerds. It's also, you know, it's very applicable to like a founder. But is that the time horizon for any forecast in this case, we're talking about a weekly forecast.

Jeff Lowenstein (10:16)

Yeah.

Jon Blair (10:39)

That time horizon should exist because strategically you need to have visibility at the furthest out that that forecast goes. And if you don't need visibility, if the visibility you need stops before your forecast time horizon, you're wasting time, right? And you're making something more complicated. Because at the end of the day, forecast exists to make decisions around. They don't exist to predict the future. We chose 13 weeks. Why? Because our manufacturing lead time.

was 13 weeks. And we were in a very tight season of building a lot of inventory and we needed to see how these really big vendor payments were panning out on a weekly basis going out 13 weeks. As 13 weeks was the furthest out that they're, like if we committed, if we placed a PO today, a payment would be due in 13 weeks more or less, right? So that was the.

Jeff Lowenstein (11:37)

Yeah.

Jon Blair (11:38)

There were there were no payments that we could even forecast beyond 13 weeks because we hadn't placed POs for that yet So again have a strategy behind why you're using this and really figure out Where is weekly needed? Versus where is monthly needed and at Free to Grow our financial models forecast the P&L and the end cash flow and balance sheet so you have a weekly or you have a sorry you have a monthly view and so you know

Asking why the time horizon should be X number of weeks, what questions you're going to seek to answer with that, and being willing to activate and deactivate weekly cash flow situationally is actually just a wise use of time and resources.

Jeff Lowenstein (12:28)

I was going to go deeper on something you just said actually. Our second myth, I think, on the list, why don't you share that before I share my next one.

Jon Blair (12:38)

Yeah, yeah, for sure. Nice segue here. So the

second one, and we've talked about this a little bit, but we'll go deeper. Myth number two that we're gonna bust here is I need a super granular, sophisticated financial projection model to make sound decisions. Jeff, take it away.

Jeff Lowenstein (12:55)

This one gets me jazzed up because I feel so strongly. So the answer is you don't, obviously. You need a model that's detailed enough to get you to make decisions, informed decisions, right, about...

levers to pull in your business, right? And that's really the North Star that we as Fractional CFOs are trying to achieve and help our brand founders with. But really, what we were just talking about, the length of your weekly cash flow forecast, also whether you need one at all, is in asking those questions, is in service of saving time and effort. And I want to talk about time and effort.

Myth number two, not having too much of a granular forecast is also saving you time and effort. And why is that so important? As an ecomm founder, you have so, so, so many things to do on any given day that you don't have time to sit, even if your fractional CFO had endless hours to sit with you for two hours a day and go through every detailed financial.

metric and number. You as a founder don't want to nor should you be spending time on all that stuff. You need the highest quality financial information in the shortest amount of time that can lead to a good decision. And that's really the service that we're trying to provide and the end goal that we're trying to provide. It's not about just saving you time for the sake of time, right? It's giving you your hours back so you feel confident.

in those decisions, right? And that you're walking away from that meeting, not spending more time trying to figure out stuff that you're still wondering about or asking other people for other information. You have the ability to go and make decisions fairly quickly, right? So that's like something that I care a lot about because that's really what we get excited about as CFOs is like, okay, the analysis was done well. We saved time by simplifying it and only focusing on what matters.

therefore the brand founder was able to quickly and confidently make a decision about something in their business. So yeah, that's that's that gets me excited. How about you?

Jon Blair (15:21)

way.

Yeah, man, there's too much that we could talk about on this. This is probably a whole episode, seriously. Couple things. We need to stop asking, can I analyze this? And start asking, should I analyze this? Right? And why? Because an e-comm speed wins. Things change constantly in e-comm. So you over-engineer a model or a report.

Jeff Lowenstein (15:46)

Yes.

