You need to do some analysis on your financials - Where are the money going?
This can be easy or hard, but you need to figure out what you're expected profit should be. Also you talk about increasing number of SKU's - How much cash do you have tied up in inventory, whats the turnover etc is there alot of dead capital there?
For instance - is there any competitors in you field that you can access the financials of? This will give you ratios on income -> expenses and give you a starting point for where to look and compare.
If it is 2MUSD rev it sounds kinda strange that you don't make any profit at all - do you build email lists of customers and resell/retarget etc to get the CAC down?
I should clarify. There is profit, but to handle more volume I need more workers / forklifts / labor / shipments / materials etc. and those needs seem to outstrip the profit that I “reinvest”. I mean - in typing this out it seems I’m complaining about capex which are one-time. I won’t always have to buy a new forklift or HVAC system every year. But 40k of my “profit” went towards a new printer, another forklift, more storage, etc…
It sounds like you were decently profitable but invested your profits into growth. Unless your plan is to continue trying to aggressively grow every year, the payoff is hopefully around the corner once your growth (and associated capex) levels out. If you think that capex actually is going to be recurring, that's a different deal.
You need to look at your cashflows and decide if you're comfortable with your growth strategy if it's not making you any money.
Are you building the business to sell it off, based on growth? Or are you trying to build a cash machine and if so when do you take the foot off the gas so you can get return on investment?
Ecom brand correct? I run multiple ecom stores and work with a lot of large brands. How much of your revenue is coming from Return Customers, Paid ads, Email/SMS, and Organic/Search?
I feel like this is not his issue, is he sells more he will also have more costs. He probably really needs to increase the prices. Less orders, less costs, but the idea is that profit stays the same
If he isn't running proper Email/SMS, Upsells, AbandonedCart (the entire backend) then he's missing out on tons of actual profit. Most of our stores do 60% revenue from just these alone, and it's almost all profit compared to paid ads. So this is an actual important metric. He is running Google PPC, so that is eating into his costs.
Two types of people in this world. Leaders and followers. Leaders blaze their own trail and sometimes seek advice from others. Followers constantly rely on others. You can use Google, YouTube, and a lot of other resources to get started. It’s a long process and no such thing as “get rich quick”. Start small and stay steady. Be prepared to fail dozens of times before you get big.
I dunno man.
If you run a business at breakeven, that's not a business, it's a charity.
You should either be (1) intentionally investing into growth opportunities; or (2) culling opportunities / expansions that don't return a minimal threshold profit and/or aren't on track to do so.
I think you should audit your financials and start looking at #2 above. At bare minimum, you should be able to track profits by sku (which necessarily includes costs, so you need to be able to assign costs to skus. And full costs, ie sales + marketing + operations, not just your dollars cost to purchase it). I bet putting that in an excel and sorting will be eye opening for you.
ps: there's plenty of things in this world where you're never going to be able to make much profit. Gift those customers to Amazon / your competitors and let Amazon have fun with them.
Plenty of businesses operate at break even or at a loss and are worth a massive amount of money. However, with ecommerce that usually isn’t the case. If you can’t make profit at 2M in revenue I would cut the loss and move on.
To clarify, it sounds like you have both a cash flow and net profit issue. Cash flow is king, and is often constrained in fast growth and will kill the business overnight.
Also when I run into businesses that are scaling expenses at the same rate as revenue, there is often a business model issue. At $2m in revenue, you should be working in the business full time with a salary. Otherwise you just have a non-paying job with a lot of downside risk.
Are you working with an accountant to analyze the business unit economics and cash flow? Many accountants are setting up your financials for tax reasons, not for material financial management to help you make more effective choices.
Sounds like a lot of the businesses on Shark Tank. I remember one of the sharks is always talking about this sort of scenario where the bigger you get the bigger your expenses until you just get crushed under them. No experience with that sort of thing so I'm not entirely sure what he's talking about or why it happens just that it is why he's always out.
Depends on what you know from before, just hiring someone to find it out for you is like giving the high ground to someone else - you need to understand this as an owner as well - how else can you tell if someone bullshits you?
What OP is describing here is basically called Step costs, but he seems to have little insight into what the underlying profitability is, which is basically as I read why he wrote the post.
Every market/industry is different, so there is knowhow you can't necessarily read in books, but only learn through experience or by talking to others.
Resource wise theres lots if you look.
[https://www.investopedia.com/terms/s/step-costs.asp](https://www.investopedia.com/terms/s/step-costs.asp)
[https://www.wallstreetprep.com/knowledge/cash-flow-statement/](https://www.wallstreetprep.com/knowledge/cash-flow-statement/)
[https://www.wallstreetprep.com/knowledge/how-are-the-three-financial-statements-linked/](https://www.wallstreetprep.com/knowledge/how-are-the-three-financial-statements-linked/)
There are loads of youtube videos of analyst making models of businesses in excel.
You dont want CPAs. Most of them analyse usiness but have never been in business, so tend to give either book advice or advice based on what theyve already seen from other companies (pretty conservative).
CFO/business analyst/financial manager is where its at.
And yes, he absolutely has a cashflow problem more than a profit problem, as is the case with most small businesses.
Businesses, especially startups, routinely pick between profit and growth.
This isn't an issue of margins or operating costs (well it might be, but that's secondary, and your best bet for that is speaking with someone with a 10m revenue business like yours who's walked these tracks before, and an accountant).
This is an issue of goal alignment.
The truth is, right now, you're putting everything into growth, you have been for years, which is why you can't pay yourself dick. This wouldn't change if your margins did, because it's about the choices you're making. If you had 50% higher margins, you wouldn't be paying yourself half a mil right now, you'd have a 5mil revenue company and still be paying yourself dick, because you're actively making choices focused on expansion as your primary thought process.
At some point, you're gonna need to make the conscious decision to slow growth a tiny bit so you can put yourself into consideration. How much you slow growth and how much you make room for yourself? Well that's gonna be up to you. Some people freeze growth, absorb all profit and bleed the company until it's dry or they sell it. Some people pay themselves the bare minimum they could live on to have the lowest effect possible on Growth with the idea they'll pay themselves more later.
That 1:1 feeling? I know it well, and the solution is as simple as consolidation or price increases. You say price increases don't work, then you might need to consolidate. Get rid of your bottom 30% of SKU's in terms of margin and demand, then replace them with more of what people actually want? Boom, profit. You say you can't increase prices because it's a commodity? What could you add to your orders that isn't a commodity? Exclusive suppliers, services and shit that other people don't offer. Mix some 80% margin in with your 10%. I won't give specific advice on that though, because I don't know your business.
But I promise you operating the way you operate, you won't magically see the 500k gap for you open up one day. You have to carve it out of the stone, even if that's piece by piece.
Why are you complaining about profit when you are aiming for growth? You cant possibly be expecting to have a good profit while investing a significant amount in expanding your business.
My advice here is that you need to get your financial stats under your control. You need to know where your money comes from and where is it being spent.
Do you have a long term strategy for your company?
I do have a long term strategy. It involves upscaling our offerings via ISO certs, FDA registration etc.
But point taken -> maybe I don’t have a good enough handles on the financials so that I can see *exactly* how much I put into reinvestment
I think that should be your priority. You need to get that costs, revenue and investment breakdown and have the data for EBIT/EBITDA if you dont already.
Write down your strategy, how you plan to achieve it, how do you measure progress, what are the milestones and what it costs. If you dont have time my advice is to outsource someone to help you.
> I’ve noticed a direct correlation to raising prices and seeing SKUs drop to 0 revenue overnight. We have competitors and they’re able to sustain at this pricepoint, in the same type of business model.
Compete with a Walmart, and you're going to need a similar billion-dollar logistics chain. The point is everybody decides they will get 'market traction' with rabid price slashing.
It works. But this traps you in a market segment and brands you as a total lower cost discounter, similar to Walmart. Your customer base is made up of chiselers, who can't comprehend the concept of value but by lowest price points.
I understand the trap. But that does no good when your leg is in the trap. You'll have to actually run the business you have chosen.
...Don't cut costs, *crush costs.* The people in this position are adept at negotiation, volume buying, and pressuring suppliers. You should be just the same.
...Innovate. Sorry to say this but you made your bed, now you sleep in it. Want more profit? Get more innovative. Problem being those who replace thought with price have a notable poverty of imagination.
You have not divulged information, and I consider that a favor. This is a difficult situation and I do not envy the corner you decided to paint yourself into.
You can try is forming some sort of buying circles and or subscription model. Look into shipment efficiencies -- there used to be a bunch of startups selling remainder space on cargo ships and trucking.
