Bookkeeping and Accounting Best Practices for Ecommerce Entrepreneurs – Cyndi Thomason of Bookskeep
INTERVIEW VIDEO (Length – 50:42)
INTERVIEW VIDEO (ADBRIDGED VERSION) (Length – 25:28)
Sponsors & Partners
In this interview, Cyndi Thomason of Bookskeep shares valuable insights, tips, and best practices for e-commerce entrepreneurs on how to set up their bookkeeping and accounting processes in a way that scales with their business growth.
Cyndi Thomason is a Certified Master Profit First Professional, and the founder and president of Bookskeep, a virtual company that provides book keeping and Profit First consulting services to e-commerce clients all over the world. Cyndi is passionate about data analysis and process development and she uses that passion to educate her clients and help them structure their e-commerce businesses to maximize profits.
People & Resources Mentioned in the Episode
- Mike Michalowicz
- Profit First
- Parkinson’s Law
- A2X Accounting
- Slumber Pod
- Peter Drucker
What You’ll Learn
Interview with Cyndi Thomason of Bookskeep
- Could you please share a little bit about your business and what services you provide?
- Why did you decide to focus on Ecommerce businesses?
- How is bookkeeping for Ecommerce businesses different?
- Could you please share your approach of working with Ecommerce businesses? What information, data etc. to you request from businesses that helps you to do your job easier?
- What are some of the book-keeping best practices, processes etc. that you recommend a startup should follow to get their book-keeping and accounting right? (We can talk about the profit-first methodology and creating starting with 3 different bank accounts inventory, profit, operating expenses, and other tips here)
- Are there ways (software etc.) that can help a business to automate their bookkeeping?
- Should businesses do their own book-keeping versus hiring services of a book-keeping expert? At what point does it make sense to hire an expert?
- What are some of the biggest mistakes that you see businesses make when it comes to bookkeeping and accounting?
- Determining product profitability.
In this segment, the guest will answer a few questions quickly in one or two sentences.
Cyndi Thomason of Bookskeep
- One book that you would recommend to entrepreneurs/business professionals in 2020 and why? (Response: The ultimate blueprint for an insanely successful business by Keith Cunningham)
- An innovative product or idea in the current ecommerce, retail, or tech landscape that you feel excited about? (Response: Promoter.io)
- A business or productivity tool or software that you would recommend? (Response: A2X Accounting)
- A startup or business (in ecommerce, retail, or tech) that you think is currently doing great things? (Response: Slumber Pod)
- A peer entrepreneur or business-person whom you look up to or someone who inspires you (Response: Mike Michalowicz)
- Best business advice you ever received or you would give.(Response: A quote from Peter Drucker, Culture Eats Strategy for Breakfast.)
Sushant Misra: Hey there entrepreneurs. My name is Sushant and welcome to Trep Talks. This is a show where I interview successful ecommerce entrepreneurs, business executives and thought leaders and ask them questions about their business story, and also dive deep into some of the strategies and tactics that they have used to start and grow their businesses. And today, I’m really excited to welcome Cindy Thomason to the show. Cindy is a certified master profit first professional, and we’re going to talk a little bit about that. And the founder of unprecedent of books keep a virtual company that provides bookkeeping and profit first consulting services to ecommerce clients all over the world. Cindy is passionate about data analysis and process development and she uses that passion to educate her clients and help them structure their businesses to maximize profits. And today I want to ask Cindy a few questions about her business and services and also some of the ways she helps her clients and ecommerce businesses succeed. So thank you so much for joining us today at Trep Talks. Cindy’s really appreciate it.
Cyndi Thomason of Bookskeep: Delighted to be here.
Sushant Misra: So yeah, let’s get right into it. I could you share a little bit about your business books keep and you know what services you provide?
Cyndi Thomason of Bookskeep: Okay, well, um, I created the business to be a general accounting firm. And we’re located in the the Midwest, Central Arkansas. What I learned fairly often from one of my mentors Mike mccalla Wits that wrote prophet first was that I really needed to specialize I needed to, to be able to grow and to really serve people at a deeper level, I needed to focus on one industry. And at the time, when I was making that decision, I had several ecommerce clients that had come to me because of their interest in profit first, and I did this exercise just to think about alignment. And we were very similarly aligned. We, I wanted to remote business, I didn’t want to have to go into people’s back offices, you know, to do their bookkeeping, I wanted to work from home to be with my daughter, I, I was looking for flexibility. And, and I found that that’s a lot of what was going on with those clients in the e commerce world they needed flexibility to we were working with QuickBooks Online when it first was a was a thing to do in the cloud accounting world. And so I knew I needed to work with people that were tech technology savvy, that they were okay with me having, you know, admin access to bank accounts and things like that, that they were that that world of technology and connectedness wasn’t something that was going to scare them. So for those reasons, I decided to focus on ecommerce, and really over the years have have enjoyed the the opportunity to see how how small business is part of that whole bigger picture of, you know, amazon.com, and Shopify, all those platforms that are really big now, really are supported by small business people who are trying to make a business work in in their own terms. And it was just very much aligned with what I was trying to do because I needed to be at home with my daughter and get her to tutoring, etc. And so it’s kind of kind of been neat to see how how our how our interest in in underlying reasons for business are similar.
