Master Your Cash Flow – with Sarah Mathias, This Is Growth

Welcome to the bring your product idea to life podcast. This is the podcast for you if you're getting started selling products or if you'd like to create your own product to sell.

I'm Vicki Weinberg, a product creation coach and Amazon expert. Every week I share friendly practical advice as well as inspirational stories from small businesses. Let's get started. Hello.

Today on the podcast, I'm speaking with Sarah Mathias. Sarah. Sarah works with founders to help them focus on the fundamentals of growing their businesses. Always focus on profit, data and strategy.

She strips away any noise so they can spend their time where it matters. I've invited Sarah onto the podcast today to talk to us about cash flow.

Cash flow, as you all know, is so important when running a business, but it's also something that can trip people up. So Sarah shares with us some of the common mistakes she sees people make when it comes to managing their cash flow.

Some of the things we can do to better improve it, the numbers we need to be keeping an eye on. She even explains what to do if you. You don't consider yourself a number person.

And she shares a few pieces of advice I've never heard anyone say that actually make a lot of sense.

So whether you are just starting out in your business or whether you've been going for a while, I really think there's a lot to take away from this episode. So I would love now to introduce you to Sarah. So, hi, Sarah, thank you so much for being here.

Hi. Thank you for having me.

Oh, you're welcome. Can you please give an introduction to yourself, your business and what you do?

So I am Sarah Mathias and I own a e commerce consultancy called this is Growth.

And I spend my time working with founders of small businesses on a variety of sort of marketing activities and touch points throughout their business.

So we cover everything from email marketing, meta ads, strategy, pricing, but generally, you know, overall, with a focus on driving profit within their business.

Amazing. Thank you. So you've joined us here today to talk about cash flow because that's something that obviously for small businesses, is often top of mind.

Yeah.

So first thing I'm going to start by asking you is cash flow issues are quite common in product businesses, particularly when they're new, because it can take a while to sort of get the hang of managing your cash flow. First of all, let's start with why is managing your cash flow so important and what are some of the early warning signs? Maybe things aren't on track.

Yes. So I am a huge advocate of getting to know your numbers.

Basically And I think one of the major issues is that a lot of businesses sort of start off without, you know, sort of in depth knowledge about what figures they should track and how that business should look financially. So, you know, most businesses start with an idea of product they, you know, are personally attached to, you know, in most cases.

And I think the sort of mistake that a lot of people make is they, there's that huge focus on products which obviously is super important, but it's like, you know, they'll bypass like the numbers side of things.

And then what I find with most people I work with is that they come to me sort of a few years down the line and they've got this huge cash flow problem. That is one of the biggest things that I work through with people.

And it's mainly down to the fact that they've not sort of set themselves up, they've almost set themselves up to fail in the first place. And then they've not tracked those key metrics throughout.

So now they're like caught in a sticky place almost and they're trying to like get out of it. But I think for most small businesses, you know, there's many sort of reasons why you can sort of get into that cash flow issue.

But I think first and foremost, like, if you are going to set out to actively try and avoid that situation, the main, main thing is just getting to grips with those figures, understanding and getting used to looking at a P and L and really understanding, you know, the difference between what comes into the business and what goes out of the business. Because ultimately, you know, what is in your bank is what is going to keep you going.

Essentially, you know, it's all well and good on paper, but ultimately if the cash isn't there, it becomes very difficult. It's like your hands are tied, you like completely trapped almost.

That makes sense.

But I think, you know, one of the, as I say, there are numerous sort of things that can get you into that situation.

I think one of the biggest things for me that I see time and time again and again, this probably comes off the back of sort of not knowing how to manage that financial side of the business. There's almost two things that go hand in hand that I see often.

First thing is a poor margin, a margin that is set off almost, you know, like off the bat as poor.

So like when we're looking at that buying in margin, they've either not accounted for everything around that margin or it's they have and it's just a really poor margin to start with. So for me, anything over 50% is what I would aim for.

It becomes very difficult sometimes it depends if you are a reseller or you've got your own brand. If you have your own brand, it's a bit more of a license to charge, not what you want, but it's obviously got to be within your niche.

But it gives you a lot more scope to gain that margin. Reselling, very, very difficult because you are dictated to as to what that margin should really look like.

But often I find that a lot of people come to me with that poor margin to start with. And it could even be things that are eating into that margin, such as they're not accounting for shipping of every order that's going out.

You know, there's always something, when you really scratch beneath the surface that there's something missing that they're not accounting for in that margin. And, you know, it starts with product.

