How Accounting Can MAKE or BREAK Your Brand

Today's episode is brought to you by LedgerGurus, your go-to team for ecommerce accounting. We've built up some of the deepest capabilities to support businesses selling online. Head over to ledgergurus.com and see how we can help you level up your business today. That's L-E-D-G-E-R-G-U-R-U-S dot com.

All right, Geoff, welcome to the podcast. Tell us a little bit about yourself.

0:34 Geoff Gualano

Thanks for having me, Stephen. So I'm Geoff, I'm the head of marketing at A2X, ecommerce accounting automation app that helps automate payout reconciliation from Amazon, Shopify, and all your other sales channels.

I love marketing. I've been a tech marketer for just about a decade now, and specifically in the cloud accounting space probably for the last seven years. So most recently with A2X for the last three years, and then previously to that, head of marketing at Hubdoc, and then eventually acquired by Xero, where I led product marketing for its core accounting products.

I've been in this space for quite some time. I can see the value of accounting, and I've quite literally seen it make or break businesses in ecommerce, but in multiple other industries over the years. So happy to dive into this topic with you, Stephen.

1:23 Stephen Brown

Yeah, well, we're going to talk about, you could apply this to a variety of industries, but we're going to specifically discuss how it applies to ecommerce with our collective experiences. So if you're a brand listening, don't hang up. This is for you as well.

1:38 Geoff Gualano

We're gonna make accounting fun.

1:40 Stephen Brown

Yeah, good luck. I've been trying to do that for eight years and it's still boring, but it's useful.

1:49 Stephen Brown

All right. We had this concept we were talking about when we were brainstorming about this episode, around how businesses go through different levels of accounting maturity, or maybe accounting and finance maturity, how they view accounting and finance. And each one's important, but we want to talk about each phase and give some stories, and why businesses and brands need to think differently and maybe push towards the next phase faster.

So Geoff, what's the first phase?

2:22 Phase zero and phase one

Geoff Gualano

I mean, I can start at phase zero, which is a brand that isn't doing anything. Which you'd be really surprised, but working with thousands of brands, we've seen quite a few at the six figure revenue range only just starting to get started with their accounting. So I'd say that would be phase zero.

2:26 Stephen Brown

Phase zero. Do nothing.

2:50 Geoff Gualano

But if you are listening to this podcast, you are probably at one of the next four phases, which is great. And one of the cool things about this episode is you'll really be able to identify yourselves within each of these phases. And then hopefully Stephen and I will be able to articulate what it would take to get to the next step and why that might be valuable for your business.

So phase zero, you're not doing anything. Okay, let's get past that. Phase one.

3:09 Stephen Brown

Yeah, you're doing nothing. And that works until phase one, right?

3:15 Geoff Gualano

Yeah, phase one, until you're starting to make money and you're getting a little bit nervous that the tax man is probably going to start knocking on your door. So we kind of see brands wake up to accounting as a concept when they start making sales and knowing that they're probably going to have to pay taxes at the end of the year. So they tend to see accounting as necessary, but not necessarily valuable. The value of accounting typically comes in the later phases.

And if you're in phase one, you're likely doing cash accounting rather than accrual. Stephen, you want to just quickly talk about the differences between cash and accrual, just for the listener?

3:52 Stephen Brown

Yeah. Cash is essentially what we do as individuals, right? We log expenses and income as we receive it on our bank account. And that works pretty well for individuals. It actually works really well. I don't know anybody except for big accounting nerds who are accruing their personal accounting.

The problem in business, where it starts to fall down, is when you're doing these big purchases or having big chunks of income that are spread over different timeframes, and it starts to look really odd. So you'll buy a big chunk of inventory in one month and then nothing the next, and your profitability looks really wacky, and it's not really clear how your business profitability looks and how your business operations look. So that's kind of the best way I could dumb it down. There are actually a couple of rules.

4:46 Geoff Gualano

Yeah, and I think that's great, right? And it speaks to why accounting is particularly important for ecommerce businesses. Because in addition to the fact that you're handling a lot of inventory, you're also selling across multiple sales channels, multiple countries, you get paid out from Amazon and Shopify across multiple months. And so it gives you a better view of what's actually happening in your business.