Sushant Misra: Cool. And so what what are some of the main services that you provide to your businesses to these small ecommerce businesses?
Cyndi Thomason of Bookskeep: Well, they’re kind of divided into two camps. One is the bookkeeping side of things. And we are our primary bookkeeping service, kind of a full service ecommerce. bookkeeping is our largest offering to people, the people that are established that have kind of reached the point where they need to have somebody do bookkeeping for them because they’re too busy. Their time is more valuable in figuring out their next product or, you know, managing their team, figuring out advertising, etc. and bookkeeping is something that can be outsourced fairly easily. As we started to get more work in that area, we realized that we really couldn’t serve everybody and so we created a product for for new people that are just getting started. And we call it Smart Start. And it’s kind of a combination, we hold your hand and train you on how to do it the right way. And so for clients that are just realizing that they need their bookkeeping under control, they realize the value of it, but they don’t know how to get started, we go in and we meet with them three different times, and do all of the setup for them the connection issues, etc, teach them how to do it. And then they go off and do the work, but we’re there to hold their hands. And then they they participate in a huddle for a year, anytime they run into anything, they know that they can join the huddle, get their questions answered. So that’s the bookkeeping side of things. On the profit. First side of things, we, we have a coaching program, and it’s for three months. And basically, we do the work for Pete for our clients to do all the analysis and can say, Alright, this is how you need to implement profit first, and but the client still have to go and implement it. And then at the very end of that process, we’re teaching them how then they can keep it going quarter after quarter to make sure they’re focusing on the right things in their profit assessments. And continuing to put the right pressure on the business to always be trying to improve profits and reduce operating expenses. So we’ve got that that three month coaching program. But we also have an online course for people that just want to do it themselves and go through. It’s based on the book that I wrote, profit first for ecommerce sellers. And it basically goes chapter by chapter and talks through those concepts, and demonstrates how to do the work along the way.
Sushant Misra: So basically, your service offerings, it’s like, one is you in a way to do some sort of consulting for people who are really just getting started or you know, who are small, who can’t hire a bookkeeper full time. And then you do full fledged, full service bookkeeping services for people. And my question then is, at what point do you usually find that people come to find you? Is it like a certain revenue that they reach? Or where they say, Okay, this is getting a little too out of my hand? No?
Cyndi Thomason of Bookskeep: Well, it’s really a lot of different things. A lot of times people come to us, even before they start, and they’re like, we’re getting ready to start and getting my products coming in. And I know that numbers are really important, but I don’t know how to make that work, can you help me get started. So we’ve got some of those folks, we’ve got some folks that have been, you know, doing their business for a while, and then they just suddenly realize, you know, this is not just a hobby anymore, this is starting to be real money, and I need to take it more seriously. And they want to get access to books that they can look at and feel like they really know what’s going on. And then I’ve gotten had people come to us that have been running their business without books for quite some time and are ready to exit the exit the business. And they realize they’ve got to have a good set of books with two to three years of history documented in a way that could pass the due diligence test, you know, for selling, and they don’t have that and they want us to create that. And so those are kind of the the pain points when when people come to us. And I think a large part of it just depends on how much people value that information from the beginning. Or when they feel overwhelmed, or there’s just something else that’s that’s like, Okay, this is a necessity now, like we’re getting ready to sell.
Sushant Misra: So for these people who are not doing their bookkeeping, in a consistent way, which I would assume like a lot of people who have businesses who are just doing it as like a side hustle or something like that. bookkeeping is probably not their, you know, their biggest priority. How these people are just like doing some Excel spreadsheet analyses and like, Is it just because it’s sufficient to file their taxes? They’re, it’s, they’re getting by, but then at certain point, they see, okay, you know, I haven’t done anything, so I should get someone to do it. Like how do you help them in that situation? Like, do you ask like, what kind of information do you ask them to, like retro actively to do to get their books in order?