Jon Blair (15:50)

Dude, we see this all the time. We saw this all the time at Guardian Bikes. We see this across our existing clients. You over engineer this crazy report and then guess what? Something changes and that structure doesn't work anymore, right? And so here's what we're not saying. We're not saying make this super rudimentary financial model that is not useful. We're saying build the granularity where the granularity matters. Use the 80-20 rule. What are the 20 % of variables?

levers that you actually want to act on and should act on as the founder to produce the 80 % of the results that you're looking for and I gotta be honest with you. I'm not trying to like 80-20 is a cliche that we see it time and time again. There really is only 20 % of the levers that you're polling, right? And in our world, generally, this is a little bit of a generalization, but it holds fairly true across most our clients. It's

It's ad spend profitability and it's inventory, right? And I would say even oftentimes people come to us with the ad spend profitability being like the thing they're trying to understand first and foremost. And so what might this look like in practice? It might look like, hey, let's not waste a bunch of time going line by line on everything that makes up your fixed overhead. Let's use the recent trend in the financials and put one number for fixed overhead, but let's dive deeper on the marketing analytics, right?

and the marketing model, and let's look at LTV and first order versus repeat orders, right? Now, can we build out granularity over time? Yeah, but let's be, we look at it from the startup perspective, like the classic lean startup is like MVP and iterate, right? MVP and iterate. So we actually try to get a model out, and I can say this with a lot of confidence without making Jeff who runs all our operations feel nervous that I'm saying this in the marketplace.

We get the first model up in a few days. It's up in a few days from when you sign on with us and we put it into action. We start having conversations around it with the client immediately. So you can start taking action and then we iterate every month. Every, there is not a month we're not working on the financial model. Right? And so after working together for months or years, we're crafting it into what is needed to make decisions, but we're always only changing the variables.

Jeff Lowenstein (17:46)

Yeah

Jon Blair (18:14)

that we're seeking to make decisions on. I know you have a lot more to say about that though, Jeff.

Jeff Lowenstein (18:20)

Yeah, I mean, you nailed it. But yeah, thanks a lot. Now everyone's going to say, hey, I you can start a model in 24 hours. So thanks for that, Jon. But I mean, it's true. We are very particular about having a really, really solid core model that we can get up and running very quickly and answer initial questions. And from there, we iterate. Literally, later this afternoon,

Jon Blair (18:27)

Hahaha!

Jeff Lowenstein (18:48)

we're reviewing the second version of a model with a new client that we just started with literally just last week. And this second version has a lot more detail than the first one about their inventory ordering plan. And so we're to go really deep and help them understand their cashflow dynamics much better. And it's interesting because in this call later today, I actually don't think the numbers in the model that we show up with are going to be

What's interesting? Sure, we'll look at them, but that's a starting point. The real value is in when we look at the model on a screen share together, talk about, what if you do this? What if you do that? Push this number up 20%, that one down 20%. How does that flow through the rest of the model? And what does that do to our cash flow? And it's those conversations that I think are really valuable, where it's like,

What if we do this? How does that impact the numbers? And what if we do that? That's how you get more of an internal intuitive feeling of your own business, right? It's not like your fractional CFO is showing up and saying, here's the forecast and here's what you have to do. know, we're not, we're not prescriptive in that way. We're collaborative in the sense that like we're looking at the numbers and trying to all as a group, get an internal sense of the dynamics.

how a business behaves. It can be very different from one to the next. You could be in different categories that have different margins, marketing efficiency levels, different lead times, different payment terms. All those things play a big role in the cash flow dynamics of any given business.

Jon Blair (20:37)

Yeah, you know, one thing I always say is like, hey, building out a forecast or a financial projection doesn't just, doesn't predict the achievement of goals. People taking action against what that model tells us about if-then relationships, right? Cause and effect relationships. It helps you figure out where people should take action to achieve your goals. You don't just build out a projection and go, our goal's 10 million.

Jeff Lowenstein (20:54)

Great.