But ultimately if your margin is really poor, you sort of setting your stall out poorly in the first place, so you're really making that job, you know, making the job difficult to achieve a really good margin. And then the second thing, which I see time and time again, is people taking too much money out the business.

So I think initially, when a lot of businesses start, you know, most, most businesses are starting as a sole trader. They don't have, you know, they, they're probably not paying much tax at that stage. They might be registered for vat.

So the margin seems, when those costs are relatively low, healthy. And a lot of that can be masked within the business.

And then they start taking money out of the business and they get used to taking money out of the business and continue to do that. Now that can go on for years. And then over that period's time, hopefully sales will increase, but so will business costs.

And actually the need to reinvest in the business becomes more. But they are still draining the business of all the available cash, basically. And that can only end in one way.

And it is not a good way because, you know, if you strip that business of the cash, it needs that cash to keep going. That cash flow is the, you know, the lifeblood of any business. So to take that away, it's, you know, it is, you're going to end up stuck.

And I think I do see a lot of businesses close and there's loads of reasons, you know, there's lots of things that add up, you know, that come bring them to that point. But ultimately when you look at it, it's because they've run out of cash. And I think, you know, it's just a place you do not want to end up in.

Definitely not. Yeah, thank you for that.

And it's, I think it's really good for people to know some of the things, some of the more common things you see, because hopefully we can avoid them, we can talk a little bit more about how we can avoid them.

Something that happened to me as well, if you don't mind me sharing, is that when I had a product business problem I had was, is I didn't really account for how long it would take me to my products manufactured, how long it would take my products be manufactured versus when the payments were due. And balancing that against, I obviously had to then have the sales to make the money to fund future orders. And I got in such a mess with that.

Is that something else that you see or.

No, that is not just you, that it happens all the time. So that goes back to my point about taking cash out the business and reinvesting it back in. So that is why every business needs this buffer.

Because you know, like you've said in that example, if you are manufacturing products, you've often got that down payment very early before you can sell that stock.

If you are not selling on a, you know, a pre order model, then you've got a big lag time often between putting that down payment on that production right through to getting that product on your shelves, you know, and on the website and ready to sell. So without that buffer of cash in the business, it becomes very hard and you feel like you're robbing Peter to pay Paul.

And then by time you get to that point paying yourselves just like out the window. And there are a lots of reasons really.

So like you've just mentioned there about stock, stock is one of the biggest sort of challenges for a lot of businesses being able to afford this stock when you need the stock.

Because obviously we want like frequent and regular sort of drops, we want that seasonality and we want that variation for the customer to bring back that customer who is going to return and also to attract that new customer customer as well. So, you know, stock, what I see often is the, an overstock problem.

Overstocks are a massive issue and this often comes back to the point of sort of getting really, you know, intimate with those key stats around your business and understanding, you know, the run rate, the sell through rate, the lead time, all of those things have got to be factored in.

Often I speak to people who are sat on a load of stock, maybe they've overbought or if they're in a clothing business, this is normally the worst because it sizes and it skews a lot more. And they have bought the wrong sort of almost like quantities and proportions of size.

And that's often because they don't pay enough attention to looking back at previous sales to then figure out what to place that, what that purchase should look like. And I think, you know, for me, that's why I'm so into that data, because the data can give you all the information you need.

You've just got to use it in the, in the best possible way. You know, if you look back at your previous sales, you can tell in a season what ratio of, you know, size 10 to 12 you've sold or whatever it may be.

You can see all of those things. So then if you use that information to then place, you know, future purchases, hopefully you will sell through in the way that you have in the past.

You also don't want to be over buying and sitting on too much at once. But then that comes down to the lead times that you're up against and the seasonality.

Christmas is a really hard period for that because you're buying quite in advance, you're planning in advance, you're placing that purchase, but you almost don't know. You do know, and you don't know if you're going to sell through.

And the panic for most businesses when it comes to Q4, what the thing they dread is, well, if they're going to sell through and then not be able to repeat that buying time, so they feel like they've lost a load of money then, and loads of sales that they could have had.

But also no one wants to be sat on that Q4 stock because once Q4's passed, often if it's Christmas, you know, unique products, they can't sell it after, you know, after Christmas. But I think I like a sellout model, especially for a business in its early days.

And when I say early days, I'm talking like five years pre, you know, up to that point. It's still quite early in your business journey. I would rather sell out than have that stock sat on the shelves.

Because the thing about selling out is it often builds that hype as well. And it sort of teaches and educates the audience that if they don't buy, it will sell out.