Cyndi Thomason of Bookskeep: Well, it really comes down to bank credit card transactions, we have to go back and pull that data. The older it gets, the harder it gets. Because most banks you can get information current year really easily. You Sometimes you have to pay money, but you can go back to, you know, a second year back. But third year, it gets harder unless you’ve actually kept paper bank statements or something like that, or downloaded them. So it’s a challenge to go back that far. They I don’t really know. I don’t really know how, how they feel on top of things. Um, unless it’s just they look at their bank account and see that that that is growing? And I guess, you know, I do, I do think you know, profit first, when you set it up correctly, you can manage your business by looking at your bank accounts, it doesn’t give you the set of books, you’re gonna have audited for a sale, but it does, you can manage with your bank accounts. And so I’m assuming these people that just go 235 years without books are, are seeing enough success through their bank account growing, that it just doesn’t become a priority for them. Because I can tell you, the ones that do that are typically ones that are doing well. So they you know, they’re, they’re not struggling.
Sushant Misra: Yeah, they’re not, you know, counting pennies, then. So how so? Um, you know, you are focusing on e commerce businesses? Is there any difference in terms of like, just the bookkeeping of, you know, when you do it for e commerce business versus like, some other regular business? Or is it just that you have created systems and processes that work really well for e commerce, and so you’re just sticking to that.
Cyndi Thomason of Bookskeep: It’s both, I mean, for me, it’s almost a marketing decision, because I have created systems and processes, that’s where we’re most efficient. And I can relate to those clients, or prospective clients, because I know their industry, so it’s easier to market to them, instead of, you know, landscapers and website developers who have their own set of tools and technology that they use to keep up with, you know, scheduling and paying employees etc. So, you know, it’s kind of that Pete that the process is the technology, but also being able to market more, concentrate my marketing efforts more more straightforward. So so those are the the main reasons, but I do think, um, e commerce accounting is different. It is the the ability to go into the platforms and understand when you get a settlement from Amazon, all of the different fees, and, you know, refunds and gift wrap credits, all of those different things that they’re going to take out or put back in, it’s really good to work with someone who knows what that’s about, and knows how to take that data and put it at the right place on your, in your account structure. Having an account structure that works for e commerce, I think, is really important. Because if you’ve got your fees and stuff buried down in overhead, it’s hard to understand what your gross margin is. And you got to understand gross margin to know how you’re doing. You’ve got to know whether or not you’re recording revenue, based on when that money comes in, which is typical for small business from a cash perspective, the money in my bank account, I’m going to claim it well in Amazon, that could be for a two week period, most of which happened in last month. And so where does that fit properly on your p&l? And so you, you really need a modified cash or modified accrual basis to be able to get that income recorded properly. And then subsequently, Book your sales, the cost of sales, your cost of goods sold in the same period so that you’re you’re matching, whatever you sold against, you know, what you got for what you sold against that revenue that you got, you’ve got to be able to compare those two things to really know if you’re making money. And so I think there there are some there’s some aspects to it that are unique in that if you’re in e commerce, you will find an e commerce accountant being more able to align with what kind of data you’re ultimately needing to get out of the system. You know, if you if you design the system, your accounting system to get data out to help you manage your business, it needs to support the decisions that you’re making. And how you put the data in then needs to be based on that. So you get reports that are meaningful in the end.
Sushant Misra: Okay? So when you when a new customer or client comes to you and says, You know, I would like you to manage my bookkeeping services? Can you walk me through some of the first steps that you do? Do you like audit their current books? Do you ask for certain information? So you get an idea of what they already have been doing? And and do you sit down with them and say, Hey, how you would like me to set up your books? Could you share some of those four steps that you work that you do with with a new client, to to set up their books properly?