Jon Blair (21:05)

Looks like this projection says we're gonna hit 10 million. Sounds great, we're gonna hit our goals. It tells you what levers you can, it tells you if you pull this lever, this is what happens. If you pull this lever, this is what happens. So it's not a predictor, but the whole concept, the definition of a model, right, is that it helps us understand the world that we're in in a simplified manner so that we can take action, right, and hopefully pursue, hopefully,

create the desired outcomes that we want to create in our businesses. Another thing that I wanted to mention that we always talk about is just like another best practice, model should be as granular as is needed to make the decision that's at hand. Like with the decision you have right in front of you. Don't try to make it as granular as you need for every decision the business ever has to make ever in the future. The key decisions that are at hand. And the beauty is,

We don't do modeling from like a stat, what's called static budgeting, which is you just set a model for the year and you come back to it and that's your model for the entire year. We re-forecast every single month and by doing that, we then make the model for that month as granular as it needs to be for the decisions at hand in that month, right? And so it's all about taking steps and, and, and, and,

And not just iterating, it's about taking action and iterating as you realize there are new actions that need to be taken. Right? And so in many ways it takes the pressure off of you to have to get it all figured out. You have to get the whole future of the, of the business figured out right now as you build the model. And, and I like one other thing, what are, so,

This concept for me originally came about because I had a crazy model at Guardian Bikes. Like it was super crazy. It was so granular, SKU level. It was connected to the S&OP and inventory planning model. So it actually kicked out how much needed to be purchased at any time. And I actually like what what are your thoughts? What is your opinion or what have you seen an example?

about like issues that get caused when you join up S&OP or inventory planning models to the financial model.

Jeff Lowenstein (23:38)

So I've been dealing with this my whole career, I haven't always been in the e-comm world, this tendency, I've always been in corporate finance and strategy roles. And so there's always this tendency of if we just go a little bit deeper, we just do.

a little bit more analysis. we just break it down with this other dimension of looking at the data, the answer might be there. And I get it, and I've done it. As an owner of a business, you don't want to leave any stone unturned or you don't want to miss something for lack of hard work. And that's the tendency.

However, you can easily make yourself crazy with all that work. And it's not that helpful at the end of the day. And furthermore, you can't update it on a monthly basis or hold yourself accountable to it. It's just unwieldy.

Jon Blair (24:39)

Bingo. Bingo. That one's the tough one.

Jeff Lowenstein (24:46)

And so like, you can break everything down more and more and more granular on every single dimension, but especially in this ecomm world where you have so much data across so many different parts of the business, it's often not helpful to do the whole thing every single time. be clear, you do need to go super deep in certain areas at certain points in time. One brand that I am the CFO for, we've gone super deep on their shipping and fulfillment invoices, transactions,

like we're working with the 3PL to get like more data than just the invoicing and get like transaction level invoicing to really understand where some of the costs are going and if we can improve those. That's not something we need to do every month but it's super helpful to get a better understanding and make decisions on that you know this couple of months that we're working on it. So that's just an example like I've been through it throughout my whole career where like you can

yourself very crazy doing everything to the lowest level of detail but at the end of the day you know you have to consider what's going to move the needle.

Jon Blair (25:56)

Yeah, and you also come into play when you're joining inventory planning and S&OP models. For those of you guys that don't know what S&OP is, it's Sales and Operations Planning. It's basically the demand forecasting at a SKU level and then the replenishment inventory planning at a SKU level. When you connect that to the financial model, you also create interdepartmental-like dependency.

where if the inventory team is behind, the CEO or founder's like, hey, I need an answer to this question on cashflow. And whoever owns the FP&A model is like, dude, I can't update it. I'm waiting on the inventory team. And you don't need to, I used to think it had to be connected. Again, this book Future Ready completely changed my perspective. And it actually specifically says, do not ever connect those two models. Bring over the data that is needed.

Jeff Lowenstein (26:20)

Yeah.

Jon Blair (26:49)

to inform the financial model and also just get good at running scenarios like, if they buy this much inventory, you can sit down with your inventory team and say, what is the range?

of possible inventory purchase scenarios and they can usually give you something even if they're not done reconciling inventory or done calculating their latest PO and that's okay and there's one other thing that's been hitting home with me recently that I want to mention and this is like Jeff Bezos from Amazon just talks about this all the time and I think it's really really applicable to financial modeling and forecasting. Is a decision reversible?