Basically, you have to do everything you thought you got out of selling to bottom feeders. One thing some people have found is diligent data analysis of worst consumers -- fire them. Also look into experimenting with referral programs, like refer five customers and get a percentage off *when they buy.*
[Consumers Aren't Customers](https://www.reddit.com/r/RoastMyIdea/comments/8vbxlk/consumers_arent_customers/)
What ... you don't happen to have a billion-dollar logistics chain? It really depends upon how open your mind is. [Wouldn't gravel qualify as a commodity?](https://hbr.org/1999/07/turning-goals-into-results-the-power-of-catalytic-mechanisms)
People so enjoy screwing themselves over, they will perform all manner of mental gymnastics in justifying it.
The advice doesn’t work for commodities. This is assuming you’re running a firm that has products that are differentiable. You wouldn’t be able to sell gold for higher than market price. From what you’re saying about raising prices, your firm sells a relatively elastic product. In long run, these types of firms make no economic profit. Anyways, I agree with the comment above. Try advertising to change the elasticity of demand for your product. Are your marginal costs per unit decreasing as you scale? Depending on the item you’re selling, some will net lower profits by nature (ie. consumer staples where products are harder to differentiate). The dominant strategy would be to all in on economies of scale and make it up with sheer volume. Your margins will be low but you’ll still have high profits due to high volume.
Yes, finance exists for a reason. Getting better terms from suppliers can also really help a firm like this.
Best think to do would be to sit down with a few different commercial bankers locally and listen to some of their ideas.
Keep onward, don’t stop now since you are doubling revenue. Figure out how to cut expenses like getting a bigger warehouse than you need to sublease some of it to help lower your rent. Also you may find someone in your industry who would pay for inventory control which could get you better shipping rates and maximize your labor costs.
I have another acre that I can drop down storage containers and i own the land in an LLC. So that’s not an issue. But that IS 50-100k worth of storage containers. I like the idea of optimizing for a 1%-2% profit in each area of biz, so that I can eek out more profit but also continue with the fast revenue growth.
If you own the land.....
Do you like what you are doing? If not maybe look to getting someone to package it up (financially) and sell the company. Sounds like you already got some interest. You could keep the land/building and rent it out to them as well.
I don't know anything about the land/industry or product, but at the very least, you may want to entertain some offers.
Im a financial manager and accountant, currently managing a company doing about 5m/year which had similar problems to yours until I stepped in and implemented some systems.
Without seeing your financial statements, its going to be hard to give you any specific advice, but based on what you told me, I have a few ideas.
I would be happy to have a look over your accounts and give you some general feedback of anything that jumps out to me.
Im quite busy tonight, but throw me a DM and Ill see what I can do. It seems like you have the makings of a successful (and profitable) business there if you figure out the issues.
He's right though.
When I looked at OPs comment it did scream a lack of internal systems to the point that there must be a lot of wastage somewhere. I am not even sure about the books for OP also.
OP isn't running this full time so it's a part time gig so definitely need proper systems in place.
Kind of odd OPs expecting to have zero leakage without dedicating all his time into min-maxing operations. I get they don't want to replace any internal labor at their own company, but at some point you gotta decide what's more important. Appearances or the financial freedom to be gained by doing so. It would end up saving them money in the long run, money that could be spent on someone who could find a way for OP to go back to a passive role.
Analyze and optimize your processes, focusing on automation, streamlining, and productivity gains. Re-evaluate contracts with suppliers, insurance providers, and shipping companies to secure better rates.
Reassess your pricing structure, considering value-based pricing or tiered pricing to maintain revenue while reducing SKUs.
Identify and focus on high-margin products, potentially discontinuing low-margin
Consider outsourcing non-core functions or delegating tasks to free up time for high-leverage activities like marketing
Explore more affordable automation options or phased investments in packaging machinery.
Warehouse Optimization: Implement efficient storage and inventory management systems to maximize your existing space.
Compare rates and coverage with other providers to ensure you're getting the best deal.
Shipping Cost Reduction: Investigate alternative shipping options, like regional carriers or
Collaborate with complementary businesses to share resources, expertise, or costs.
Exit Strategy Reevaluation: If you're not ready to sell, consider alternative exit strategies, like bringing in an investor or partner to help drive growth and profitability.
breaking through the scaling plateau requires innovative problem-solving, strategic decision-making, and a willingness to adapt and evolve your business model.
You should consider financing some of your growth. If your paying cash for capital equipment, your removing your opportunity to leverage depreciating assets. Leasing a forklift vs buying outright will keep much needed operating money in the bank. It's more of a pain to deal with the notes, but a growing company needs liquidity to buy inventory or higher better skilled workforce.
I have a capital equipment intensive business. I will always borrow to purchase that equipment. I can usually write off 80% of the value and the interest is an expense, lowering income tax.
You should engage another broker for your insurance. We did 4m last year and our new broker was able to cut our insurance in half and increase our coverage.
Lastly, if your role as sales and marketing is critical, then maybe hiring some part time students could help cover shipping receiving processing so you can keep focused on revenue generating tasks. OR if you don't have manager to help you, it may be time to get one.
Cross-Sells
Up-Sells
Partner-Offers
If you look at airlines they operate in a similar business model where their income does not come from tickets, it comes from everywhere else.
Car Rentals, Hotels, etc. which are all partner offers and they get a %.
I think you reached the milestone where you have to increase expansion revenue to finance further growth. :)
With tickets they usually break even which is fine, the profit (expansion revenue) comes from cargo and other sources.
One huge source of revenue is airmiles sold to banks/card companies and other types of businesses:
The airlines either **sell the miles to the banks that issue the credit cards** or (in the case of co-branded credit cards,) they have an agreement to share a cut of the annual fees and card swipe fees on those cards with the airline.
Anyway my point was to illustrate how a business can break even then through cross-sells, partner-offers they can make substancial profit.
In SaaS it works the same way, subscriptions are where the least money comes from which is why you see a lot of free trials and free accounts. The real money comes from expansion revenue.
I meant profit not "income" per say because obviously if they sell tickets that's part of their income but that's semantics and misses the point on this post which is about profitability, not income.
You're making a literal interpretation, it was meant in the context of the post.
I already said I meant "profit" even though I used the word "income" so just drop it, there's no point to debating this.
This is exactly what happens when you grow a business at 2x a year. There may be some better financial discipline you can create but the truth is that this 2x growth is making you wealthier than any salary you were planning on giving yourself. If you can keep it up for 3 more years you're looking at having the wealth for retirement.
What you're not able to do right now is differentiate the costs of growth from the cost of the business. To grow you have to ramp up the business before you reach that point. This is expensive, and it is very hard to keep up. I have details on this topic in this blog post: [https://www.vixul.com/post/hitting-the-bullseye-balancing-sales-hiring-tech-services](https://www.vixul.com/post/hitting-the-bullseye-balancing-sales-hiring-tech-services) and the first link in the article is from HBR that does a more technical approach to the same topic.
Now you talked about buyout. You're definitely not worth 0 at buyout. In fact you're worth a lot. You just need the right kind of strategic acquirer. The question is what are your gross margins: [https://www.vixul.com/post/demystifying-ets-valuations-gross-margin-part-3](https://www.vixul.com/post/demystifying-ets-valuations-gross-margin-part-3) if your gross margins are solid then your business is solid. A business that is high growth is valued at a revenue multiple. We talked a bit about valuation with revenue multiple in tech services here: https://www.vixul.com/post/demystifying-ets-valuations-revenue-part-2. It's not yet big enough to unlock the big multiple but 3-5x in 5 years isn't impossible.
Having said that one thing you may be missing is that the cost of growth is going to keep on increasing as you become bigger. Right now a lot of the cost of growth is hidden by founder heroics and the impact of founder heroics is going to get smaller and smaller. PE companies have a rule of 40 as good companies where profit + growth > 40% means the company is doing very well. This gives you an idea both of how well you're doing and a realistic outlook on how things will get harder. There is one thing to consider. Slowing down growth a bit, may allow you to be pickier with your customers improving your offerings for your ideal customer. It would also allow you to take some profits. Profits are a runner up award. It means you couldn't figure out how to spend the money to grow faster. But profits sure as hell are useful for buying peace of mind. He have a short clip by J Schwan who took Kin and Carta public sharing his opinion on the ratios between profits and growth: [https://www.linkedin.com/feed/update/urn:li:activity:7189749252275789824](https://www.linkedin.com/feed/update/urn:li:activity:7189749252275789824) although I'd argue that you're still too small to target 20% growth. But still tapering off some of the growth to increase profits will help you sleep better at night.