It doesn't always work in every business, but it can work really well. But I think, you know, the biggest sort of debilitating thing, it's like a weight, like an anchor around the Business is what is sat on your shelves.

If you can't shift that quick enough because you've overbought and it's not, you know, the run rate's just too slow, then it's gonna, you know, I've seen businesses that when you look at the rate of sale, they've got product that has got another 500 days left on it. You know, it's like so long.

Anything over that, you know, really a season is as long as you want to go with your stock, but that depends on the lead times you're up against and when you can repeat on that buy as well. It's a, it's a always a slight gamble. It's a bit of a finger the air which any merchandise will tell you.

But you base it all initially on what has gone before.

That data is so crucial and can guide you, you know, so well that it's, you know, why would you not use it almost, you know, it's there for the taking really. And it's, it makes your life so much easier. And I'm all for making your life easier.

I don't think there's any need to over complicate anything like that.

That's really useful. Thank you. I really liked your point about a sellout model. No one's ever spoken about that before.

Probably partly because some of the business I work with sell on platforms where if you do sell out, it's a problem because you start, you know, going down the algorithm.

But I guess if you're selling on, you know, your own, your own ground, your own website, your own Shopify store, whatever it is, you absolutely could have that kind of model. And would you also recommend pre orders for the same reason?

Yeah, so pre orders are just like great for cash flow because obviously you can get the cash in.

And you can also get, you know, often your pre orders are doing the buying for you because they're telling you, you know, in what ratio to purchase that stock and the, you know, the amount that you do need to buy. Yeah, pre order. And so, yeah, pre order model is absolutely great for that because it just brings that cash flow in.

But that sellout model is really, really powerful and it's not something that you might want to stick with, you know, for the existence of the business.

But ultimately, like in those first few years, it really does train that audience and it helps with every launch, you know, in those businesses where they do sell out. And it's a fine line because you don't want to really annoy your customer base.

But ultimately when you do sell out, it does teach them that that is how it operates.

So then with every launch after that, it becomes stronger and stronger and then hopefully, you know, you're going to sell a little bit more with each time as you recruit more customers into the business as well. So, yeah, it's definitely something I would definitely consider because it's, it can just be so powerful as well.

I didn't even think of that, but now I'm thinking now that actually even some of the bigger brands do that, don't they?

I mean, not on every line, but for example, every year there'll be some for everything in Zara or Marks and Spencers that sells out and that's it, it's gone. You know what I mean? These key pieces and they just go.

And people absolutely flock to the shops to buy them because I, they get that if something's in the press, it's probably going to sell out. So I think I can see there might be some nervousness around having a model where, you know, there's only a limited amount of stock.

But actually I think it probably makes it more coveted because people are like, oh, if I don't, if I don't buy it now, I might never be able to.

Yes, exactly. And obviously it's word mouth and it gets people talking about you as well, which is free.

I know some big businesses that, that will hold stock back and fake a sellout and then restock and bring it back in. But we've had it all along and it's just to train that audience to, you know, when it goes on sale, you need to buy it if you're gonna buy it.

And it also allows, what's great about it, sort of going off topic a little bit is that when you are on the run up to that launch, you can openly quite share, you know, behind the scenes stuff. And like you've seen Peaks fit and it builds that hype all along.

So when it does go live, you know, from the minute you mention something new, it could be six weeks before people know that's going to sell out. So you almost get in there like buy in right early on.

So by the time that goes live, you've got a, you know, it's more, it gives you more confidence as well because you know it's going to sell out and you're not going to have it on your shelves. I would absolutely rather that model.

It's also more controlled and I think often as founders, you do feel like you can lose control a little bit, especially if you look around and your shelves are full and the sales aren't coming in and you're thinking what am I going to do next? How am I going to shift this?

And then on that point as well, you know, if you are in that situation where you have got that overstocks, what do people always, you know, end up doing is discounting? Now I'm not against discounting at all. It's absolutely got its place but it has to be very structured and thought out and planned.

It does not work if you just, you know, frequently discount Again. The conversation about teaching the audience, it teaches them to wait for that discount which you don't want to be in that situation.

You want them to buy most of them to buy full price.

But you know, even going back to my initial point about margin, if you've got a really poor margin and you've got stocks that on the shelves and you are discounting all the time, what you're going to actually get is your like achieved margin is going to be very low. And then when you need that money to reinvest and buy more stock, you've caught yourself up and it's like catch 22 then, isn't it?

And you can't, can't get enough in quick enough for it to go out again. So yeah, I mean a business, an ideal business for me is a really good margin, a really good repeat customer.