Because if a decision is easily reversible with minimal impact, right? If it gets reversed, then you shouldn't really even model at all and you should just do it. Or you should do the simplest form of modeling and then you should go. And, but you should say, here's the point at which I'm going to reverse this, right? And I'm going to go back to what we were doing before. If a, now Jeff Bezos says on the other side of the spectrum, if something is really hard to reverse, and the cost of reversing it.

Jeff Lowenstein (27:35)

Yeah.

Jon Blair (27:58)

is large, then maybe you should make another pass at the analysis. And so I'm drawing and there's a spectrum that exists between those two points, right? But like that's really important. I sell a lot of times clients ask me to model something and I'm like, I don't think we need to model it, right? Or you can spin up a quick sub model, just a brand new sheet in Excel and just model that thing in isolation. And, that's okay for that decision. It doesn't have to be interconnected into the financial model. And so I think

Jeff Lowenstein (28:06)

Yeah.

Yeah.

Jon Blair (28:27)

Reversibility and difficulty to reverse and cost of reversing decisions is very important to consider in financial model and granularity as well.

Jeff Lowenstein (28:40)

I think it's, I remember that quote from Bezos, it's like a door one decision or door two decision, something like that, right? Yeah, I'm a big fan of the side calculations as well. Like you don't need to flow something through your full restatement model if it's just like an idea or improvement you're talking about. If you want to know the impact of adding an upsell app to your checkout,

Jon Blair (28:48)

Yeah, yeah, exactly.

Jeff Lowenstein (29:09)

pretty easy to do a side analysis to look at increasing the unit economics by some percentage or increasing your AOV. the right metric is, that's an easy thing to calculate on the side. It doesn't need to be fully baked in if you're just going test it out. So yeah, we do that kind of stuff all the time.

Jon Blair (29:36)

So as a recap, first two myths we've talked about, I must have a 13-week cash forecast. And then myth number two, I need a super granular, sophisticated financial projection model to make sound decisions. We've given you several examples, thoughts on best practices, mistakes we've made. What's the common theme? Ask yourself how granular and how far out in the future any forecast needs to go and why it needs to go.

out that far or be that granular. It should be in service of the 80-20 rule. It should be in service of getting visibility on the 20 % of variables that really, really matter. And most importantly, you should be able to take swift action. You should be able to take action quickly. And if your financial model, your monthly financial model or your weekly cash forecast are not allowing you to take good imperfect action on a regular basis,

because you're always waiting for the perfect action and never taking it, then you've got some issues with those forecasts. these are principles that we live and breathe here at Free to Grow. Quite frankly, we created these guiding principles for our team because we made these mistakes when we were working in-house at brands and we don't want to make that mistake for our clients. We want to help them take swift action quickly and on a regular basis.

So myth number three that we're gonna close up here with, horizontal firms that serve all industries can help my e-comm brand scale alongside healthy profit and cashflow. So we had a really cool episode several weeks back with Lio Pinchevski, he's the founder and CEO of FinalLoop, a really cool automated e-commerce general ledger accounting software. And he had a lot.

to say about this. And actually, funny enough, we know this, Jeff, because we run a finance firm, finance and accounting firm that specializes in e-commerce, but he actually said it in words that caused me to go like, huh, he's so right, and we don't pay enough homage to this. And so, since then, I've realized that we really need to be

Be willing to talk about this and be proud about the fact that Free to Grow is a bunch of e-commerce, accounting, and finance nerds, like straight up through and through, no exaggeration. What are your thoughts, Jeff, on like how much why an e-commerce focused firm like ours or any other e-commerce focused firm out there can serve an e-commerce brand from a finance and accounting perspective so much better than a horizontal firm that

quote, serves all industries.

Jeff Lowenstein (32:34)

Well, I have one word. Bench?

Jon Blair (32:38)

For sure.