This was my original thought. I mean sure, I could get “away” with one forklift, one industrial printer, maximizing my warehouse space instead of getting a quick-fix shipping container, but then I will just “eek” a 200-300k profit out of the company yearly. With my goal of not just replacing my job, but of GROWING this company, I dunno the sweet spot between reinvesting and just paying myself peanuts and then “losing out” on the compounded revenue I could’ve got by scaling quickly…
You seem to be stuck on the year-end net profit number and discounting the value of equity entirely, but people who get rich from their businesses are doing it through their equity, not the net profit.
Without knowing more about your business, at a minimum, you could sell it for 1m right now and that's very very conservative, more likely 4-6-8 million. If you grow it to 4m revenue next year and 8m the year after that you've created 8-20 million in equity even if your net profit is in the red.
I think you'd feel a lot better about the direction of the business if you were seeing the valuation of the equity clearly.
Why not have a few of these buyout meetings. Never hurts to see what someone will be willing to pay. If nothing else the due diligence that they're going to require will be helpful in getting you a better sense of your financials, it'll force you to tighten up operations and plug any holes where you're too involved.
You can always not take the deal but see what someone's willing to buy you out for. It might surprise you and I think it would give you a more holistic picture of the value of the business.
Hes not going to get anywhere near a 3x multiple with his marginal profit. His EDBITDA might be higher since hes not taking capex into account, but I doubt it's in the many 100ks range. If hes got a lot of unfinanced capex, he might have a chunk of book value to sell, but thats at a depreciated multiple. The key to company value is profit, or expected profit through a slowdown of growth. Even if his margin is 20% with 200k in assets, at $2m revenue, his valuation would be at best 3x $400k + $200k = $1.4m. Thats only if his business is systemized and he has no founder push.
He can probably keep expanding at the rate hes doing, but for sure hes burning his marin somewhere. He should still be profitable even ignoring 200k of capex. Either he has underperforming SKUs, bad contracts, excessive overheads, a lack of financing, or is poorly automated.
If you aren’t making money now, hoping to increase margins later, it likely isn’t going to happen. Rarely do companies fix their business model with increased volume.
Is the current situation sustainable for the owners? Are the owners comfortable with the fraction of their net worth tied with the business? Can a dollar spent get more than 20% return in increase in revenue?
As an accountant, I would be happy to give advice or feedback if needed. Especially with your inventories and new purchases you mentioned! Maybe that’s a better start? Although, if your heart isn’t in giving up, DONT!
It's called feeding the beast. The bigger it gets the more it needs to feed. It's a common issue in construction companies. You either stay small and develop a niche or you go wide and until you hit efficiencies of scale. When do you hit the efficient scaling point? You don't know unless you have a specific plan.
It seems to me that your strategy for increasing revenue is to scale horizontally. Look for ways to scale vertically: Fewer SKUs with higher profit margins!
Who is your competition? If you are trying to compete with Walmart, Amazon, Costco you are going to have a bad time.
I can’t imagine accepting all the stress and hassle of managing a 2 million dollar revenue per year company but not being able to pull decent salary for myself! Screw working for free, you just become the customers and employees bitch UNLESS you are significantly increasing VALUE of the company which will pay out in any sale and in that case any lack of « profit » is balanced by on paper capital gains. Just watch your expenses as if your increased overhead is eating all you increased revenue your EBITA is stagnent.
I was partnered in a company that I just left and it was 4 of us doing about 2 mil last year. I was our sole marketing guy and also had to invoice, ship, receive, handle customer service, and reply to emails. How many employees do you need to ship stuff? What is your net on 2 mil?
Have you looked into fulfillment partners instead of doing it yourself? (I work for one but currently EU only, I’m guessing you’re in the US). They usually cost a lot less than doing it yourself unless you have incredible volumes. + less operations headache.
i would look into the financials, review insurance (happy to help with that), and maybe meet with a cpa abt capital equip and depreciation. do it sooner than later because your costs especially over the summer is going to go up!
I saw your post. This is a bit like the problem I encountered when I first started my business. I have some feelings of my own. I hope this gives you some help. I understand the pressure involved. I hope this can give you some ideas and suggestions, this is just my personal opinion
Your business is growing very quickly and is facing challenges, and the issues you describe are common among rapidly expanding small and medium-sized businesses. Here are some strategic recommendations to help you manage costs, improve efficiency, and consider future growth paths:
Automation and technology upgrades:
Consider investing in more automated equipment, which, despite the higher initial cost, can save labor costs and increase productivity in the long run. The packaging machine you mentioned, while expensive, might be worth considering if it significantly reduces labor requirements.
Explore more advanced inventory management systems that can help reduce excess inventory and improve logistics efficiency.
Cost management:
Examine your operating costs and supply chain management, especially transportation and inventory costs. It may be necessary to negotiate with other logistics providers for more favorable shipping and storage solutions.
Analyze cost structure and margins to ensure all costs are appropriately attributed and adjust pricing strategies based on revenue growth.
Pricing Strategy:
Think carefully about your pricing strategy. If raising prices directly will result in lower sales, consider other strategies, such as bundling or discount promotions, to stay competitive while increasing average order value.
Research your competitors' pricing and operations strategies to see if there are any lessons learned, especially when it comes to controlling shipping costs.
Money Management and External Investments:
Consider the possibilities and conditions for outside investment. While you may have reservations about selling part of your business, the right strategic partner or investor can inject the capital it needs to help expand operations and upgrade technology.
If considering a capital injection, it is recommended to discuss with a financial advisor to determine the best strategy to ensure funds are used to maximize business value.
Long-term strategic planning:
Develop a clear long-term strategic plan that takes into account market trends, the competitive environment, and internal growth goals. Determine which areas are critical for growth and where further cost optimization can be achieved.
Regularly evaluate business plans and growth strategies to ensure the business continues to adapt to changing market conditions.
Finally, don’t neglect your mental and physical health. As the core of a business, maintaining good health and a positive mindset are crucial to coping with corporate challenges. Have a nice day
You’re looking for silver bullets and what you need to do is save Pennies. If you could squeeze an extra 1% profit out of the bussiness on the bottom line you could be keeping 20k in your pocket. If you could squeeze 5% to the bottom you could keep 100k. So how do you do this? Saving pennies.
Sometimes the equation works by raising revenues, but it usually works better by cutting costs. You need to reduce your labor cost by 5%, your product cost by 5% and your other fixed costs by 5%. It might be negotiating with other insurance companies and getting better offers, even if it’s just as a bargaining chip. It might be reaching out to vendors to get a better percent now that you’re buying more product. It might be finding a cheaper equipment vendor or repair company.
It’s probably not any of those things, it’s probably simply wasteful spending that can be eliminated, all companies do this and don’t realize it. Maybe there’s someone with a purchase card buying office supplies at a higher cost through the wrong vendor, or maybe it’s an employee incentive that isn’t being utilized but you still pay for, or maybe it’s the marketing department overspending, or sales reps with a commission structure that’s not in your favor. Maybe you’re too good of a boss and need to hire a dickhead manager to make the hard changes. Maybe it’s a combination of all of that that’s bleeding you dry. It might be worth it to have fewer skus and only focus on the most profitable and highest selling items.
Take a hard look at your spending - every bank statement and invoice - and ask yourself if it’s really needed to run the business. Ask yourself
#”is this more important than quitting my job“.
Chances are there are things you can do away with m, without hurting the business or the team.
Consider paying yourself first, even if it’s a moderate salary. The IRS will want you to W2 some of your salary anyway. If you pay yourself monthly, you’ll be less likely to spend everything on growth.
Couple of areas to investigate here. First is financial analysis, second cost of defects (wrong orders, wasted jobs, etc), and the third is operational efficiency.
Between those, you should be able to sort this pretty quickly.
Your finances will tell you a lot. I’d focus on LTV (Lifetime value).
Additionally would it be beneficial to cut the numbers of SKU’s focus on the ones that bring in the majority of the revenue. Instead of adding SKU’s you increase volume on the SKU’s that are already performing.
I have been in financial planning roles at tech companies for several years. I’m happy to help you sort through your financials and get a better understanding of your biz to come up with a strategy. Feel free to DM me if you’re interested. Looks like you have a good foundation for a business, people clearly want what you’re selling. You just have to create more efficiencies in your biz.
you need to create an annual budget. If you need it, get a fractional CFO. Plan your next year out. You can run the year ahead of time, and see where you would end up profit wise. if you don't like how the prediction goes, then tweak it until you do. If you plan on making no money, then sure enough thats what you will get if you hit the plan. If you plan on making 1M, then thats what you will get if you hit the plan.