You know, it comes back frequently time and time again within the year. A pre order model to get that cash flow in nicely to make it more fluid and just a sellout model as well.

Just keep that stock low so, so you're buying more frequently.

The merchandising side of the business has got more pressure on it but it's turning quick, it's really, really quick and there's more energy in the business and the cash goes out, comes back in, you know, much more frequently as well. Because you know, on top of all this is all the other costs, isn't it that is associated with running the business.

Whether that's just pure business costs or marketing costs, whether you're running ads, you know, all these things have got to be considered as well. And I think absolutely, you know, that is where you can see a huge cash flow issue arising. Really.

Yes. And that sounds like, I mean stock seems like to be the biggest cost.

But I would actually now you've brought up costs, I'd be really interesting from your perception to know what do you think?

Have you seen any common sort of misconceptions around other business costs, especially in the early days, you know, do you see things that people are investing in that actually in your opinion, they could, they could wait a few years or maybe vice versa, but they're things people often don't invest in that they could be.

Because I think it could be a real challenge running a business, especially if it's your first business, if you haven't got hands on the financial side. And I can, again, I come back to my experience. I don't mind sharing. I made mistakes. I spent money on things that I didn't need.

But also probably there were things I should have invested sooner. Like bookkeeping, for example. Absolutely. I should have got someone on board of that earlier. It's really hard to know because every penny counts.

But I think all of us probably have made some bad decisions. So tell us some of the common things that you see both ways and what your thoughts would be.

Yeah, so one of the biggest things that I see is like an overall comment is just people getting attracted to shiny things, thinking it's going to solve the business problems. And actually what it comes down to is like the key fundamentals and pillars around building any product business.

You know, every business is different, but ultimately it's built upon the same fundamentals that you've got to have in place. So I think it's, you know, it's overcomplicating things, essentially.

You know, I come into a lot of businesses and one of the biggest, sort of the biggest things I will focus on to almost move the needle and really improve what I can see in front of me is actually using what they've already got. But it's building it in the right way and using and focusing on the right things as well. Like, you cannot do everything. It's impossible.

I always say, you know, just go for that lowest hanging fruit. Don't mess around trying to do a good job of everything, because you're not going to do a good job of everything.

It's about knowing your strengths, knowing your weaknesses, seeking help where you can to cover things like, like you've just said, like an accountant that takes a weight off your shoulders. And it's also something that you know can just be dealt with relatively low cost.

But I think one of the biggest things that I see people almost waste money on really is ads, doing, running ads too soon when they are. And it's not actually about running them too soon, it's running them before they are ready.

So I've seen businesses that set up and they're, you know, they're running ads within six Months. But it's actually the, the set up well for it. A lot of businesses, that is a massive cost.

So when you're looking at business costs, ads is always one of the biggest things that stand out. Now obviously, you know, they're not cheap, but those figures have got to stack up.

And the amount of businesses that I go into and I look at those ad costs and actually they are, you know, paying people to buy that product like they're not even making money on that product. And it's often down to, you know, the poorly run. The messaging's off. The messaging is the main thing. It's normally that is off.

But then when I go onto the website, you know, I see the same issues there and it's just, they're just not ready. They're just not at that point where they thoroughly understand their business well enough.

And going back to, you know, how important it is to get a grip of your figures, it's normally that that's falling down and they are, you know, paying someone to run the ad who is, you know, not even aware of those figures within the business. So actually it's, you know, it's causing them a headache cost wise. But then there are other costs.

You know, like I see people pay too much for fulfillment, all kinds, like paying too much for the email marketing, not suppressing enough people, not making sure everything's running healthy in a healthy way and keeping those costs down. Especially in those early years, like every six months, I would do a check on your costs as a business and see what you can bring down.

I also think, you know, for me it's like, do it, do what you can yourself until you could, then can't do it. So they'll become, you know, every business will hit a point, every founder will hit a point where they're like, I can't do this anymore.

Because either there's too much to do or they haven't got an understanding of the thing they need to get a grip of to push the business forward. But for me as a founder, I think it's really important to understand those fundamentals.

You know, it's all well and good seeking help, you know, even from someone like me, but I will always make sure that the client understands and is, you know, I'm also like educating them along the way.

There's no point me just taking it and doing it all and then having no idea of actually what's going on because, you know, we know better a position there. Because once you understand those key fundamentals of running a business, you know, you can go run another business.

You know, the same methods almost applies and it is almost like a, it's almost like a maths equation, isn't it? And you've just got to crack it, understand it and know what bits to pull and push at the right time for it to stack up really.