But if you were in phase one, likely cash accounting if you're doing accounting at all. And one of the things that has kind of led you to phase one is you're getting ready to actually submit your taxes. So that would be phase one. Stephen, anything I'm missing there before we get into phase two?

5:27 Stephen Brown

No. I mean, what I've seen with businesses in this phase one is they see, I do accounting for my tax return, for my tax accountant, make it go away. That's the only value they attribute to their accounting.

And these phases are additive, right? They're more like building blocks, as your need to think about taxes never goes away. And there's actually kind of a range of consideration. There are people that are like, I've got to do it so my CPA can do my tax return. Then there are people that become more strategic about it and they're like, how do I minimize my taxes? But they're missing, I think, the opportunity that the next phase brings. And they get stuck there, sadly. I see too many people just thinking only about accounting as tax, and they're missing the bigger picture that comes with the next phase, phase two.

6:24 Phase two, visibility and the metrics that matter

Geoff Gualano

Yeah, which is the phase that actually gives you visibility into how your business is actually performing. If you're profitable, what products are profitable, what channels are profitable, right?

Stephen, you've given me this analogy on multiple occasions, but accounting in phase two gives you a very good look behind for how your business performed in the previous year, which, we'll talk about this in a later phase, but as a building block to helping you kind of look into the future.

Phase two, you're probably starting to transition into accrual accounting thinking, because you want that better visibility into your business. And there are probably a few other dimensions. Stephen, I'll kind of let you jump in and add them here.

7:09 Stephen Brown

Yeah. Phase two for ecommerce, I think you have to have accrual accounting because of the nature of product-based businesses. So there are a couple of key things that become problematic. And phase two is about understanding your business and understanding your profitability, and what areas of your business are going well and what are not.

So the reason you need accrual accounting, let's kind of go down the different elements of an income statement. Number one, your income. Geoff, you were mentioning Amazon pays out in delayed things. So you get a payment in your bank account, but you probably earned that money days, weeks before. So that's problem number one, properly applying when you actually earn that revenue.

7:55 Stephen Brown

The other big yucky nasty thing is cost of goods sold, which is the cost of the product that you're selling. Now in a cash basis, you go in and you buy a bunch of inventory and you say, there's my COGS, and you don't have COGS or cost of goods sold for like three months. The proper way to do this is to say, I sold a hundred widgets, what was the cost of those widgets, and apply that expense as cost of goods sold in the time period in which they were sold.

And then there are a lot of other treatments you could do around timing of marketing spend, timing of fulfillment, timing of payroll. There are other things. Those are the big things that most brands are thinking about. But the big two is, when did I actually sell stuff, and what were the costs of those sales, that you need to get right in this phase two. Because everything kind of flows out of those two things.

8:50 Geoff Gualano

And then from a financial metric perspective, if phase one, most businesses in phase one in my experience are really caught up on top line revenue. Phase two I think you kind of get a little bit deeper, right? Like revenue, although an important metric, isn't the metric. You start to think about the business from a profitability standpoint, you start to think about the contribution margin.

What are some of the other metrics that you would say are probably the most important as you come into phase two and evolve past top line revenue?

9:24 Stephen Brown

The things that I like to look at are, obviously you want to see your revenue, and everybody knows the revenue from their sales channels. But I like to look at, what is my cost of goods sold as a percentage of income? So what I'm going to describe is a whole bunch of what's known as income ratios. Cost of goods sold as a percentage of income. The inverse of that is a gross margin, and gross margin is simply the profit after your cost of goods sold. So I like to look at that.

Typically I like to see brands that are making at least 40% after cost of goods sold, up to 80%, because you're going to need a lot of money left over for marketing, fulfillment, et cetera.

10:05 Stephen Brown

So the other things that I look at are, what is your marketing spend as a percentage of income? That's a killer thing, especially in recent years. And then finally I like to look at fulfillment costs. So that's kind of your core cost of sales. You could also add in merchant fees, although those tend to be a fixed percentage of income, predictably around 3%. And anything that's left over goes towards your software, your payroll, if you have a warehouse or an office rent, and then ultimately profit.

10:52 Stephen Brown

So I really hone in on those key areas. Your cost of goods sold, your marketing spend with particular focus on advertising, and your fulfillment costs. Because usually within those three things I can tell if a brand is going to be successful, or I can tell where the problems are if they're not profitable. Sometimes those things are great, and then usually the next biggest culprit is their payroll. They're spending too much payroll as a percentage of income.