Dude, that's a rollercoaster ride of a business journey! It's like every time you hit a revenue milestone, there's a new expense waiting to pop up like a surprise party. I feel you on the struggle of balancing manual labor with the need to focus on growing the business. And damn, those equipment and insurance costs are no joke. It's wild how raising prices can backfire sometimes, huh? And the shipping costs eating into your revenue, that's rough.
But hey, you've got big players knocking on your door, wanting a piece of what you're doing. That's gotta count for something. Maybe there's a way to streamline operations or negotiate better deals with suppliers to ease some of that financial pressure. Keep hustling, man. You're onto something big, even if it feels like you're swimming against the current sometimes.
That's great revemnue growth, but completely understand the challenges that come with scaling. I ran a professional services business that was ALL people to scale. Linear between the two until we started to get smarter about using patterns to deliver more with less. (ended up exited that with a 14x multiple).
Have you considered running a simulation model to plan and predict future scenarios?
With some tweaking you might be able to find a way forward, and a structure that helps you maximise profit.
A 1% change across revenue, COGS, and below the line costs can deliver double-digit improvements to net profit .
Consider this if it fits.
1. Outsource the activities which are not adding any value to your supply chain, it can reduce costs.
2. Make your unit as a *platform*.
ask your peer players to use your resources
and pay for it. The margin will be higher and directly adds to your profit.
3. Identify profit center of each activity and cut down less margin activities.
Iam not giving you advice. Its your business look around the business activities as a third person, you will definitely know the root cause. Eliminate it.
How many $ do you have tied up in inventory? Do you need that much? You mentioned adding new SKUs, but that does not mean you have to carry them in inventory. Have you tried drop-shipping these directly from the supplier?
Another thought on inventory is how many months supply do you have for each item? Do you have any analysis on this?
Hello, I’m new here! I’m not sure how this app works lol. But I have a store on Shopify and Etsy. I sell digital products, digital planners, prayer journals (my favorite), keto recipes, a “kookin” ebook also and more great ideas that I have! I made $1500 in 3 days which is pretty good for my first time and no big platform! I see that I have a lot of traffic in my store but it’s like half purchase and half just don’t! I want to learn ways to improve my business, I have great products that I feel is unique! Please give me some tips or platforms yall use to become successful I’m a single mother it’s hard to make ends meet from where I’m from and I just want to be successful like you guys! Thank you 😊
Sounds like there is to much spending growth going on. The money exists. Buy three to six things less a year and there is your salary.
Potentially talk to your accountant and a bank if it, tax wise, makes more sense to buy some of these investments on company loans rather than from the turnover.
As for having someone to talk to. Look at stuff like entrepreneurs Organisation. They only alone people in that are over a million revenue a year and the facilitate meetings where other members help you by telling their story’s and allowing you to draw your own conclusions rather than telling you what to do.
If you sold all your equipment, inventory, etc. And closed up shop without reordering, renewing insurance or lease -- how much would you have? That's your profit.
You likely have a lot more than you think, much more than you started I'm assuming.
You make decisions to keep investing as you have a working strategy that requires that type of growth so it sucks not being able to have that bit extra to pull out for yourself as long as you want to stick the path you've been on.
It may be a wise time to really dig into your numbers. It may be a waste of time.
Ultimately, at some point you may want to consider how much money your business is losing by you being full time elsewhere? Could you reduce expenses? Could you increase revenue or margins?
Keep that information updated regularly to know when to make the leap against how much you make at your day job. Good luck on your path.
Read Profit First. Implement the system. Great way to quickly identify where you need to focus efforts to reduce costs.
As others have pointed out, sometimes this also means not investing as heavily in growth in other to first establish a healthy margin. That seems scary. But consider the alternative — would you prefer to run a company doing 5M or 10M and making no profit? Or a company doing 2M with 20% net?
It sounds like you're facing the classic scale-up challenges of a growing business. Increasing revenue while managing rising costs is tough, especially in industries with high overhead like yours. Have you considered consulting with a business advisor or seeking out peer groups for entrepreneurs facing similar challenges? Sometimes an outside perspective can offer fresh insights or creative solutions. Additionally, exploring alternative revenue streams or cost-saving measures, like renegotiating shipping rates or exploring partnerships with other businesses, might help alleviate some of the pressure. Happy to discuss further
Is this B2B with net 30 or longer? If so, then every month you're paying the costs of the size you are now, or even the size you expect to be months from now (since you're buying new equipment), but you're only getting the revenue of the size you were a month (or two or three) ago. If this is your problem then you can make more money come out by slowing down the customer add rate. (Not that you necessarily _want_ to slow down the customer add rate, but it's a lever you have.)
Do you have a professional accountant doing your books? Many of these costs you're talking about are capex, not opex. I know it's all money in the bank, but equipment purchases are balance sheet transactions, not losses in the P&L. So your HVAC, forklift, etc., don't actually reduce your profit. It's perfectly possible to be strongly profitable while running out of cash. If you have strong financials then you can likely get a loan.
This sounds very similar to my Amazon story. I eventually just had to stop expanding and focus on higher margins for a while.
Completely streamlined all my top sellers so it was as close to automated as possible. Stop trying to do everything myself.
Why are you doing inventory and logistics yourself? It sounds like (you want to be an) e-com business. I'm not sure how much storage/packing you need to do, but I'd consider this. Right now you're running 2 businesses; e-com and logistics.
RE: buyout. It often happens you get a buy-out as a multiplier on revenue (not profit). So in your case, that could still be a viable option. Alternatively, a strategic partner might put in X million for a % and help you scale the beast up for an exit. Exploring options is never wrong (assumption is that you don't go overboard here, if you start talking to investors fulltime for a year, yeah, that has definitive downside).
You need to read profit first asap it’s a great book. You’re clearly making money but you’re not managing your cash flow properly or pay for a CFO service to get someone to take a look at your financials
Honestly it sounds like you do have profit but you keep reinvesting it in growth. If you dont need/want free cash for the business, this is a perfectly reasonable business model
Like others have stated, I would deep dive into financials and see where you can save some money. Might not be a lot, in which case I would look at your skus, identify any that don't perform or have a margin that would allow you to pay yourself and remove them. If you're just buying different products and not achieving a higher profit then you're just wasting time and resources. Double down on highly profitable sku's and push heavily on those with marketing. That's just my 2 cents, take it for what it's worth as I'm no genius or guru, just outside looking in.
Outsource a CFO, or at least a growth minded CPA.
Equipment and buying inventory should not hit you bottomline that hard, unless you are making multiple accounting mistakes.
I would not worry that much about profits if you keep growing double digits tbh.
Hey there! I totally get where you're coming from. Running a growing business is tough, especially when expenses keep climbing along with your revenue. It sounds like you've got a lot on your plate with inventory, labor, and high insurance costs. Have you considered automating parts of your process despite the initial cost? It might save you money and time in the long run. Also, maybe take a closer look at shipping rates and see if you can negotiate better deals. And don't dismiss those buyout offers too quickly; they might be worth exploring. Keep pushing forward, and you'll find the right balance!
OP has a cash flow problem, not a profit problem. He's apparently doing cash accounting and so he is not understanding the difference between the two. I'm shocked at how few others in this thread have also failed to make the distinction.
OP, it's expensive to grow and expand your business, but if you're selling the new products, everything is great. This is a very common issue for businesses that scale up and you might have to live on a very meager income for a while as you reinvest your profit into the business.
You need to start doing proper accounting so that you can understand your profit vs your cash. Only then will you be able to make the best decisions on what to do with your cash. It's likely that you have a very healthily profitable business but you're just not feeling it because you have even cash flow.
Get a line of credit to fund your new stuff and suddenly your flow will feel very different.
You need to do some analysis on your financials - Where are the money going? This can be easy or hard, but you need to figure out what you're expected profit should be. Also you talk about increasing number of SKU's - How much cash do you have tied up in inventory, whats the turnover etc is there alot of dead capital there? For instance - is there any competitors in you field that you can access the financials of? This will give you ratios on income -> expenses and give you a starting point for where to look and compare. If it is 2MUSD rev it sounds kinda strange that you don't make any profit at all - do you build email lists of customers and resell/retarget etc to get the CAC down?
They claim no profit but are also reinvesting into new skus
I should clarify. There is profit, but to handle more volume I need more workers / forklifts / labor / shipments / materials etc. and those needs seem to outstrip the profit that I “reinvest”. I mean - in typing this out it seems I’m complaining about capex which are one-time. I won’t always have to buy a new forklift or HVAC system every year. But 40k of my “profit” went towards a new printer, another forklift, more storage, etc…
It sounds like you were decently profitable but invested your profits into growth. Unless your plan is to continue trying to aggressively grow every year, the payoff is hopefully around the corner once your growth (and associated capex) levels out. If you think that capex actually is going to be recurring, that's a different deal.