Cyndi Thomason of Bookskeep: What I found is that the clients typically don’t know what they need. And that’s why they come to us. So we have a e commerce Chart of Accounts, which we would use to build out the structure of their books. So most of the time, when they come to us, we we know what framework that they need to be, their Chart of Accounts needs to be built on if they’re selling on Amazon, or Walmart, or Shopify, we’ve got charts of accounts that address all of those platforms. And that that informs us as to how we’re going to build their books, we know that we want to treat every client to having good information as a result of working with us. So we would always build their books with this modified cash or modified accrual basis, because that’s where you get the good information, that’s, that’s how you build the books to be able to sell the business later. So we don’t want to set them up with something inferior, we want to set them up with in a way that’s going to give them what they need now and down the road. So so we’ve got that framework in place. And then the the other pieces that we need is, you know, if they’ve already got books that that they got from someone else maintaining them, or maybe they’ve maintained them, then we would look at that, depending on where we are in the year and say, Okay, we’ll start now doing it our way. But you know, you’ll have your way up until this point in time. And I can tell you every time we’ve ever done that, because, you know, the client had paid and or, you know, they had an adequate set of books from you know, strictly accounting, speaking. But every time that we’ve done that, and then gone forward, you know, and do the rest of the year, the way we do it, they come back to us and say, Oh, my gosh, that’s that. I won’t that for the whole year, can you go back and fix up the rest of my books? And in fact, many times we have people say, can you go back to the beginning of my books and just clean up the last two or three years, because when they start to see the information come out in a way that’s useful. They want they want that for all of their data, not just for some piece of it going forward. Typically the things that, you know, if somebody has this set of books, then you know, they probably already have, you know, either QuickBooks or zero, which are the two accounting systems we recommend. They probably already have their bank accounts connected their credit card accounts connected. So So those things we just continue on. But if if they’re coming to us brand new, the things that were the first decision they need to make is are they going to want to work in QuickBooks Online? Or do they want to use zero? Which is the preferred counting accounting system that they might want to use? And then going forward? Do they want to use a system like a to x, which integrates and pulls across all the data from Amazon and Shopify? Or are they going to be okay, with a less quality way of recording some of that information, which doesn’t get it on an accrual basis, we have to have their bank connected, you know, their bank information to be able to help them connect it. And those are the kinds of things that we need just to kind of get started.
Sushant Misra: So what what to me seems like the most valuable to a business owner after we have set up all these, you know, systems and you know, software is do they get like some sort of a dashboard, either in this software that you’re setting up zero or you know, QuickBooks, or do you provide them a separate way, where they actually get to see the different numbers so that they have much more clarity about their business retroactively, and also, a better way to say okay, I have this much money that I can actually invest in buying products or I you know, I can do certain things or, you know, I have Certain question for the future. So is that is that what the outcome of the whole processes?
Cyndi Thomason of Bookskeep: Well, the outcome is monthly generated financial statements that you could, you can look at and understand the performance of your business. So it’s historical, um, it’s looking back at what actually happened, and kind of a scoreboard, you can’t look at the scoreboard and say, okay, you’re going to win the game in the fourth quarter, you know, you know, it’s more. This is where you’re at up to the third quarter, and how you’re positioned to play the game in the fourth quarter. So quick, QuickBooks Online has some really great dashboard type screens now. Zero doesn’t have as much of that as they had in the past. But I think the thing that our clients value is being able to get a monthly set of reports that tells them their score, this is where we’re at in the second quarter. And no, you know, did what I do all last quarter or last month? Did that generate revenue the way I had expected it to? And if not, do I? Am I pricing my product wrong? Or am I paying my suppliers too much? What kind of changes do I need to make to ensure that I’m going to improve the score next quarter?
Sushant Misra: Okay. From your perspective, what are some of the most important numbers, even in those financial statements that you think, describe the health of the business?
Cyndi Thomason of Bookskeep: Well, it’s interesting, because, you know, I mean, a lot of Facebook groups with sellers, and they’re all keen to post their sales numbers, and sales numbers that are fine. But the reality is, is how much you keep at the end of the day, not how much you you, you sold. So, to me, the most important number that people need to be paying attention to is their gross margin number. So if you take your sales, and you subtract out your product cost or cost of goods sold, the what it costs you to generate that revenue, whether it’s, you know, for the product itself, or shipping for that product, the fees that that Amazon or Shopify may have charged you, maybe you had someone prep, or maybe you’ve got packaging, the things that are related to that product, what did that cost to be able to generate that income? And how much money does that leave you with? And once you’ve done that analysis, and you understand your profit margin, your gross profit margin, you want to be at about 30% or more.
Sushant Misra: This has not include excluded any of the operating expenses. So gross margin includes the the operating expenses,
Cyndi Thomason of Bookskeep: Ghost gross margin does not, it just is specific wrote specifically related to your product, what did it cost you to, um, you sold this product for $10,000? How much did it cost you to have that product that sold so you know, maybe that’s $5,000, so then you’ve got $5,000 left, that you can then allocate to your operating expenses. So to me that gross margin percentage is, is something that I don’t see people paying close enough attention to, and that it’s really a key component to whether or not the business is going to be profitable. Because if you’re not making a profit at that level, then you can cut all those operating expenses out to zero, it’s still going to be be challenging to, to support that business long term, just to have the cash to turn over and buy new inventory. And to pay for advertising expenses, etc. you’ve, you’ve really have to understand where your gross margin is, and make sure it’s 30%. Or better.