11:13 Geoff Gualano

100%. And what's interesting, and I love the analysis that you've provided, and there's intention behind why I asked the question, because typically phase two is when you actually start to work with an accounting professional to help you get to phase two, to help you make sense of the information and the data, to help you dig into these metrics. And Stephen, you did a really good job illustrating my point on kind of what tends to happen in phase two. Phase three.

11:25 Running out of cash, and getting audited

Stephen Brown

Well, before you go to phase three, I have a story.

11:43 Geoff Gualano

Please.

11:44 Stephen Brown

And I also want to illustrate, it's hard to do phase two. It's expensive. That's why you need accountants, that's why you need tools like A2X. There's a lot of information going on in ecommerce. It's not like a service business like LedgerGurus. It's probably more complex than a SaaS business like A2X, because they don't have widgets moving around. They've just got a bunch of people and bits and bytes.

12:02 Stephen Brown

So here's my story. I was managing an enterprise security business about 10 plus years ago, and I had joined them right after MBA school. So I was my newly minted MBA and I'm ready to go and do MBA things. I had some guys that I'd worked with at a company that had started another startup. They said, hey, come over and run product management. I was like, all right, let's do this.

Six months into my journey there, my CEO, who was really just a brilliant CTO, he basically let somebody else do the business side of things, he said, hey, we need to make a change in the business leader. He and the board member, previous business partner, said we need to make a change. Do you want to, are you willing to take over? I was like, I guess, why not? They didn't really tell me what I was getting into.

12:56 Stephen Brown

So I got into there and they're like, we're having some issues, we're not selling as much. So I got into the books and started to analyze what's going on in the business, using my power of freshly minted MBA skills. What I found is we were running out of money. They had run a playbook of, let's spend our way to growth, but it wasn't working because we had issues with the channel that we were selling into. And I realized, crap, we have six months until we're out of cash.

So I got accounting religion really quickly, because I knew we're running out of cash, we're not selling, the strategy we're using isn't selling, and so we've got to figure some things out. And that's where I kind of started using some phase three techniques.

13:50 Stephen Brown

I've seen this with other businesses. We'll go in and you're struggling, and the first thing I'm trying to figure out is, where are the problem points? If we're not profitable, why are we not profitable? Like I said, I can go down and analyze a brand and usually within less than 30 minutes I know exactly where the issues are. Oftentimes business owners have a sense for that. I think something's off. But when you have the numbers in front, it's clear as day, this is where the problem is.

14:19 Geoff Gualano

You know what the other entry point is to accounting as a religion?

14:24 Stephen Brown

What's that?

14:25 Geoff Gualano

Getting audited. I think there is no better entry point. We've seen that time and time again. People that tend to really move into accrual accounting, really move into tooling like A2X to ensure accuracy, and accounting partners like yourselves to make sure that everything checks out and reconciles, are businesses that have gone through the arduous tasks of getting through an audit.

14:54 Geoff Gualano

The IRS in the United States. I'm based out of Canada, so we've got the CRA here in Canada. And everyone thinks it can never happen to them, and then it does, and they never look at accounting the same. They really, really start to understand the value of accuracy.

Actually, in fact, I was at Ecommerce Fuel Live in New Orleans last year, and I was talking to one of the larger sellers there. I think they were doing about $30 million in annual revenue. They were selling custom tires. And he was telling me, he just kind of went from, accounting is necessary but not valuable, to accounting is valuable, from one year to the next, because he went through a pretty epic audit.

I hope that people actually come into the religion through Stephen's path, which is understanding the value and the insights that it can provide to help you run a successful business. But then there is also kind of a cautionary tale. Hopefully you don't have to get audited coming through that door.

15:50 Revenue recognition, and when accrual clicks

Stephen Brown

Well, all that's hard, the accrual accounting concept. I've got another story about accrual accounting.

So let's go back a little bit further. Back 2006, I was a brand new product manager, and I remember we were in charge of pricing. I was at a Fortune 500, Symantec, who's since been acquired by Broadcom. Most people know them for the Norton company, which is now a separate business, but we were this big enterprise security company.

And I was doing some pricing meeting, and they were bringing up, at the time we sold software licenses and maintenance, which was your support and your rights to updates to the software. And so they're talking about revenue recognition around the maintenance. And I'm like, what is this revenue recognition thing?