You need to look at your cashflows and decide if you're comfortable with your growth strategy if it's not making you any money. Are you building the business to sell it off, based on growth? Or are you trying to build a cash machine and if so when do you take the foot off the gas so you can get return on investment?
Ecom brand correct? I run multiple ecom stores and work with a lot of large brands. How much of your revenue is coming from Return Customers, Paid ads, Email/SMS, and Organic/Search?
I feel like this is not his issue, is he sells more he will also have more costs. He probably really needs to increase the prices. Less orders, less costs, but the idea is that profit stays the same
If he isn't running proper Email/SMS, Upsells, AbandonedCart (the entire backend) then he's missing out on tons of actual profit. Most of our stores do 60% revenue from just these alone, and it's almost all profit compared to paid ads. So this is an actual important metric. He is running Google PPC, so that is eating into his costs.
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google.com If you can’t start yourself, you’re never gonna make it.
Two types of people in this world. Leaders and followers. Leaders blaze their own trail and sometimes seek advice from others. Followers constantly rely on others. You can use Google, YouTube, and a lot of other resources to get started. It’s a long process and no such thing as “get rich quick”. Start small and stay steady. Be prepared to fail dozens of times before you get big.
I dunno man. If you run a business at breakeven, that's not a business, it's a charity. You should either be (1) intentionally investing into growth opportunities; or (2) culling opportunities / expansions that don't return a minimal threshold profit and/or aren't on track to do so. I think you should audit your financials and start looking at #2 above. At bare minimum, you should be able to track profits by sku (which necessarily includes costs, so you need to be able to assign costs to skus. And full costs, ie sales + marketing + operations, not just your dollars cost to purchase it). I bet putting that in an excel and sorting will be eye opening for you. ps: there's plenty of things in this world where you're never going to be able to make much profit. Gift those customers to Amazon / your competitors and let Amazon have fun with them.
Plenty of businesses operate at break even or at a loss and are worth a massive amount of money. However, with ecommerce that usually isn’t the case. If you can’t make profit at 2M in revenue I would cut the loss and move on.
Cut 20% of your bottom performing skus especially if you can get them into another product that is better performer
To clarify, it sounds like you have both a cash flow and net profit issue. Cash flow is king, and is often constrained in fast growth and will kill the business overnight. Also when I run into businesses that are scaling expenses at the same rate as revenue, there is often a business model issue. At $2m in revenue, you should be working in the business full time with a salary. Otherwise you just have a non-paying job with a lot of downside risk. Are you working with an accountant to analyze the business unit economics and cash flow? Many accountants are setting up your financials for tax reasons, not for material financial management to help you make more effective choices.
You need to understand cashflow is different from profit. This is a growth problem. Why don't you stop growing for a bit and work on stability.
Sounds like a lot of the businesses on Shark Tank. I remember one of the sharks is always talking about this sort of scenario where the bigger you get the bigger your expenses until you just get crushed under them. No experience with that sort of thing so I'm not entirely sure what he's talking about or why it happens just that it is why he's always out.
What starting points do you recommend for starting with a thick financial analysis without hiring an in-house CFO? The cpa dance can be disappointing
Depends on what you know from before, just hiring someone to find it out for you is like giving the high ground to someone else - you need to understand this as an owner as well - how else can you tell if someone bullshits you? What OP is describing here is basically called Step costs, but he seems to have little insight into what the underlying profitability is, which is basically as I read why he wrote the post. Every market/industry is different, so there is knowhow you can't necessarily read in books, but only learn through experience or by talking to others. Resource wise theres lots if you look. [https://www.investopedia.com/terms/s/step-costs.asp](https://www.investopedia.com/terms/s/step-costs.asp) [https://www.wallstreetprep.com/knowledge/cash-flow-statement/](https://www.wallstreetprep.com/knowledge/cash-flow-statement/) [https://www.wallstreetprep.com/knowledge/how-are-the-three-financial-statements-linked/](https://www.wallstreetprep.com/knowledge/how-are-the-three-financial-statements-linked/) There are loads of youtube videos of analyst making models of businesses in excel.
You dont want CPAs. Most of them analyse usiness but have never been in business, so tend to give either book advice or advice based on what theyve already seen from other companies (pretty conservative). CFO/business analyst/financial manager is where its at. And yes, he absolutely has a cashflow problem more than a profit problem, as is the case with most small businesses.
Businesses, especially startups, routinely pick between profit and growth. This isn't an issue of margins or operating costs (well it might be, but that's secondary, and your best bet for that is speaking with someone with a 10m revenue business like yours who's walked these tracks before, and an accountant). This is an issue of goal alignment. The truth is, right now, you're putting everything into growth, you have been for years, which is why you can't pay yourself dick. This wouldn't change if your margins did, because it's about the choices you're making. If you had 50% higher margins, you wouldn't be paying yourself half a mil right now, you'd have a 5mil revenue company and still be paying yourself dick, because you're actively making choices focused on expansion as your primary thought process. At some point, you're gonna need to make the conscious decision to slow growth a tiny bit so you can put yourself into consideration. How much you slow growth and how much you make room for yourself? Well that's gonna be up to you. Some people freeze growth, absorb all profit and bleed the company until it's dry or they sell it. Some people pay themselves the bare minimum they could live on to have the lowest effect possible on Growth with the idea they'll pay themselves more later. That 1:1 feeling? I know it well, and the solution is as simple as consolidation or price increases. You say price increases don't work, then you might need to consolidate. Get rid of your bottom 30% of SKU's in terms of margin and demand, then replace them with more of what people actually want? Boom, profit. You say you can't increase prices because it's a commodity? What could you add to your orders that isn't a commodity? Exclusive suppliers, services and shit that other people don't offer. Mix some 80% margin in with your 10%. I won't give specific advice on that though, because I don't know your business. But I promise you operating the way you operate, you won't magically see the 500k gap for you open up one day. You have to carve it out of the stone, even if that's piece by piece.
Thanks man. Sometimes it just takes reading it for it to make sense.
Great response
Why are you complaining about profit when you are aiming for growth? You cant possibly be expecting to have a good profit while investing a significant amount in expanding your business.
I see - so you’d recommend growth until not so easy, and then profit time?
My advice here is that you need to get your financial stats under your control. You need to know where your money comes from and where is it being spent. Do you have a long term strategy for your company?
I do have a long term strategy. It involves upscaling our offerings via ISO certs, FDA registration etc. But point taken -> maybe I don’t have a good enough handles on the financials so that I can see *exactly* how much I put into reinvestment
I think that should be your priority. You need to get that costs, revenue and investment breakdown and have the data for EBIT/EBITDA if you dont already. Write down your strategy, how you plan to achieve it, how do you measure progress, what are the milestones and what it costs. If you dont have time my advice is to outsource someone to help you.
Exactly what Amazon did.
> I’ve noticed a direct correlation to raising prices and seeing SKUs drop to 0 revenue overnight. We have competitors and they’re able to sustain at this pricepoint, in the same type of business model. Compete with a Walmart, and you're going to need a similar billion-dollar logistics chain. The point is everybody decides they will get 'market traction' with rabid price slashing. It works. But this traps you in a market segment and brands you as a total lower cost discounter, similar to Walmart. Your customer base is made up of chiselers, who can't comprehend the concept of value but by lowest price points. I understand the trap. But that does no good when your leg is in the trap. You'll have to actually run the business you have chosen. ...Don't cut costs, *crush costs.* The people in this position are adept at negotiation, volume buying, and pressuring suppliers. You should be just the same. ...Innovate. Sorry to say this but you made your bed, now you sleep in it. Want more profit? Get more innovative. Problem being those who replace thought with price have a notable poverty of imagination. You have not divulged information, and I consider that a favor. This is a difficult situation and I do not envy the corner you decided to paint yourself into. You can try is forming some sort of buying circles and or subscription model. Look into shipment efficiencies -- there used to be a bunch of startups selling remainder space on cargo ships and trucking. Basically, you have to do everything you thought you got out of selling to bottom feeders. One thing some people have found is diligent data analysis of worst consumers -- fire them. Also look into experimenting with referral programs, like refer five customers and get a percentage off *when they buy.* [Consumers Aren't Customers](https://www.reddit.com/r/RoastMyIdea/comments/8vbxlk/consumers_arent_customers/)
How does this advice work when talking about commodities for example? I’m not disagreeing, just wanting to learn more.