Sushant Misra: So at the very least, it has to be 30%.
Cyndi Thomason of Bookskeep: That’s, that’s where we, where we like to see our clients, because, um, and I will tell you, there’s a lot of businesses out there that are that are not hitting that mark. But that’s where we try to work with them to get their, their margins up to that level. And once they get there, things are just so much easier. I mean, they’re, you know, things that they’re struggling with cash flow, that just gets a lot easier because the cash is actually going through the business fast enough to make it work.
Sushant Misra: Okay. Now we can talk a little bit about different best practices and And tools and processes that you would recommend ecommerce businesses to set up. Now I know you’ve already mentioned the for profit first methodology a few times. Could you share what this methodology is? And why is it important? I would assume this is not just for e commerce businesses like this could be a probably be applied to any business. But how do you apply this to e commerce businesses?
Cyndi Thomason of Bookskeep: Okay, so first what it is, it was profit first was developed by Mike mccalla wits. I think the first time I encountered Mike was around 20 2014. So it’s been around about six years. It’s basically that envelope system that maybe your grandmother had, where she takes the money that she gets brings in and puts it in, in different envelopes, some for maybe the house payment, some for to buy the groceries, some to put away for Christmas, shopping, whatever. It’s the same kind of idea, except it’s done with bank accounts. Because now we all pick up our mobile phones, and we look at our bank accounts in the morning to see how we’re doing. And that’s kind of the equivalent of being able to look in your bank account go when I go grocery shopping, am I’m able to buy this much. So what Mike has done with his process, and it does fit any type of business, what I did was customize it for the e commerce industry. Because inventory is such a huge component. But the idea of it is you when you get money in you put it into a bucket for a purpose, every dollar has a purpose. So for our clients, the the lifeblood of that business is inventory. So we want to be sure that we’re putting aside dollars for inventory, then we put money aside for profit, too often money, profit is just what’s left over at the end of the day, or at the end of the year, when you go have your taxes filed. And your accountant says, Well, you made a profit or you didn’t. But you’ve waited all year to even know that information. Mike’s theory is that a business is there to serve us as an entrepreneur. And if we’re constantly putting the money back in the business, or having it in one big bank account, so we don’t know whether we’re making money or not, or what we can use it for, then that that business is not serving us. And that’s where we get into situations where we’re putting money in, we’re putting too much money in operating expenses, where we’re using those dollars that should be paying us because we’re working hard. And there’s, you know, our family, we don’t spend as much time with them. You know, there’s, there’s so many things that that suffer when an entrepreneur is really in, they’re trying to get something going, that you’ve got to reward yourself. So taking dollars out for profit for owners pay, setting aside dollars for taxes, those things just have to happen first. And then what’s left is the operating expense dollars that you have to run your business. So it’s a different way of thinking about it. The old way of sales minus expenses equals profit is just turned around. And it’s sales minus profit equals expenses. And so as long as you have taken care of your inventory, taking care of your profit your owners pay in your taxes, what’s left is what you have to run your business on. And it creates, it creates pressure on the organization, because you are having to operate at an efficient manner. You’re having to be innovative, you’re having to be frugal. And those things are always good at driving the right behaviors in business. So so that’s how how it works. And it really does. It works for every kind of business. The key component for making it work for e commerce businesses, is making sure you peel off that amount for inventory so that you can always cash flow your inventory. Because when people get into trouble in e commerce businesses, it’s because their inventory payments happen in advance, you know when they have to pay for their product is so far in advance of when they’re ever going to get money back from selling their product. And many times they’re having to reorder the second or even the third time before they’ve started to really get cash out of that first batch of inventory they’ve sent in. So having having inventory cash flow covered is really important because it really has a different a different rhythm to it, then what operating expenses have it, it’s separating those things really gives you a lot of clarity.