But I think, yeah, the biggest thing I see is just those business costs being far too high.

You know, every business has got business costs and some, you know, some businesses I look at and you know, we get those business costs down and we're like, okay, this is the cost to run the business, but actually the P L looks really poor because there's not enough sales coming in. So then it's a case of, well, this is actually the cost to run your business.

So unless you can hit this revenue with sales, you're always going to be, you know, you're always going to be losing money.

There will be like sort of a drop dev figure where you know, this is what you have to get through and power through in the first part of the month, then achieve profit and margin after that. It's not a case of you can, you can't always adapt the business cost to the revenue coming in.

You know, often there's a challenge of how can you increase that revenue to account for those business costs, really. But I think generally overspending is huge, absolutely huge.

Like I can't think of one business that I've not gone into and being able to say, well, strip that back, strip that back. You don't need to be spending that. You know, it happens every single time and it's easy to let it run away.

But I think for me it's all about keeping check on things and sort of planning in advance and just keeping an eye on everything, really.

Yeah. And I think that's something, as you say, can easily get lost as well, especially when you've got all the other things to do.

I know for myself, I mean, I don't sell products anymore, but I have a service business. But I know the exact cost to run my business. I know what I pay out every month, therefore I know what I need to earn.

And like you said, I review that every couple of months just to be sure. Okay, am I, do I really need this software? Is there something cheaper or is there another way of doing it? But I think it could be.

And, but I've, you know, I've been doing this for a long time and I've only really just, let's be honest, got into the habit of doing this, but it's, it's definitely helping because I know what's, what's due and what, and what's due when. I would love to know what cash flow practices that you would recommend. I mean, hopefully that, hopefully that is something that is one of them.

But what else would you recommend that even really small businesses can do to really keep an eye on, on their cash and also predict if there's going to be a problem? I think that's a big thing as well because often someone, I'm sure you get, people come into you and just go, you know, I don't have the cash.

You know, things are quite dire. Anything they can do to sort of get ahead of it would be useful.

Yeah. So I would always say, you know, I say the same thing from the start.

You have got to keep your own P L so, you know, almost not ignore the P L your accountant gives you because it's often very. It can be, it can feel complex and almost overwhelming.

When I say a P L, people think of the one they get, you know, when they're going to file a taxes.

And it can be quite overwhelming that really in a really basic, you know, formula, almost all you need to know is what is coming into that business and what is going out of that business, what liabilities you've got, such as, you know, your tax and your vat. But keeping track, you know, from the start of what is coming in and what is going out.

Now to your other point about, you know, knowing what needs paying when and knowing sort of predicting what is coming sort of in the future. So I would always map out like the next 12 months as good as you can. There's, you know, it is still a bit of guesswork now.

If you've got like years gone by of business, it's easier because you can base it on that previous year or whatever. But if you haven't got that and you've sort of six months formed or whatever, it's much more difficult.

But what you can do is almost apply a, you know, a basic uplift to those months. So like say we're coming into Q4 and you've got a product that will sell well in Q4.

You can apply, you know, an uplift for those for your normal average month and you can sort of have a guess around that. But one of the key things I would say back to my earlier point, don't take any money out the business.

And I think this is something that most people do not talk about. So for me, if you're setting up a business to, we all want to be paid, we all want to earn money.

But if you are in a position where you have maybe, I don't know, lost your job or you have thought about doing XYZ for years and now you're going to make that break and you're going to go, you can only do that if you do not need that money out of that business for a couple of years.

And I know that is a really sobering thing and harsh thing to say, but unless you've got either a partner who can cover those, you know, those bills along the way, not business bills, you know, like just general living and can cover that for a period of time, or you've got a pot of savings that you can live off. For me, you leave every penny in that business for a good 24 months easily.

And what that allows you to do is like I said before, is have that buffer of cash in the business and also observe those patterns seasonally, monthly, generally, you know, like you said about, you know, buying stock. So say you are manufacturing product and you might have four main drops within a year.

So you can roughly then map out when those drops are going to be. But I think one of the other things that I see not happen frequently enough say, let's talk about Q4.

So say you have got products that is gonna, you want on your website, you know, out for sale by 1st of October.

What you need to then do is only, you know, the lead times, you know the sampling times, you know the shipping times, you know all of those things, how long it takes to book into the warehouse, or maybe you're still dispatching from home, all of those little time slots. You've then got to work right back from that period, you know, say from the 1st of October right back. So I would say when do you need to sample?