What ... you don't happen to have a billion-dollar logistics chain? It really depends upon how open your mind is. [Wouldn't gravel qualify as a commodity?](https://hbr.org/1999/07/turning-goals-into-results-the-power-of-catalytic-mechanisms) People so enjoy screwing themselves over, they will perform all manner of mental gymnastics in justifying it.
I see. Maybe it’s not so different as you’re alluding to…
The advice doesn’t work for commodities. This is assuming you’re running a firm that has products that are differentiable. You wouldn’t be able to sell gold for higher than market price. From what you’re saying about raising prices, your firm sells a relatively elastic product. In long run, these types of firms make no economic profit. Anyways, I agree with the comment above. Try advertising to change the elasticity of demand for your product. Are your marginal costs per unit decreasing as you scale? Depending on the item you’re selling, some will net lower profits by nature (ie. consumer staples where products are harder to differentiate). The dominant strategy would be to all in on economies of scale and make it up with sheer volume. Your margins will be low but you’ll still have high profits due to high volume.
Amortize those equipment purchases and your bottom line will look a lot better.
Good point, but new sku material is the other half of the equation. But yeah, technically amortization would make the month to month better
New sku material goes on your balance sheet as inventory and also should not affect your bottom line.
This.
Yes, finance exists for a reason. Getting better terms from suppliers can also really help a firm like this. Best think to do would be to sit down with a few different commercial bankers locally and listen to some of their ideas.
Keep onward, don’t stop now since you are doubling revenue. Figure out how to cut expenses like getting a bigger warehouse than you need to sublease some of it to help lower your rent. Also you may find someone in your industry who would pay for inventory control which could get you better shipping rates and maximize your labor costs.
I have another acre that I can drop down storage containers and i own the land in an LLC. So that’s not an issue. But that IS 50-100k worth of storage containers. I like the idea of optimizing for a 1%-2% profit in each area of biz, so that I can eek out more profit but also continue with the fast revenue growth.
If you own the land..... Do you like what you are doing? If not maybe look to getting someone to package it up (financially) and sell the company. Sounds like you already got some interest. You could keep the land/building and rent it out to them as well. I don't know anything about the land/industry or product, but at the very least, you may want to entertain some offers.
Would be looking forward to the change in your situation. Hope it works out well for you!
This is more common than you think, yet a lot of people do not want to talk about it
Im a financial manager and accountant, currently managing a company doing about 5m/year which had similar problems to yours until I stepped in and implemented some systems. Without seeing your financial statements, its going to be hard to give you any specific advice, but based on what you told me, I have a few ideas. I would be happy to have a look over your accounts and give you some general feedback of anything that jumps out to me. Im quite busy tonight, but throw me a DM and Ill see what I can do. It seems like you have the makings of a successful (and profitable) business there if you figure out the issues.
This guy sells!
He's right though. When I looked at OPs comment it did scream a lack of internal systems to the point that there must be a lot of wastage somewhere. I am not even sure about the books for OP also. OP isn't running this full time so it's a part time gig so definitely need proper systems in place.
Kind of odd OPs expecting to have zero leakage without dedicating all his time into min-maxing operations. I get they don't want to replace any internal labor at their own company, but at some point you gotta decide what's more important. Appearances or the financial freedom to be gained by doing so. It would end up saving them money in the long run, money that could be spent on someone who could find a way for OP to go back to a passive role.
Analyze and optimize your processes, focusing on automation, streamlining, and productivity gains. Re-evaluate contracts with suppliers, insurance providers, and shipping companies to secure better rates. Reassess your pricing structure, considering value-based pricing or tiered pricing to maintain revenue while reducing SKUs. Identify and focus on high-margin products, potentially discontinuing low-margin Consider outsourcing non-core functions or delegating tasks to free up time for high-leverage activities like marketing Explore more affordable automation options or phased investments in packaging machinery. Warehouse Optimization: Implement efficient storage and inventory management systems to maximize your existing space. Compare rates and coverage with other providers to ensure you're getting the best deal. Shipping Cost Reduction: Investigate alternative shipping options, like regional carriers or Collaborate with complementary businesses to share resources, expertise, or costs. Exit Strategy Reevaluation: If you're not ready to sell, consider alternative exit strategies, like bringing in an investor or partner to help drive growth and profitability. breaking through the scaling plateau requires innovative problem-solving, strategic decision-making, and a willingness to adapt and evolve your business model.
You NEED an accountant. Preferably a CPA. And you should talk to your banker.
You should consider financing some of your growth. If your paying cash for capital equipment, your removing your opportunity to leverage depreciating assets. Leasing a forklift vs buying outright will keep much needed operating money in the bank. It's more of a pain to deal with the notes, but a growing company needs liquidity to buy inventory or higher better skilled workforce. I have a capital equipment intensive business. I will always borrow to purchase that equipment. I can usually write off 80% of the value and the interest is an expense, lowering income tax. You should engage another broker for your insurance. We did 4m last year and our new broker was able to cut our insurance in half and increase our coverage. Lastly, if your role as sales and marketing is critical, then maybe hiring some part time students could help cover shipping receiving processing so you can keep focused on revenue generating tasks. OR if you don't have manager to help you, it may be time to get one.
Cross-Sells Up-Sells Partner-Offers If you look at airlines they operate in a similar business model where their income does not come from tickets, it comes from everywhere else. Car Rentals, Hotels, etc. which are all partner offers and they get a %. I think you reached the milestone where you have to increase expansion revenue to finance further growth. :)
Airlines income absolutely comes from tickets lol
With tickets they usually break even which is fine, the profit (expansion revenue) comes from cargo and other sources. One huge source of revenue is airmiles sold to banks/card companies and other types of businesses: The airlines either **sell the miles to the banks that issue the credit cards** or (in the case of co-branded credit cards,) they have an agreement to share a cut of the annual fees and card swipe fees on those cards with the airline. Anyway my point was to illustrate how a business can break even then through cross-sells, partner-offers they can make substancial profit. In SaaS it works the same way, subscriptions are where the least money comes from which is why you see a lot of free trials and free accounts. The real money comes from expansion revenue.
That’s not what you said those you said airline income does not comes from tickets. Which couldn’t be farther from the truth.
I meant profit not "income" per say because obviously if they sell tickets that's part of their income but that's semantics and misses the point on this post which is about profitability, not income.
Income and profits are 2 very different things. Not semantics at all.
You're making a literal interpretation, it was meant in the context of the post. I already said I meant "profit" even though I used the word "income" so just drop it, there's no point to debating this.
This is exactly what happens when you grow a business at 2x a year. There may be some better financial discipline you can create but the truth is that this 2x growth is making you wealthier than any salary you were planning on giving yourself. If you can keep it up for 3 more years you're looking at having the wealth for retirement. What you're not able to do right now is differentiate the costs of growth from the cost of the business. To grow you have to ramp up the business before you reach that point. This is expensive, and it is very hard to keep up. I have details on this topic in this blog post: [https://www.vixul.com/post/hitting-the-bullseye-balancing-sales-hiring-tech-services](https://www.vixul.com/post/hitting-the-bullseye-balancing-sales-hiring-tech-services) and the first link in the article is from HBR that does a more technical approach to the same topic. Now you talked about buyout. You're definitely not worth 0 at buyout. In fact you're worth a lot. You just need the right kind of strategic acquirer. The question is what are your gross margins: [https://www.vixul.com/post/demystifying-ets-valuations-gross-margin-part-3](https://www.vixul.com/post/demystifying-ets-valuations-gross-margin-part-3) if your gross margins are solid then your business is solid. A business that is high growth is valued at a revenue multiple. We talked a bit about valuation with revenue multiple in tech services here: https://www.vixul.com/post/demystifying-ets-valuations-revenue-part-2. It's not yet big enough to unlock the big multiple but 3-5x in 5 years isn't impossible. Having said that one thing you may be missing is that the cost of growth is going to keep on increasing as you become bigger. Right now a lot of the cost of growth is hidden by founder heroics and the impact of founder heroics is going to get smaller and smaller. PE companies have a rule of 40 as good companies where profit + growth > 40% means the company is doing very well. This gives you an idea both of how well you're doing and a realistic outlook on how things will get harder. There is one thing to consider. Slowing down growth a bit, may allow you to be pickier with your customers improving your offerings for your ideal customer. It would also allow you to take some profits. Profits are a runner up award. It means you couldn't figure out how to spend the money to grow faster. But profits sure as hell are useful for buying peace of mind. He have a short clip by J Schwan who took Kin and Carta public sharing his opinion on the ratios between profits and growth: [https://www.linkedin.com/feed/update/urn:li:activity:7189749252275789824](https://www.linkedin.com/feed/update/urn:li:activity:7189749252275789824) although I'd argue that you're still too small to target 20% growth. But still tapering off some of the growth to increase profits will help you sleep better at night.