16:44 Stephen Brown

I remember going into one of my finance guys' offices and saying, okay, so the customer pays the license fee and then they pay for a year of maintenance all at once, and you're telling me that we can't apply that as revenue for 12 months. And so he proceeded to explain, well, we have to recognize the revenue over time, because this was actually, they're purchasing something that goes over a longer period of time. And it was total Greek to me. And it might be total Greek to you if you're listening to this now.

It literally took me, I'm not like a full CPA, I'm an MBA, I've taken a handful of accounting classes, a whole lot more finance classes, and I've hung around some really smart accountants for the last 10 years. But it seemed really stupid to me. Like, this is the dumbest thing in the world. Is this like some secret code that accountants use to make everybody else feel dumb?

17:40 Stephen Brown

But once you understand it, once you kind of cross the chasm of, this tells a better picture of what's actually happening. And the best way I could illustrate this for an ecommerce business is, your cash comes into your account at weird time delays, so that's problem number one. You buy inventory a couple of times a year, but you're selling it continuously. So if you were to go off of the time that you bought it, this makes it really messy and hard to understand how profitable you actually are.

And so accrual accounting, which is part of that phase two, is really important. This is not, you could learn this stuff online. You don't have to go to college, you don't have to get an MBA. You literally could go find some stuff on YouTube and probably cross the chasm on what these concepts mean. And once you've crossed, you'll no longer think, those guys are idiots. You'll think, that's actually really smart.

I mean, when did you figure out accrual accounting, Geoff?

18:34 Geoff Gualano

Yeah. Luckily I'm in Canada, so accrual tends to be the norm for us for all business accounting. We don't have the option of cash.

18:41 Stephen Brown

How socialist of you.

19:03 Geoff Gualano

But I'll be totally honest with you. I've been doing this marketing thing for about a decade, but there was a short stint where I did some consulting and I had about five clients, and I had to do my own accounting.

And you would think that a professional services business wouldn't have a tremendous amount of transaction volume. I did in a lot of cases. Like I was actually spending money on advertising and getting reimbursed by the businesses. I think accrual provided me with sanity, gave me visibility into the business's cash flow, right? It really just helped me run the most profitable consulting business that I possibly could, in a world in which previously to that, to your point, these were tremendously foreign concepts to me.

Now obviously, because I'm not purchasing inventory, I didn't have as much pressure on my shoulders, right? My inventory was my time and the service that I provided. But I've seen the light and I've seen the value of this, and I know that many businesses have as well.

20:03 Geoff Gualano

Like actually, Stephen, do you have any stories that are particularly in the context of ecommerce with some of your clients related to cash flow? Because cash flow, what I've seen, we talk about accounting being make or break for brands, the break is usually they run out of cash. They can't buy that next round of inventory. And a lot of the times it comes as a surprise. It's a total surprise, they had no idea, and they hit a brick road.

20:27 Geoff Gualano

Some of the things that I've seen happen is they get into a situation where they need to acquire lending, and because they're under a pressure crunch they do so on bad terms. And because they do so on bad terms, they're just behind the eight ball constantly, because they didn't have this visibility, because they didn't see this coming, and because it really threw a wrench in the business. So anyways, I'm actually providing some anecdotal stories, but I'd love to hear if you've seen this happen as well.

21:00 Stephen Brown

Well, this one story that comes to mind, it's less about cash flow and it's more about revenue, kind of piggybacking off of my example.

I have a friend who's been big in consumer products, and he was head of sales at his previous company. And he was telling me they did a ton of wholesale, and what they would do is they'd get this initial purchase order, and they were putting all of the revenue in that purchase order as revenue in that timeframe. I don't know if they applied it all in one period or one month or one year. But what he was telling me is the retailers weren't selling at that rate. And so what happened is the follow-up purchase would be much smaller.

21:50 Stephen Brown

I'm just going to throw out a number, I don't know if this is true. They get a $3 million purchase order, but the retailer was only selling like a million a year. And so actually that purchase order was for a longer period of time. So he said what happened over time was their revenue looked like it was going down, when actually this was just, I was like, you should have recognized that revenue when it was being sold. Because over time it looks like, this business sucks. And they actually had a really killer offer.