Jeff Lowenstein (32:39)

No,

yeah. It's really interesting. mean,

It's only become more more clear as we've gone through building Free to Grow and working with more brands.

challenge and how poor some of the bookkeeping can be outside of vertical specific firms. you know, Ecom is an amazing industry because it's the easiest thing to start. Anyone with an idea can go in Alibaba, find a supplier, spin up a Shopify store. There's very low barriers to entry and that's amazing. But what people don't always realize is that the financial piece and specifically the bookkeeping

is actually much more difficult than other industries and so they don't think about the books when they're starting a brand, right? They say, okay, any old accountant can do this and there's real nuance to getting it right. I mean, sure, you can pay 200 bucks a month to a bench and you can get a cash basis version of your books but it's not gonna help you make decisions. Sure, you can file your taxes that way and technically

boxes checked, your books are done, but getting real insights into your business takes a whole different level of understanding and knowledge, right? Everything from recognizing revenue between...

gross to discounts, refunds, Shopify fees and getting those all booked appropriately, but also in the right date, timeframe. That's not straightforward. You need someone who knows what they're doing. And then furthermore, the whole balance sheet challenge is hard for people who don't deal with inventory based businesses on a regular basis. And it's detailed work, but it's super important to have a system to get all that stuff right. Otherwise, you you don't have good data

and the foundation of the house you're building is shaky, right? That's scary stuff. So it's super important. And I think there are some quality generalist firms out there, like they're good at what they do in general. But when it comes to e-comm, if you don't have specific industry expertise, it's gonna be really hard.

Jon Blair (35:03)

Yeah, 100 % we obviously we've talked a lot in our content about the traps that brands fall into using ecomm or using bookkeepers that don't understand ecomm and getting crappy books. On the FP &A side though, I'm starting to develop a very firmly held belief that I didn't have when I was just running one brand.

at Guardian Bikes, now that we've served dozens and dozens of brands, I'm starting to realize that, and you mentioned the balance sheet, right? There's the balance sheet, why does the balance sheet matter for an e-comm brand? That's the real question, right? Like, why does the balance sheet matter? Because as a DTC brand, or even a multi-channel e-commerce brand, even if it's not full DTC, but if you're heavily,

Jeff Lowenstein (35:45)

Yeah.

Jon Blair (35:55)

Selling straight to the consumer either through a marketplace or through your own Shopify store your own DTC site You are taking all the inventory risk yourself as the brand and you're placing the bet that you're gonna sell it Let's contrast that to a brand. That's heavy on the wholesale side So like maybe a food and Bev CPG brand do they have to manage a balance sheet? Of course they do but they get big POs from retailers and they're like, alright

This is committed, right, to a customer. And so I'm not saying that managing inventory is easy. It has its own challenges, but there's this real big added risk as an e-commerce brand. You're buying big bulk orders of inventory and you're selling them to the consumer one at a time. And so the pressure that that puts on your cash flow via your balance sheet is actually a lot, there's a lot more at stake there.

Jeff Lowenstein (36:27)

Mm-hmm.

Jon Blair (36:53)

for an e-comm brand. And then additionally, you look at ad spend. You know, when you have, again, a big wholesale or physical retail-focused brand, there are certainly sales and marketing costs, but your sales volume is not really tied to how well you can spend ad dollars. It is in the e-comm world, and you're spending big-time ad dollars as you continue to scale. And so, why am I bringing this up?

because really good e-commerce bookkeeping gives you transparency on like margins which help you assess ad spend efficiency, right? And it also gives you really clear transparency on inventory on the balance sheet which are both uniquely, they're uniquely e-commerce specific challenges, right? And so if you have a horizontal, I'll give you an example. I won't name any names, but we have two clients.

One is an early client that's a service business that we don't serve anymore because we're focused on e-comm now. And another one is an e-comm brand. Both of them, we parted ways like mutually that like it wasn't a fit for us anymore and it wasn't a fit for them. And they both ended up with a fractional CFO at the same exact firm. And funny enough, the same exact fractional CFO within that firm. And so this CFO

is now serving a service brand, a service business, and then also serving an omni-channel consumer goods brand. I'm not saying he can't handle it. I'm saying he has to solve two completely different sets of challenges in any given day when he's serving those two clients. Me and Jeff and our other fractional CFOs in our accounting team, all we talk about is the 30 plus e-commerce brands that we're serving every single day.