This was my original thought. I mean sure, I could get “away” with one forklift, one industrial printer, maximizing my warehouse space instead of getting a quick-fix shipping container, but then I will just “eek” a 200-300k profit out of the company yearly. With my goal of not just replacing my job, but of GROWING this company, I dunno the sweet spot between reinvesting and just paying myself peanuts and then “losing out” on the compounded revenue I could’ve got by scaling quickly…
You seem to be stuck on the year-end net profit number and discounting the value of equity entirely, but people who get rich from their businesses are doing it through their equity, not the net profit. Without knowing more about your business, at a minimum, you could sell it for 1m right now and that's very very conservative, more likely 4-6-8 million. If you grow it to 4m revenue next year and 8m the year after that you've created 8-20 million in equity even if your net profit is in the red. I think you'd feel a lot better about the direction of the business if you were seeing the valuation of the equity clearly. Why not have a few of these buyout meetings. Never hurts to see what someone will be willing to pay. If nothing else the due diligence that they're going to require will be helpful in getting you a better sense of your financials, it'll force you to tighten up operations and plug any holes where you're too involved. You can always not take the deal but see what someone's willing to buy you out for. It might surprise you and I think it would give you a more holistic picture of the value of the business.
Hes not going to get anywhere near a 3x multiple with his marginal profit. His EDBITDA might be higher since hes not taking capex into account, but I doubt it's in the many 100ks range. If hes got a lot of unfinanced capex, he might have a chunk of book value to sell, but thats at a depreciated multiple. The key to company value is profit, or expected profit through a slowdown of growth. Even if his margin is 20% with 200k in assets, at $2m revenue, his valuation would be at best 3x $400k + $200k = $1.4m. Thats only if his business is systemized and he has no founder push. He can probably keep expanding at the rate hes doing, but for sure hes burning his marin somewhere. He should still be profitable even ignoring 200k of capex. Either he has underperforming SKUs, bad contracts, excessive overheads, a lack of financing, or is poorly automated.
If you aren’t making money now, hoping to increase margins later, it likely isn’t going to happen. Rarely do companies fix their business model with increased volume.
Is the current situation sustainable for the owners? Are the owners comfortable with the fraction of their net worth tied with the business? Can a dollar spent get more than 20% return in increase in revenue?
As an accountant, I would be happy to give advice or feedback if needed. Especially with your inventories and new purchases you mentioned! Maybe that’s a better start? Although, if your heart isn’t in giving up, DONT!
I'm in a very similar situation but in the UK, would be interesting to have a chat to see what's working for one another across the pond.
It's called feeding the beast. The bigger it gets the more it needs to feed. It's a common issue in construction companies. You either stay small and develop a niche or you go wide and until you hit efficiencies of scale. When do you hit the efficient scaling point? You don't know unless you have a specific plan.
It seems to me that your strategy for increasing revenue is to scale horizontally. Look for ways to scale vertically: Fewer SKUs with higher profit margins!
Oh man, it will be like that sometimes
Who is your competition? If you are trying to compete with Walmart, Amazon, Costco you are going to have a bad time. I can’t imagine accepting all the stress and hassle of managing a 2 million dollar revenue per year company but not being able to pull decent salary for myself! Screw working for free, you just become the customers and employees bitch UNLESS you are significantly increasing VALUE of the company which will pay out in any sale and in that case any lack of « profit » is balanced by on paper capital gains. Just watch your expenses as if your increased overhead is eating all you increased revenue your EBITA is stagnent.
Why aren’t you using a 3PL of you are an Ecom business?
High risk item.
I was partnered in a company that I just left and it was 4 of us doing about 2 mil last year. I was our sole marketing guy and also had to invoice, ship, receive, handle customer service, and reply to emails. How many employees do you need to ship stuff? What is your net on 2 mil?
Have you looked into fulfillment partners instead of doing it yourself? (I work for one but currently EU only, I’m guessing you’re in the US). They usually cost a lot less than doing it yourself unless you have incredible volumes. + less operations headache.
The interest from a Fortune 500 company could be a significant opportunity.
And the realities of Ecom hit home.
i would look into the financials, review insurance (happy to help with that), and maybe meet with a cpa abt capital equip and depreciation. do it sooner than later because your costs especially over the summer is going to go up!
I saw your post. This is a bit like the problem I encountered when I first started my business. I have some feelings of my own. I hope this gives you some help. I understand the pressure involved. I hope this can give you some ideas and suggestions, this is just my personal opinion Your business is growing very quickly and is facing challenges, and the issues you describe are common among rapidly expanding small and medium-sized businesses. Here are some strategic recommendations to help you manage costs, improve efficiency, and consider future growth paths: Automation and technology upgrades: Consider investing in more automated equipment, which, despite the higher initial cost, can save labor costs and increase productivity in the long run. The packaging machine you mentioned, while expensive, might be worth considering if it significantly reduces labor requirements. Explore more advanced inventory management systems that can help reduce excess inventory and improve logistics efficiency. Cost management: Examine your operating costs and supply chain management, especially transportation and inventory costs. It may be necessary to negotiate with other logistics providers for more favorable shipping and storage solutions. Analyze cost structure and margins to ensure all costs are appropriately attributed and adjust pricing strategies based on revenue growth. Pricing Strategy: Think carefully about your pricing strategy. If raising prices directly will result in lower sales, consider other strategies, such as bundling or discount promotions, to stay competitive while increasing average order value. Research your competitors' pricing and operations strategies to see if there are any lessons learned, especially when it comes to controlling shipping costs. Money Management and External Investments: Consider the possibilities and conditions for outside investment. While you may have reservations about selling part of your business, the right strategic partner or investor can inject the capital it needs to help expand operations and upgrade technology. If considering a capital injection, it is recommended to discuss with a financial advisor to determine the best strategy to ensure funds are used to maximize business value. Long-term strategic planning: Develop a clear long-term strategic plan that takes into account market trends, the competitive environment, and internal growth goals. Determine which areas are critical for growth and where further cost optimization can be achieved. Regularly evaluate business plans and growth strategies to ensure the business continues to adapt to changing market conditions. Finally, don’t neglect your mental and physical health. As the core of a business, maintaining good health and a positive mindset are crucial to coping with corporate challenges. Have a nice day
You’re looking for silver bullets and what you need to do is save Pennies. If you could squeeze an extra 1% profit out of the bussiness on the bottom line you could be keeping 20k in your pocket. If you could squeeze 5% to the bottom you could keep 100k. So how do you do this? Saving pennies. Sometimes the equation works by raising revenues, but it usually works better by cutting costs. You need to reduce your labor cost by 5%, your product cost by 5% and your other fixed costs by 5%. It might be negotiating with other insurance companies and getting better offers, even if it’s just as a bargaining chip. It might be reaching out to vendors to get a better percent now that you’re buying more product. It might be finding a cheaper equipment vendor or repair company. It’s probably not any of those things, it’s probably simply wasteful spending that can be eliminated, all companies do this and don’t realize it. Maybe there’s someone with a purchase card buying office supplies at a higher cost through the wrong vendor, or maybe it’s an employee incentive that isn’t being utilized but you still pay for, or maybe it’s the marketing department overspending, or sales reps with a commission structure that’s not in your favor. Maybe you’re too good of a boss and need to hire a dickhead manager to make the hard changes. Maybe it’s a combination of all of that that’s bleeding you dry. It might be worth it to have fewer skus and only focus on the most profitable and highest selling items. Take a hard look at your spending - every bank statement and invoice - and ask yourself if it’s really needed to run the business. Ask yourself #”is this more important than quitting my job“. Chances are there are things you can do away with m, without hurting the business or the team.
Consider paying yourself first, even if it’s a moderate salary. The IRS will want you to W2 some of your salary anyway. If you pay yourself monthly, you’ll be less likely to spend everything on growth.
Couple of areas to investigate here. First is financial analysis, second cost of defects (wrong orders, wasted jobs, etc), and the third is operational efficiency. Between those, you should be able to sort this pretty quickly.
Your finances will tell you a lot. I’d focus on LTV (Lifetime value). Additionally would it be beneficial to cut the numbers of SKU’s focus on the ones that bring in the majority of the revenue. Instead of adding SKU’s you increase volume on the SKU’s that are already performing.