22:20 Stephen Brown

And part of it was when they tried to sell. But I'm also wondering, if the investor had seen revenue being recognized over time, would they have treated the business differently? Would that sale have closed?

22:33 Geoff Gualano

Probably. Like, we talked to Quiet Light, who's an M&A broker, I'm sure many people who've listened to this podcast are familiar with them, and the valuations that businesses get when they have accurate accrual based accounting, so that investors can have real visibility into the business, can make an informed decision. You actually get better multiples on the business.

So we'll get into that in a future phase. Actually, it's probably a really good segue into phase three, because we're already skipping ahead to phase four on lending and investing.

23:02 Phase three, forecasting

Stephen Brown

Yep. Let's talk about the next phase. So now you know what's going on with your business. That brings us to phase three, which is.

23:13 Geoff Gualano

Phase three, you start to look ahead. You start to forecast, you start to plan based on what's happened in the past. Because you have visibility into what's happened in the past, you could have at least an informed position on what may happen into the future. So forecasting, financial modeling, super, super valuable. This is where I think accounting starts to become very strategic, right? This is where people start to look towards fractional CFO services, or at times even bring CFOs in house, while continuing to work with an outsourced accounting firm like LedgerGurus.

23:42 Stephen Brown

Yep. Well, this is what I do a lot of. I'm the dumb MBA. Dumb in that I don't understand all the nuances of accounting, I know enough to be more than dangerous, but I do a lot of the forecasting and modeling.

Kind of picking back up off of my story, going back 10 plus years, I knew the business I was managing was in trouble, and my accounting told me that. And therefore what, right?

24:14 Stephen Brown

What I ended up doing is I used that information to build financial models. I built a model that would basically forecast what are my projected sales and costs and all that, and what's the outcome. And I used that to make some hard decisions. I laid a significant amount of the team off, got down to just survival level of headcount, while engineering was working on getting us the ability to sell into other channels. And we did that over like a two year period. It sucked.

But I used that model. So I was using my accounting, my financial reports, to determine how did we perform against the model. And then I would use that to update the model and continue to see, how much time do I have until we're out of trouble or in more trouble. And I was able to get the business out of trouble and back into a good place, and then they had a nice exit a little bit later.

25:18 Geoff Gualano

What's interesting is, you're talking about using strategic accounting and forecasting and financial modeling as a way to support with survival mode. But there's also the other side, right? There's the part which is, how do we use this to get into growth mode? How do we use this to plan out inventory purchases? How do we use this to plan out hiring, right, with our projected growth?

25:44 Stephen Brown

How do we use this to maximize profitability?

25:47 Geoff Gualano

Bingo, bingo, right? So level three, I think, is when folks really start to see the light, where they've transitioned from, okay, accounting is necessary because I need to file my taxes, to, I can see why accounting is valuable in phase two, because I now can understand what's happening in my business, to phase three, accounting is now starting to get really strategic and is becoming a lever for us to achieve growth or, Stephen, in your example, to survive, right? Because the reality of the situation is you're going to be in one of those two camps. Hopefully you're in the growth camp. But it's really, really helpful when you're in this level.

26:30 Stephen Brown

I've used planning and forecasting in every business since that experience, and it's the only way to go, in my opinion. Could I plan and forecast without accounting? Maybe. It would be really, really hard, right?

26:47 Geoff Gualano

Who would trust your numbers? Who would trust you? No one. I wouldn't.

26:52 Stephen Brown

Yeah. Good accounting makes it so much easier. So back then I had accounting building my financial reports, and then I was building the models. Kind of the same thing today. I have a team that usually does the accounting and then I'm usually building the models. Because you kind of have to have a basis of what happened when you build a model, and then you layer in, hey, we're going to do all these different things. We're going to go into TikTok Shop. We're going to deploy into AppLovin. We're going to do this, we're going to do that. Or we're going from just Shopify to Amazon, or maybe going from Amazon to Shopify.

27:35 Stephen Brown

You build that baseline model and then you layer on, let's put together some projections on top of what we're going to do. And what does it tell me?

The problem is when you just wing it, right? When you just kind of go with the gut, your outcome is very uncertain. When you do a little bit of modeling, it's still not going to be exactly what you think it's going to be, but you're more likely to be in the right range. You're more likely to understand, the more time you spend trying to model things, the more likely you're going to hit a desired outcome.