Sushant Misra: Okay? So basically, what you’re saying is that once when you receive when a business receives money at the end of the month, or you know, whenever, throughout the month, if it is in one account, and if just one number, you don’t really have a way to, to say, okay, you know, everything becomes inefficient. So if you don’t really have a way to moderate your, your expenses, so you know, it’s kind of like, you know, you see one number and you can say, Okay, I need to buy this thing, you know, because I see the money there, I can go ahead and buy it. And you don’t have a way to separate out and say, okay, Hawaii even accounted, if I’m going to take out any profit out of this have, I accounted for inventory and things like that. So in a way, if you just have one number, it’s just a very efficient way of, you don’t really have a very efficient way of allocating it to different places. Whereas if you separate it out, then you have better visibility of where certain money is going. Is that the
Cyndi Thomason of Bookskeep: exactly? That’s the idea of it? And, and they principle behind it is, is a behavioral principle called Parkinson’s Law. And not only is it inefficient, because you can’t see it. You can’t, you know, if you look at one big bank account, and all the money’s in there, and you can’t tell, Well, okay, well, I’ve got inventory payment coming up next month, or whatever, if you don’t have that clear visibility of purpose for that money. But the other piece of it is as human beings, when we see a lot of something, we feel like we have a lot of it to us, and we get busy thinking about what all I might do with that money. So at the end of q4, for example, in e commerce sales are just going crazy. And all this money is showing up in people’s bank accounts. I encourage them to just put it aside for a little bit. Because that money if it’s sitting there, well, you will find a reason to use it. It will be it will be frittered away. And if you put it aside, then it will be a conscious decision how you want to use that money. Do you want to use it to get a jump on inventory for next year? Or, you know, what, what is the purpose behind that money. And when it’s sitting there all together? Mike explains in the book, he uses toothpaste, and he says, you know, if you’ve got a whole big tube of toothpaste, when you put toothpaste on your toothbrush, you just squeeze out a whole lot of it on your toothbrush. But if you’re down to the very end, and you know, it’s gonna be two or three days to get to the store, you put just a dot, right? And you’re like, Okay, that’ll do, and it’ll, it’ll last me. And so it’s kind of the same thing, because Parkinson’s Law basically says you use what you got. So if you’ve got a lot of something, your consumption of it is more liberal, you feel like you can you, you feel like you can be more free in making decisions with for, for using that money. Whereas if it’s constrained, you feel like I need to be careful here I’m getting, because I, I can see my inventory account has enough money in it to pay for my next order of inventory. So I’m being careful. I know that flow. Whereas if that whole inventory dollars, were in your optics account, it would really make you think, oh, there’s a whole lot of money there. But have you really factored in what your inventory costs are? It just gives you visibility for the purpose of the money.
Sushant Misra: So this idea of creating buckets. So you know, I’ve heard you say that there’s an inventory bucket, there’s this operating expenses bucket, there is a profit bucket. Are there like is it is the idea that the more buckets you can create, and the more you can separate out the different numbers, the easier it will be? And the better visibility you will have in your business. Like what is the minimum? But what is the minimum number of buckets that should one should create?
Cyndi Thomason of Bookskeep: I think ecommerce businesses that are just getting started need three and one is separate inventory and cash flow. So that’s your two checking accounts. And then you also need to have a profit account. So just to kind of get started to get a feel for how this works. Have an inventory checking account and have a operating expense account and a profit account. So when you get your first settlement in, say from Amazon, you can look at what you sold and say it’s worth $5,000 that that to replace that inventory you just sold it’s going to cost you 5000 put that 5000 in that inventory. Check account, then take whatever’s left, take 1% of it and put it in a profit account. And then the rest after that goes into your affix account. And then that’ll have money there to pay yourself and to pay taxes on ultimately, what I recommend is after you’ve kind of got that figured out and in separating inventory and optics is working for you, and you’re building a profit account. For a couple of purposes, I’ll talk about that in a second. After you’ve got those three accounts working, then you would probably want to take your operating expense account and carve it up some more, you know, if things are going well, you’re going to owe some taxes. So create yourself a savings account for taxes. And I always suggest to my folks, and now is the perfect time to do it. Go talk to your CPA, and find out what your tax burden is going to look like and be sure you’re setting aside money for next spring when those tax bills are going to come due. Separate money aside for owners pay. Because while this may be a side hustle for you now, if you decide that you want to quit your job, that’s the bucket where you’re going to pay yourself. If you decide this is getting big enough, I’ve got to hire somebody, that’s the bucket where you need to have some money set aside to run this business. And we call it owner pay. And then the rest of it is optics for your subscriptions and your bookkeeper or you know, whoever else you have to pay. But those are the three I start with just to get a feel for it, our inventory affects in profit, then I would add the owner pay in taxes next. But you know, there really is no limit.