When do you need to first sample in your hands of that product? That could be April of that year. So when are you going to start designing that product?

So in theory you're going to let this Christmas pass and then you're going to design next Christmas from January. That's, that is the reality of what you would have to do to land that product.

So then you would almost be able to predict when that down payment would be for that particular launch. And you can generally map out, you know, when the money will need to go out.

But I do really stand by, you know, you cannot take money out of that business to start with. If you are setting up a business business to earn you money straight off, you're gonna believe you're gonna, you're gonna become unstuck.

Unless you're telling me you've got a 90 margin and you, you know, you're gonna get, I don't know, 100, 000 customers in the first year or whatever like that. You just can't take the money out. There's just no way. You've got to have that money in. So you can then see, you know, exactly what's happening.

And like my point before, it's, you know, at the start of every month or even if you do it every quarter, see what stocks on the shelves and what that's worth. I often go into businesses and, you know, we look at that and there's like 400k on the shelves at retail value.

So, okay, we're gonna have to slash that at 50. So you're just gonna release your money back off those shelves.

And that's another thing, actually, I've not mentioned is that I think there's this fear around. Like if you look around and you see that stock sat there in your mind, just see notes sat there, because it's just money on the shelf.

So if you need to get that money back out and release that money back into the business, just do it. Just get rid of that stock. I think people, like start off very cautious about discounting that stock or trying to shift that through.

But actually the reality is, until you are doing like, I'd say 3 to 5 million a year, you can do stuff like that.

You can afford to make mistakes and you can try things out and be a bit more scrappy because there's not enough people watching you to, you know, to not do that really. And I think you've got to do what's best for your business.

And if that's just slashing the stock to get the money back out so you can buy, you know, say if you were doing that to gather money to put down for Q4, then that's what you would have to do, but only if you can learn from how you've ended up in that situation to start with. And I think that's key.

So I think going back to your initial question, it's like tracking everything from the start, but mainly just what's coming in and going out and not taking money out of that business and just leaving it to sit and having that buffer along the way, especially in that early periods time.

That's really interesting. Thank you. And you know, you're right. I haven't heard anyone say don't take money Out.

But I have spoken to a lot of founders who haven't taken money out. I speak to people who've been running their business for two, three years and, and their business looks to me like it's going really, really well.

And then they say, you know what? I haven't taken a penny so far.

Yeah, but you've got to allow it to accumulate because, you know, if it was that easy, you want to see businesses closing and you want everyone to be doing it. Like it's about doing that hard thing for a long time before you can take that money out.

And I think, you know, but, you know, paying yourself, it is still like a taboo subject really, isn't it? Like, most people don't talk about it at all.

And the amount of people, like I even, I observe as a business, you know, who I think you know from the outside, they're doing great. And then I come to work with them years later and actually see what's going on behind the scenes.

And it's not that they're doing terribly, but it's totally different picture from what you get as a customer consumer. So I think it does pay off. It does definitely pay off. As long as you are setting your stall out from the start in a.

In a, you know, a way that will not limit your growth and will allow you to grow. Because initially, in those first few years, the focus is on getting customers in.

You're essentially buying customers because without the people, it doesn't matter what you got to sell, you won't be selling it. So it's the frequency that they return and it's the frequency that they come in every month, every quarter, every six months, every year.

And that is what the focus should really be on to start with. But, yeah, it's taking money out. It's just a. It's a killer. It only ends in one way ever.

That makes so much sense. And, you know, I know that there are people doing it, but you're right. I haven't seen people talk about it, but it does make a lot of sense to me.

And it sounds like if you can be really deliberate at the start, because obviously we all start our businesses to make money unless it's a hobby. But for most of us, it's not a hobby. It's, you know, it's going to be our income.

But it definitely sounds to me like if you can say, okay, I'm going to do this for two years and I've got enough money that I can do this for two years about taking a penny out it does sound like you're setting yourself up, up for a lot easier life in the long term than if you're from day one taking money out as you need it.

Absolutely. Or you do pay yourself, but you pay yourself consistently the same at a level that is perfectly achievable.

Because what I see is, you know, even back down to business costs, business cost and salary that you are taking, you're putting pressures on the business that the business can't afford.

Like the, you know, if you think of the business as like, you know, someone you're borrowing money off, it can't afford to give you what it's giving you. And then, you know, obviously over a period of time, it normally doesn't take that long. Good. 12 months and you tight and you can't get out.

What feels like you can't get out. Yeah, absolutely. I think you've just got to be. It's about being sensible really, isn't it? But it's hard. It is hard, definitely.