And so we see the same challenges again and again and again and again and again. We can share those learnings across our clients and we are abreast of all the changes in the e-commerce world because we are just immersed in that world. And so are all of our partners, our adjacent service providers and all that kind of stuff. And so we can actually, you may get an okay, you may get served fine at a horizontal firm, but you're definitely missing some value.

of with a team of nerds that are just doing e-commerce all day.

Jeff Lowenstein (39:20)

preaching to the choir here. I agree.

Jon Blair (39:23)

What are some things that come to mind for you when you think about opportunities that an e-comm focused firm has to take advantage of pattern recognition and shared learnings across the client base?

Jeff Lowenstein (39:36)

Wow.

Yeah, I mean, it's it's it's core to what we do. So we do have the internal process and mechanisms to share learnings, weekly meetings, biweekly meetings. I'll give a couple of examples. So 2025 planning was something we've gone through with most of our clients over the last few months. And we came together as a group and shared like, hey, here's how

we think best practices should be to set a plan and think about managing that throughout the year. Obviously, there's nuance for each client, but a general process is helpful for each brand. Another one that we did recently was Black Friday, Cyber Monday planning.

That was amazing, right? There's probably not many other groups that are coming together saying, hey, what are the best practices and analyses and support we can give our brands during such a crucial time while they're busting their butt? What can we do to support them? So those are a couple of examples of what we've worked on recently. trying to think. mean, we have templates for just about

every type of analysis we've done in the e-comm world. Sometimes it's a deep dive on demand planning, We have a template for that. Sometimes it's a deep dive on marketing efficiency and LTV to CAC analysis, right? And like, you know...

Every e-com brand has different numbers, but in general, it's the same overall analysis that needs to be done. So those types of things are not only available to us at Free to Grow, but it's part of our onboarding that we explain to new people on the team. Like, hey, here's where we keep this library of templates and analyses that we like to do for our brands.

Jon Blair (41:48)

Yeah, and I think one, I didn't realize this when we started the business and started growing it, but there's another real, actually, this is a huge advantage of working with an e-comm specific firm. It's the ecosystem connections that we have in e-commerce. And so actually most recently, top of mind, there's something about the turn of the year and people starting to look for, you know, new service providers and we get asked all the time.

What are the marketing agencies that you're recommending? What are the lenders that you're recommending? And the thing is, we can go and we can say, hey, go talk to this agency because we know that they did a really good job in your product category. Or they did a really good job for the stage that you're in, right? We've seen them solve the problem that you have before. Same thing with lenders. Like, hey, we're gonna have you.

we're gonna recommend this lender, but it's because we have three other clients using that lender and they have the same issue that you have, right? And so when you're in the e-comm world day in and day out, you develop ecosystem relationships. Jeff and I both had a really deep e-comm network before joining forces and then when we got to bring it together, you know, I feel like one of the biggest superpowers we have is we probably have one or more people

that we could connect you with to solve any problem that you're having that Free to Grow can't solve with our service, right? And you're not necessarily gonna get that at a horizontal firm. And I will say, Nick Kirby from Flexport, he's a local sales executive out here in Austin, I was on his podcast like a couple years ago, and he said something that again was like, kind of blew my mind. And I was like, I wonder if this is true or not.

But two years later, I can say it is definitely true. He goes, hey Jon, I think you're selling yourself short. I actually think that if an e-comm brand comes to Free to Grow, they get more value than the average full-time CFO. And here's why. Because an e-comm brand in the lower to middle market, from a full-time CFO perspective, has a budget where they're probably gonna hire someone.

who isn't that experienced, maybe they used to be a controller and this is like their first shot at growing into being a CFO. They're learning on the job, right? And they're figuring it all out. They're building the plane while it's flying. But you've got a team that's been in e-comm for years and years and years and years and for a fraction of the cost of someone full-time who's fairly junior, they're getting actionable advice really, really quickly. And I was like, huh.

I've never thought of it that way. But I wholeheartedly believe that, that we do provide more value for the lower to middle market than a full-time CFO for a cheaper price. But why? Because we're Ecom vertical specific. That is the superpower. So, is there anything else that comes to mind on your end, Jeff, in terms of just like the advantages of being vertical specific?