Cyndi Thomason of Bookskeep: I’ve got one client, I think he has 17 different bank accounts. Now. He’s he’s got some situations that he really wants to budget for and monitor. Like he knows how much he wants to spend on advertising. And so he has a percentage of set aside. So every time he puts a percentage of his sales into his advertising bucket, and then he uses that to pay for advertising. If that advertising is working, then it should always be putting more money in that account to pay for more advertising. If for some reason his advertising messaging is not landing, and he’s spending that money but not getting those sales, then it becomes really clear, something’s off with my advertising. And I’ve got to get that figured out and dial back in. Using those percentages to track, things like that helps you understand if there’s a fundamental shift in your business, a few years, an example is like a shifting account, this one client, I’ve got several clients doing this. But this example is with one client who had a shipping account set aside based on a percentage, his shipping provider was very inconsistent with billing him. So he but he knew there would be a bill and it may be six months old, but he’s in but he needed to be prepared to pay for it. So that was working along really well. But then people started applying diesel surcharges, because of the price of diesel went up really high. And he was realizing he had to make a shift in that percentage, because something changed fundamentally in the operations of his business. And he was able to look at it and see that that issue was happening and make that adjustment. So it really does give you some, when you get to the point where you can say, all right, shipping ought to be this much percent and advertising ought to be this much percent because you’ve had some history that you can dial that in, then whenever that starts to get a miss in your bank accounts that you look at every couple of weeks. You You know, okay, there’s something changing here. And you see it well in advance of when financial statements are generated, you know, sometimes two weeks after the month end, you can see it as early as two weeks into your current accounting period, because that that’s already starting to show up as an issue.
Sushant Misra: One more question about the inventory. So because I would assume that the inventory, the demand for inventory would, would probably change and especially for businesses growing you would need, you know, you want to order more supplies, let’s say three, three months down the road or for q4, you know it’s the holiday season, you want more supplies. If you’re setting aside a certain percentage based on historical performance, you know, based on what you sold in the previous month or something like that. Does that mean that if your business is growing, you are taking money from other accounts and putting in your inventory account or does that mean that you need to supplement that inventory account for a future for future birth purchases. How exactly does that work?
Cyndi Thomason of Bookskeep: Typically, when, when clients get started, we try to dial it in at kind of the the level they’re operating at. So that we know all right, you, if your inventory is 30% of what you your sales price is, we want to know what that baseline number is. But people aren’t happy for that for very long because they’re wanting to grow. And we grow in one of two ways. If you’re going to be growing, just by expanding the current offering of what you have, you just, you just see the need to be able to purchase that same item more quickly, because the way sales are going through, then we ramp up that percentage, and we say all right, inventory to replenish is 30%. But at the rate of growth that we’re at, we’re going to add another 10 or 20% to it so that we can start to to benefit from the growth that we’re seeing in that product sales. The other thing is our clients are always innovating some new product that they want to develop and bring to market. So we we usually have a product development account, where we say our replenishment cost in maybe even our growth cost of our current inventory goes up here in the inventory bucket. But we want to always be thinking of that next product. So we’re going to put 10%, down here in the product development bucket. So when I, you know pay for samples or pay for, you know, the first product purchases, or maybe the marketing, that I’m already preparing for that, because I’ve set money aside to to prepare for the next product.
Sushant Misra: So So this was one best practice, are there any other best practices one or two best practices that you recommend in terms of bookkeeping or accounting that that would benefit ecommerce businesses.
Cyndi Thomason of Bookskeep: I think a best practice of doing your books on a modified a cash basis or modified accrual basis, so that you can understand your gross margin, I think that’s a hugely important thing for any business. And for e commerce businesses, especially, so that you can understand if you’re making money at the gross margin level. So make sure that you’re not just waiting till the end of the year and getting a number from your tax accountant, make sure you’ve got books that tell you month by month, if you’re making the gross margin of 30% or more, I think that’s huge. And if you’re not, then you can dive into I’ve got multiple products, which 1am I losing money on and you can just keep diving till you understand what you need to fix. So having profit first, I think is important. I think having having your books set up on a modified cash or accrual basis is also really important.
Sushant Misra: Now, if you have multiple accounts, and you have set up, like different percentages of sending money to different accounts, does this process have to be done manually? Or is that something that you can set up somewhere in some software, and that automatically distributes the money based on the different percentages or different rules that you have set up?
Cyndi Thomason of Bookskeep: Right now it’s manual. Um, we have a little spreadsheet that when you get your, you know amounts from your, your different platforms, you plug it in, you plug in the dollars that you got that you got from the platform and it calculates out. But you have to go in and manually move the money in the bank. There are there are some banks that make that easier. Rather than doing one transfer to one bank account. There are some banks that you can say, Alright, this is the amount of money that I got in, I want to move it to here, here, here and here. Go and, and that’s pretty nice. But most banks don’t operate that way. So it’s still a manual thing. But But my clients tell me, we suggest they do that twice a month. And they tell me it takes them about 15 to 20 minutes to do their accounting. Where they do that those transfers, you know, plug in their number and do the transfers. And typically what they do is they they plug in the money from their sales platform arms into the software or the spreadsheet that tells them Alright, this is how much you need to move. And then they go in and move that money and then they pay their credit card bills or whatever that they’ve you know, got that. Now they funded their optics account and it’s time to pay those bills.