And I do like that advice as well, that if you absolutely do need to be taking, you know, paying yourself to sort of budget, okay, I'm going to pay myself X amount every month and that's it. Because, yeah, I'm sure you've seen businesses before where they've.

People have almost used them like a, like a loan, you know, oh, well, I haven't got enough money this month, so I just take some out of the business. I'm sure that happens.

Absolutely, yeah. 100. Yeah.

Definitely not shaming anyone for doing that, by the way, because we all, we all make these mistakes.

We all do it. We all do it. Exactly.

But I think, you know, like going back to what you said before, like, obviously we, me and you are service businesses and it's almost like a little bit easier because you've not got that physical stock sat around. So like, you and I know what our business costs are and we know what we need to earn. We know at what point we get past that point.

And then, you know, the, the profit coming in is a little bit different. It's a little bit faster moving.

But for a product business, they're essentially like every time they're buying stock, they can be, you know, just putting some on the shelf, like just leaving it there. So it's really hard because it just erodes that margin then any profit, cash.

It was really, really hard. Now, I know you're a real advocate for keeping things simple.

It's.

Can you give me some examples of things? You see brands overcomplicate that Perhaps in your opinion could be simplified?

Oh yes, I think it's again like I said before, just being attracted to those shiny things. Like for me I always say just crack one thing at a time. So if you can't sell organically, ads is not going to solve that problem.

And I think I see people spread themselves too thin. They'll try a bit of everything and then they'll see they'll get drawn something else. Oh, this might work.

Actually the issue is normally much deeper than that but it's actually quite simple. So it could be a product problem. You know, no one ever talks about is the product actually not that good?

You know, people think, people just assume when they put a product out there that it's great because they believe in that product. But actually if the demand's not there and you can't sell it yourself, you know, organically, then how are you going to sell it when it's marketed?

It's going to actually eat more of your cash up.

So I think that's something I see people over complicate really like thinking it needs to be this sort of complex system of different marketing activity and different, you know, different things within the business.

And I can tell you from having gone behind the scenes of you know, businesses starting out and businesses have been going for years, businesses doing 10k a year to businesses doing like 4 million a year, they often, when they nail it, they're running in a quite a similar way.

Like those fundamentals are still the same obviously, you know, the bigger you get, the more challenges that come, the more money that's coming in and going out and often, you know, the bigger the system and team needs to be.

So there's a bit more complexity there but ultimately it's not, people think oh, when it gets to 4 million or whatever, it's going to be this complex business and it's not, it doesn't need to be like that. It's actually quite simple and you can actually get to, you can scale those big figures with a team of four or five people.

You know, like it's not, it's not like a, especially these days, like it's just quite, you know, it's easy to do really. But yeah, I think it doesn't need to be this over complicated thing.

But then, you know, I think also like I said before, it's about knowing what you what, where your strengths are.

You know, for example, like people who end up setting up a business because it was a hobby, normally they fall in the like creative realm that is their strength no one can do that job other than them. No one can come in that they can employ to do that aspect of the job.

So if they struggle with everything else or a lot of the other parts of the business, then you need to, you know, build that business so you can then get assistance on those other parts. You know, like, figures is often the main one.

People who have set up sort of a creative business might have started as a hobby and now it's a business, and they feel like they can't get to grips with any of the figures or, you know, they don't understand it. You can't ignore that. There's only so long you can ignore that for.

And what I often do say, which it does sound really harsh, but you can't just say, I'm not a numbers person. Because if you are running a business, you've got to be in. You've got to figure it out. There's no two ways about it.

Like, you're going to end up shutting up otherwise.

So I think that comes to a, you know, you get to a point where you can't ignore those numbers, and you either need sort of help and support and educating about what you should be looking at, but it doesn't need to be, you know, crazy, like, complex system. It doesn't need to be that at all, really.

Thank you. And actually, that's something I wanted to ask you about because I know there will be someone listening going, I'm not a numbers person.

You're talking about data. This is scary, you know, because it won't be for everyone.

And there definitely will be people who are feeling a little bit out of their comfort zone now, but what would you say to them? What are things that. For anyone listening who's like, I just don't have a track on this. I don't know where to start. What advice would you give?

I would say, yeah, you can't just say, I'm not a numbers person. Like, and, okay, yeah, you're never gonna be. Or you might never be someone who's like, well into the numbers. That is absolutely fine.

That's, you know, that is okay. I think just starting small and breaking it down.