28:05 Phase four, lenders and buyers

Geoff Gualano

Yeah, I totally agree. Which is a really good segue into phase four, right? Because if you have a solid accounting foundation that's informing how you're looking into the future through your forecasting and financial modeling, phase four really is when all of your financial statements are in a place in which they are accurate and they are clear and they're able to be used in the context of acquiring lending, of bringing on investors, or of selling your business, because it gives those individuals the visibility that they need to make an informed decision.

28:50 Geoff Gualano

And the foundational accounting, right, is required for them to trust your financial modeling and forecasting when you are in the process of either getting lending, selling your business, or taking on investors. So that's really where phase four comes in. Phase four is, you now have financials that are pretty close to GAAP. You have financials that are very clear and accurate, and that can be shared with confidence with third parties so that they can make informed decisions about your business.

Anything else that you would add to articulate what phase four is all about and what the value of phase four is?

29:24 Stephen Brown

Well, let me put it this way. You may not value your accounting, but let me tell you who does. Lenders, investors, and people who want to acquire your business.

And what we saw in 2021 and into the beginning of 2022, actually probably end of 2020 to the beginning of 2022, you saw this huge surge for ecommerce and you saw a lot of acquisitions. Anybody who went through that, some people went through a rude awakening, because they're like, hey, my business is doing great. And then somebody who was really savvy would come in and be like, what about this? What about that? And all of a sudden the value that you thought you had in your business wasn't there, because you hadn't been accounting properly.

I've got an example, if you'd like it.

30:12 Geoff Gualano

Yeah. And before even your example, we see thousands of brands at A2X, right? And during that period, the amount of deals that we've seen kind of fall through the cracks because they did not even have any accounting in place, and then come and rush to A2X to be like, we need to get our books in order, we're in the process of a deal. We saw that happen time and time again. Which I'm wondering if it has anything to do with your story that's upcoming.

30:42 Stephen Brown

So here's the story. We had a customer, and probably one of the worst areas for ecommerce is inventory accounting. It's super difficult. We're going to talk about that in future episodes.

But it was a decent sized business, and the acquirer had employed a top, I want to say top 10 or a top 20 accounting firm to do a review of what was going on. One of the things that we had been telling them for years is, you need to do an inventory count and just true up your inventory balances and whatnot. They didn't do it. They didn't want to do it. It's hard, it's kind of expensive.

31:30 Stephen Brown

But what happened is they went up and they did this count, and there's this, it was a large number that was off. And so they applied that difference to the most recent financials. At least I think they did, I never heard what exactly they did. I told them, you guys haven't done a proper adjustment for years, you should try and get credit and try and spread that over a period of years. But those previous years had been closed, taxes had been submitted against them.

31:55 Stephen Brown

And what the problem is, is like, let's say you have to take a half a million or a million dollar hit. That's a big number. I don't think it was that exact number, but it was large, in your profitability in your most recent period. That's what they value you against. So you're eating past years' mistakes, which ultimately can affect your value. Back then that was four, five, six, seven times your profit is what those values were. It's not anywhere close to that anymore.

And they took a huge hit because they hadn't been doing proper accounting as they went, even though we'd been telling them, you need to do this process and you need to make those adjustments. So it could have cost them millions, or at least a million, in value. That hurts.

32:34 Geoff Gualano

100%, 100%. And I love the statement that you made earlier around, you might not care about your accounting, but you know who does? That is such an incredibly accurate statement. Third parties who are evaluating your business.

So that would be phase four. So just to recap. Phase one, accounting as necessary, primarily so that you can file your taxes. Phase two, accounting as valuable, because it gives you visibility into the performance of your brand. Phase three, accounting as strategic, because it allows you to use that historical information to look ahead into the future. And then phase four is accounting that is so rock solid that it provides third parties with such visibility that they can make informed decisions to either lend you money, to invest in your business, or to acquire your business.

33:37 Geoff Gualano

And kind of in the theme of make or break, right, at every single stage you need to be doing this correctly, because it can make or break your business.

In stage one, it can make or break your business in that, if you're only looking at top line revenue, you actually might be operating at a loss and have no understanding or visibility into that, and then by the end of the year have less money than you went into it with.