Sushant Misra: Okay, now, any entrepreneur who’s who who does not or who haven’t hired a dedicated bookkeeper who still Doing the bookkeeping on their own. Do you have any recommendation of like software? I know you talked about zero and you talked about QuickBooks. But for an a solopreneur, let’s say, do you recommend a certain software and that that helps in terms of like, connecting to some of these e commerce platforms and an automating so that, you know, all they’re doing is really just, you know, a double checking of, you know, everything makes sense. And it helps them to manage their books.
Cyndi Thomason of Bookskeep: Yeah, we really like a two X. It’s a two x accounting, if you look for it on the web, it, it takes the Amazon Shopify site information and moves it over into your QuickBooks or zero accounts. So that that revenue piece of it is put in the proper month. So if you’ve got a settlement period that that bridges a month end, it puts the right sales in the right month. So that’s, that helps with that modified cash accounting that I was talking about. So so we like it from that perspective, the other thing that it does is it will keep up with your cost of goods sold. So it knows what was actually sold on Amazon, you just put your product cost in, and it will push through your cogs entry so that not only is it recognizing the revenue and the fees, but it’ll also you can push the cost of goods information so that you get that in the proper period as well. It’s it for, for our clients that they really do want their books done accurately so that they’re building it for sale or to get that data that that they need to understand how they’re doing. It’s a critical piece of that to have it reported properly. Okay.
Sushant Misra: Now we’re going to move on to our rapid fire round. Okay, ask you a few quick questions. And then you have to answer them in one or two words or one or two sentences. So not good at that. Well, these are straightforward question. So do you have any books book recommendations for entrepreneurs or business people in 2020? And why?
Cyndi Thomason of Bookskeep: This one right here? Can you see it? Um, the ultimate blueprint for an insanely successful business by Keith Cunningham. I love this book.
Sushant Misra: And that’s just a regular business. But that’s not an accounting book, or
Cyndi Thomason of Bookskeep: no, it’s, it’s, it’s truly written for any entrepreneur, to help them understand how money flows through their business.
Sushant Misra: Okay, an innovative product or idea and the current ecommerce retailer tech landscape that you’re excited about. innovative product or idea.
Cyndi Thomason of Bookskeep: I’m I’m really into promoter.io. Right now. It’s a net promoter score system. And it’s really bringing some good data to us as to how we’re providing services.
Sushant Misra: So this is just like a survey that you send out and you get some data out of that as a productivity tool or software that either you use or you recommend
Cyndi Thomason of Bookskeep: a two x accounting
Sushant Misra: a startup or business in retail, ecommerce or type that you think is doing great things right now.
Cyndi Thomason of Bookskeep: Say it one more time startup or
Sushant Misra: startup or business that you think is doing great things. Could be an e commerce retailer deck.
Cyndi Thomason of Bookskeep: Um, slumber pod they’re doing some really cool they just got funded on Shark Tank they’re doing some really cool stuff.
Sushant Misra: Okay, slumber bought okay. A beer entrepreneur or business person who inspires you.
Cyndi Thomason of Bookskeep: My mentor Mike mccalla wits.
Sushant Misra: Okay. The best business advice that you have ever received or you would give to entrepreneurs.
Cyndi Thomason of Bookskeep: It’s a quote from Peter Drucker and it says, culture eats strategy for breakfast. I love that. Cool.
Sushant Misra: Yeah, so those were all the questions that I had. Thank you so much for sharing your story and and sharing the the different strategies and tactics that ecommerce businesses can use to improve their bookkeeping and accounting services. Now is your opportunity to say, to share your website to share your services where people can find you and, and get in touch with you.
Cyndi Thomason of Bookskeep: Okay, awesome. Thank you. Well, it was fun. I always enjoy getting the chance to hopefully demystify some of the accounting jargon that’s out there. So I hope we we’ve accomplished that a little bit. You can find me at books keep.com it’s be okay. skep.com. Or you can email me My name is Cindy c y n di at books Keep calm. So I would love to hear from from anybody that’s watched. If you got any questions, I’d be happy to follow up.
Sushant Misra: Perfect. Thank you so much again, Cindy, for sharing all the different business insights with us. Really, really appreciate it. Thank you for joining us.
Cyndi Thomason of Bookskeep: I’ve enjoyed it. Thank you. Thank you.
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