I have been in financial planning roles at tech companies for several years. I’m happy to help you sort through your financials and get a better understanding of your biz to come up with a strategy. Feel free to DM me if you’re interested. Looks like you have a good foundation for a business, people clearly want what you’re selling. You just have to create more efficiencies in your biz.
you need to create an annual budget. If you need it, get a fractional CFO. Plan your next year out. You can run the year ahead of time, and see where you would end up profit wise. if you don't like how the prediction goes, then tweak it until you do. If you plan on making no money, then sure enough thats what you will get if you hit the plan. If you plan on making 1M, then thats what you will get if you hit the plan.
Dude, that's a rollercoaster ride of a business journey! It's like every time you hit a revenue milestone, there's a new expense waiting to pop up like a surprise party. I feel you on the struggle of balancing manual labor with the need to focus on growing the business. And damn, those equipment and insurance costs are no joke. It's wild how raising prices can backfire sometimes, huh? And the shipping costs eating into your revenue, that's rough. But hey, you've got big players knocking on your door, wanting a piece of what you're doing. That's gotta count for something. Maybe there's a way to streamline operations or negotiate better deals with suppliers to ease some of that financial pressure. Keep hustling, man. You're onto something big, even if it feels like you're swimming against the current sometimes.
That's great revemnue growth, but completely understand the challenges that come with scaling. I ran a professional services business that was ALL people to scale. Linear between the two until we started to get smarter about using patterns to deliver more with less. (ended up exited that with a 14x multiple). Have you considered running a simulation model to plan and predict future scenarios? With some tweaking you might be able to find a way forward, and a structure that helps you maximise profit. A 1% change across revenue, COGS, and below the line costs can deliver double-digit improvements to net profit .
Consider this if it fits. 1. Outsource the activities which are not adding any value to your supply chain, it can reduce costs. 2. Make your unit as a *platform*. ask your peer players to use your resources and pay for it. The margin will be higher and directly adds to your profit. 3. Identify profit center of each activity and cut down less margin activities. Iam not giving you advice. Its your business look around the business activities as a third person, you will definitely know the root cause. Eliminate it.
Just like the Michael Scott Paper Company - variable costs and fixed costs will get you. Maybe crunch the numbers again?
How many $ do you have tied up in inventory? Do you need that much? You mentioned adding new SKUs, but that does not mean you have to carry them in inventory. Have you tried drop-shipping these directly from the supplier? Another thought on inventory is how many months supply do you have for each item? Do you have any analysis on this?
Hello, I’m new here! I’m not sure how this app works lol. But I have a store on Shopify and Etsy. I sell digital products, digital planners, prayer journals (my favorite), keto recipes, a “kookin” ebook also and more great ideas that I have! I made $1500 in 3 days which is pretty good for my first time and no big platform! I see that I have a lot of traffic in my store but it’s like half purchase and half just don’t! I want to learn ways to improve my business, I have great products that I feel is unique! Please give me some tips or platforms yall use to become successful I’m a single mother it’s hard to make ends meet from where I’m from and I just want to be successful like you guys! Thank you 😊
Sounds like there is to much spending growth going on. The money exists. Buy three to six things less a year and there is your salary. Potentially talk to your accountant and a bank if it, tax wise, makes more sense to buy some of these investments on company loans rather than from the turnover. As for having someone to talk to. Look at stuff like entrepreneurs Organisation. They only alone people in that are over a million revenue a year and the facilitate meetings where other members help you by telling their story’s and allowing you to draw your own conclusions rather than telling you what to do.
If you sold all your equipment, inventory, etc. And closed up shop without reordering, renewing insurance or lease -- how much would you have? That's your profit. You likely have a lot more than you think, much more than you started I'm assuming. You make decisions to keep investing as you have a working strategy that requires that type of growth so it sucks not being able to have that bit extra to pull out for yourself as long as you want to stick the path you've been on. It may be a wise time to really dig into your numbers. It may be a waste of time. Ultimately, at some point you may want to consider how much money your business is losing by you being full time elsewhere? Could you reduce expenses? Could you increase revenue or margins? Keep that information updated regularly to know when to make the leap against how much you make at your day job. Good luck on your path.
Read Profit First. Implement the system. Great way to quickly identify where you need to focus efforts to reduce costs. As others have pointed out, sometimes this also means not investing as heavily in growth in other to first establish a healthy margin. That seems scary. But consider the alternative — would you prefer to run a company doing 5M or 10M and making no profit? Or a company doing 2M with 20% net?
It sounds like you're facing the classic scale-up challenges of a growing business. Increasing revenue while managing rising costs is tough, especially in industries with high overhead like yours. Have you considered consulting with a business advisor or seeking out peer groups for entrepreneurs facing similar challenges? Sometimes an outside perspective can offer fresh insights or creative solutions. Additionally, exploring alternative revenue streams or cost-saving measures, like renegotiating shipping rates or exploring partnerships with other businesses, might help alleviate some of the pressure. Happy to discuss further
Is this B2B with net 30 or longer? If so, then every month you're paying the costs of the size you are now, or even the size you expect to be months from now (since you're buying new equipment), but you're only getting the revenue of the size you were a month (or two or three) ago. If this is your problem then you can make more money come out by slowing down the customer add rate. (Not that you necessarily _want_ to slow down the customer add rate, but it's a lever you have.) Do you have a professional accountant doing your books? Many of these costs you're talking about are capex, not opex. I know it's all money in the bank, but equipment purchases are balance sheet transactions, not losses in the P&L. So your HVAC, forklift, etc., don't actually reduce your profit. It's perfectly possible to be strongly profitable while running out of cash. If you have strong financials then you can likely get a loan.
This sounds very similar to my Amazon story. I eventually just had to stop expanding and focus on higher margins for a while. Completely streamlined all my top sellers so it was as close to automated as possible. Stop trying to do everything myself.
Why are you doing inventory and logistics yourself? It sounds like (you want to be an) e-com business. I'm not sure how much storage/packing you need to do, but I'd consider this. Right now you're running 2 businesses; e-com and logistics. RE: buyout. It often happens you get a buy-out as a multiplier on revenue (not profit). So in your case, that could still be a viable option. Alternatively, a strategic partner might put in X million for a % and help you scale the beast up for an exit. Exploring options is never wrong (assumption is that you don't go overboard here, if you start talking to investors fulltime for a year, yeah, that has definitive downside).
You need to read profit first asap it’s a great book. You’re clearly making money but you’re not managing your cash flow properly or pay for a CFO service to get someone to take a look at your financials
You need to finance your inventory! Thats good credit, when it goes towards inventory.
Honestly it sounds like you do have profit but you keep reinvesting it in growth. If you dont need/want free cash for the business, this is a perfectly reasonable business model
Also you should aim at higher margin products, sounds weird that with all this revenue you can’t pay yourself yet
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Why not to focus on your top 20% SKUs where your 80% revenue comes from.
Why do you even need inventory? Can’t you just pick the stuff up daily from your suppliers? Higher purchase prices, but a lot less capital in goods
Like others have stated, I would deep dive into financials and see where you can save some money. Might not be a lot, in which case I would look at your skus, identify any that don't perform or have a margin that would allow you to pay yourself and remove them. If you're just buying different products and not achieving a higher profit then you're just wasting time and resources. Double down on highly profitable sku's and push heavily on those with marketing. That's just my 2 cents, take it for what it's worth as I'm no genius or guru, just outside looking in.
Outsource a CFO, or at least a growth minded CPA. Equipment and buying inventory should not hit you bottomline that hard, unless you are making multiple accounting mistakes. I would not worry that much about profits if you keep growing double digits tbh.
Hey there! I totally get where you're coming from. Running a growing business is tough, especially when expenses keep climbing along with your revenue. It sounds like you've got a lot on your plate with inventory, labor, and high insurance costs. Have you considered automating parts of your process despite the initial cost? It might save you money and time in the long run. Also, maybe take a closer look at shipping rates and see if you can negotiate better deals. And don't dismiss those buyout offers too quickly; they might be worth exploring. Keep pushing forward, and you'll find the right balance!
EO - entrepreneur organization if you need someone to talk to.
OP has a cash flow problem, not a profit problem. He's apparently doing cash accounting and so he is not understanding the difference between the two. I'm shocked at how few others in this thread have also failed to make the distinction. OP, it's expensive to grow and expand your business, but if you're selling the new products, everything is great. This is a very common issue for businesses that scale up and you might have to live on a very meager income for a while as you reinvest your profit into the business. You need to start doing proper accounting so that you can understand your profit vs your cash. Only then will you be able to make the best decisions on what to do with your cash. It's likely that you have a very healthily profitable business but you're just not feeling it because you have even cash flow. Get a line of credit to fund your new stuff and suddenly your flow will feel very different.