In stage two, what can make or break your business is if you don't have proper accrual accounting and you don't have great visibility into your cash flow, and you come up to an inventory crunch or to a money crunch where you need funds, you need to make payroll. That could really crush your business. We've seen that happen time and time again.

34:10 Geoff Gualano

And in phase three, if you don't have the foundational and accurate accounting to support your modeling, A, I think personally you're going to have a hard time getting people to trust what you're talking about is going to happen to the future. And it might be wrong, right? And it might lead the business astray. You might be planning for growth, but actually you should have been planning for survival mode, had you actually known what was happening in the business. Or vice versa, right? You might be missing a growth opportunity because you're focused on survival mode, because you don't really have that true visibility.

34:44 Geoff Gualano

And then on the make or break for phase four, it could get in the way of lending, or it could lead you to a situation where you're getting bad terms. It could limit your ability to maximize your multiple during an acquisition, or even kill the deal altogether, and it can turn investors away, really.

So it is of critical importance at every stage of the process. And there are tools and there are services that can help you achieve your objectives, can help you get to the next stage. But it is of critical importance. Is that a decent recap of the four phases, and as well as why they're so important?

35:25 Stephen Brown

Yeah, no, I think you nailed it. And like I said, you come in phases, but don't get stuck, or don't ignore maturing your financial and accounting practices over other areas of the business. You need to be doing these in conjunction as your business grows and matures, so that you don't get limited by the lack thereof.

35:48 Geoff Gualano

Yeah. And I'll just make one mention. One of the things that keeps coming up is this idea of accuracy, right? Accounting by nature needs to be accurate. And there's a lot of FUD that's happening right now about artificial intelligence being able to come in and automate accounting.

And okay, I am a tech optimist. I've been in tech for quite some time, I've seen the evolution. I think that what we're seeing in generative AI is probably one of the biggest technological evolutions that we've seen since potentially the internet, in my opinion, although I was quite young when the internet came to be, but that's neither here nor there.

36:25 Geoff Gualano

And I do think that maybe AI will be able to automate a portion of accounting, or at least it'll help you get close enough. I think in the context of ecommerce though, in a world in which you're selling across multiple channels, you have multiple payment gateways, you're potentially across multiple states or multiple countries and multiple currencies, given the volume of data and different data sources, I think accuracy becomes even more important in the context of accounting, because there is just so much going on.

36:53 Geoff Gualano

We're not talking about a traditional professional services business. We're not talking about a monthly recurring task business. We're talking about a highly seasonal, highly inventory dependent and multi-channel organization with just a tremendous amount of data. Accuracy in the context of ecommerce, in my personal opinion, and I am obviously biased, is of critical importance.

I think that AI will help automate a lot of the process, but I don't think that it'll help automate the process in totality, just at least for the foreseeable future, in my opinion. I'm actually quite curious to hear what your opinion is, Stephen.

37:39 Stephen Brown

I think AI is going to automate parts, potentially significant parts, but there's a lot of work to do.

I've heard, I think there's a Bill Gates quote, like people underestimate how much progress they can do in 10 years, but they overestimate what they can do in a year. That's kind of like AI. It hasn't taken over the world yet, but maybe it will in 10 years. So there's a lot of hype. There are definitely some things that are beneficial today, but there's a long way to go.

38:16 Geoff Gualano

Yeah, I'm totally with you on that. I do think it's interesting, and I'm very curious to see how this is going to evolve in the future.

But one of my favorite quotes is, if businesses involve people, you'll always need people on the other end to make sense of what's going on. Because people inherently, we just do weird things. We make weird purchases. We make strategic decisions that are instinctive and gut to us, but on a piece of paper evaluated by artificial intelligence won't have that context or that information. I always love that quote. If people are continuing to run businesses, you're always going to need people on the other side to help them make sense of what's going on.

39:03 Stephen Brown

I agree. So let's wrap this up. Geoff, if somebody wanted to connect with you, what's the best way for them to do that?

39:11 Geoff Gualano

I'm available on LinkedIn and Twitter. You can just search for me, for Geoffrey Gualano, and yeah, be happy to connect and chat. I love talking about marketing, I love talking about this topic.

And thanks so much, Stephen, for having me. Congratulations on the podcast, way to go on your cadence. The fact that you're at number three already and we're only January 8th is unbelievable. I can't wait to see this grow.

39:38 Stephen Brown

Okay, well thanks, Geoff.