Jeff Lowenstein (44:57)

Thank

Well, I'll give, while you were talking, I thought of two specific examples to make it more tangible for people that I wanted to share. So on the ecosystem and our network, we had a really great example just recently where there's a brand we are the CFOs for.

It's not me or Jon, it's another person on the team who does an awesome job. And she was saying, hey, you're managing your own ads. This feels wrong. This feels like you're not nearly as efficient as you could be based on my experience in other places. And she brought that to the group and we discussed it. And we actually said, hey, there's an agency that we know does good work that

we can ask to do a free audit, a free recommendations without selling their own service. Because of the Free to Grow relationship with that agency, we were able to get free value provided to that brand. And everyone walked away from that saying, that was really helpful. And thank you so much for bringing them in. That was an idea that we actually brought to the brand. It wasn't them asking us. So that was a pretty cool example that we just had. And then the other thing I wanted to just

mentioned you're talking about is as a fractional CFO you see a breadth of different brands within the same industry so your experience might be better. I think we need to go calculate Jon how many Black Fridays we've been through as a firm.

Jon Blair (46:48)

For sure, for sure, man.

Jeff Lowenstein (46:49)

Because the

number keeps rising every year. And that's pretty cool. We have data that we can use. And we do use it a lot of the time for certain analyses, like, hey, how are my metrics compared to benchmarks? How am I doing? And we do some of that. But we probably don't even do enough of it, nor do we advertise it enough. So I think that's an exciting opportunity for us as well.

Jon Blair (47:10)

sure.

Yeah, and I mean, I could be wrong, but just thinking off the top of my head, if you think about each client as a Black Friday, right? Because like how many brands, like we've, think collectively, we've been through, and if we go back to previous jobs that we had in e-commerce, all of us like before this, right? We're for sure like close to a hundred or more Black Fridays, I'd have to say, like between the whole team.

Jeff Lowenstein (47:25)

Yeah, that's what I mean.

that's a good point too. Yeah.

If you include prior jobs

within the team, I'd say we're over 100. Yeah.

Jon Blair (47:48)

Yeah, and

that's important. You don't want someone who's been through their just one or zero or a couple Black Fridays, because everyone knows when you're scaling an e-comm brand really fast, guess what? Every Black Friday gets bigger than the one before, meaning what? More at risk with the ad dollars you're spending, more at risk with the inventory you're buying, and so you want people who've been through it before. Well, unfortunately, we've got to land this plane, but this is a...

Jeff Lowenstein (48:03)

Thank you.

Jon Blair (48:15)

This was an awesome conversation, even better than I thought it could have been. Just as a recap, what we're talking about here is don't fall victim to the common DTC finance myths out there. You don't necessarily need a 13-week cash forecast. You don't need the most granular, sophisticated financial model to make sound decisions.

Vertical specific ecomm or DTC focused firms are gonna serve you way better than horizontal firms that serve all industries You know if anything we talked about here piqued your interest and you're like hey, how could Free to Grow potentially help my DTC or ecomm brand? Consider going to our website and filling out the intro call request form because one thing we can do that's literally no risk and super easy to set up is an intro call and our free CFO audit

Our free CFO audit gives you as a brand founder a test drive of the insights and recommendations that we can make as CFOs. And it's all fully confidential. It's an NDA and giving us access to your Shopify store and your accounting system. And it's just a really low risk way to see like, am I actually missing out on financial insights by not having a fractional CFO? So.

You know, if you're interested in learning more, consider going to our website, freetogrowcfo.com and filling out that intro call request so we can do a free audit. But you know what? If for now you're just enjoying the content, consider following me, Jon Blair, or Jeff Lowenstein on LinkedIn. We're posting tons of helpful tips every week and month on scaling a profit-focused DTC brand. And man, this is fun. Jeff, I'm gonna have to have you back soon and we're gonna pick the next three myths.

and we're gonna bust them together,

Jeff Lowenstein (50:06)

This was great. Thanks, Jon.

Jon Blair (50:09)

Cool. Well, until next time everyone, scale on.

Sherilee Maxcy
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