Pay attention to the data that you've got in front of you, whether that's the back end of your Shopify analytics. You know, if you can read, you can learn. So it's like you can learn even the most basic principles about what you need to know.

And I think, you know, understanding always starts with products.

So understanding the construct of that product, especially if you are a maker or you're manufacturing your product, understanding the costs that go into that, that being recompentant in calculating that margin, margin's got to be the first thing you look at.

Because aside from all the business costs and however you're going to run your business and market business, that product's got to a, have demand in the market and it's got to be constructed in a, in a profitable way. So you know, breaking all of those components down and being really competent with your margin and that calculation, I would say that's number one.

That has got to be something you thoroughly understand because when you create products, you've got to be able to work that through yourself and figure out, you know, what that margin looks like. And then I think aside from that, it's looking at the costs of your business to start with.

As I said before, there's certain costs which are the costs like you can't get away from them, you can't run away from them. So when you figure that out, you feel like you've got a good solid margin and you're confident with working that out.

It's then looking at, if you think of it as a funnel, you know, the cash coming in at the top. So then it's a challenge as to how you go out and get that, you know, those eyes and that traffic.

But I think, you know, if it does feel overwhelming looking at your figures, start with your margin. It's got to start with that and just gradually sort of building on understanding all of the other things.

You know, you want to get to a point where you understand your average ord value, how that can fluctuate even throughout the year, how that can fluctuate based upon what you sell, how you can get that up.

And then one of the most, if not the most important thing once you've figured both those things out, is your lifetime customer value, which is normally looked at over 12 months, how often that customer comes back to you over that 12 month period and what they're worth to the business.

Because if you are selling a product that people only buy once and they never come back, you've got a lot of pressure on you as a business because you've constantly got the challenge to find new people. You've always got to find new people to buy.

Whereas if you've got a product that you know, people might come back twice a year for on average or even more, it's almost an easier business, you know, because you've got people who are there willing to buy. You've just got to either present it in the right way or give them new stuff to buy.

So I'd say they were the key, real key things really to understand before you venture into anything else sort of more complex than that, really.

Perfect, thank you.

And I'm assuming some of this like lifetime customer value is this things, these things you can get from the back of Shopify, for example, should be doing all the maths yourself or can you?

Yeah. So some of them, some of them you can get from the back Shopify, they are quite, quite laid out, you know, like quite.

It does what it says on the tin. But other stuff. No, it is a calculation really. Like you would have to figure out either. I don't mind if anyone asks me. I, you know, think that is.

I love to like almost empower like a founder to say this is how you work it out, go and work it out and you can see for yourself, you know, I want founders to understand how to figure that out. But even just a quick Google will give you that simple calculation. It's not complex at all to figure that out.

But for me, you know, understanding the figures is power. It's transparency of what is going on in your business and you almost can't make decisions without that knowledge.

So I think, you know, start as you mean to go on.

If you are a new business or newly formed or thinking of starting a business, you know, or even, you know, people six years down the line who've never looked at this data because that is frequent as well. Just start, you know, piece by piece, understanding these sort of key metrics really.

I, I mean if you scroll through my Instagram feeds, it's definitely on there, that calculation. I share a lot of stuff like that because I just think it's, you know, you've got to be able to work it out.

It's not like something you should have a gatekeeper or keep secret. It's like you've got to be able to figure that out for your business so you can know what the future is going to look like and where to go.

Well, thank you, Sarah.

And I'm going to make sure I link to your Instagram post or all your socials and your website in the show notes so people can come and either have a look and get the information or they can contact you and ask if they want to know more. But before we finish up, can I ask my final question, which is what is your number one piece of advice for other product owners?

Oh, you know what, I've probably got so much advice but if I had to narrow it down to one thing, it would be like the essence of what we've discussed. So it'd be really get to know your figures. You know, those figures can be as complex and as detailed as you. As you want to go with them, really.

But, you know, don't ignore them. Do not ignore them because it never ends up, you know, a pretty picture if you do so.

Just small steps to understand your figures and understand your business because, you know, you almost owe it to your business.

And it's so much easier once you do know those figures because you can make really good decisions, you know, going forwards, which will ultimately, hopefully drive more profit. And who doesn't want more profit?

That's brilliant advice. Thank you so much. Thank you for everything you shared with us.

You're welcome. Thank you for having me.

Thank you so much for listening right to the end of this episode.

Do remember that you can get the full back catalogue and lots of free resources on my website, vickyweinberg.com Please do remember to rate and review this episode if you've enjoyed it and also share it with a friend who you think might find it useful. Thank you again and see you next week.