Why you can't trust your Shopify numbers for a profitable eCommerce store, with Jaimie from Bloom Money

Jaimie – Bloom Money (00:00)
They had 300 grand of ad spend, it was a huge GST thing. Making sure your GST on your Facebook and ad platforms is being accounted for correctly. If you don't put your ABN into Facebook, you don't get the claim. And I've seen people do that. They assume the bookkeeper doesn't really know anything about Facebook, assumes it's an American company, goes GST free, but then the client hadn't put the ABN in. But if you...

Dahna Borg – Bright Red Marketing (00:28)
Do put your ABN in and you're GST registered, they don't charge you GST. If you don't put it in, they do add GST. It's not clearly explained to anyone.

Jaimie – Bloom Money (00:37)
That's why we have to look at the tax invoice, which is also really hard to find in the Facebook world. So we had to go back and amend all the BASes and then get that reconciled.

Dahna Borg – Bright Red Marketing (00:48)
And welcome to the Bright Minds of eCommerce Podcast. I'm Dahna, founder of Bright Red Marketing, and I created this podcast because I wanted to bring you the best advice from Australian experts in eCommerce and eCommerce store owners. If you're wanting relatable stories and actionable advice, as well as the latest Facebook advertising strategies, you're in the right place. So let's get into today's episode.

Hi, and welcome to the Bright Minds of eCommerce podcast. Today we're here with Jaimie from Bloom Money. Welcome, Jaimie. It's so good to have you on the show.

I think last time we had you on the show I ended up changing accountants, so...

Jaimie – Bloom Money (01:20)
That's how...

Dahna Borg – Bright Red Marketing (01:22)
Good, last call went well. I'm hoping someone else gets just as good advice as I got last time. So let's dive in. We are specifically here for this episode to talk about having that best financial year yet. If someone is running their business and they're thinking, this is the year I really want to not just have a good business year but financially be really sound, what are some things people can do to make sure they're running their numbers properly and focusing on the right things?

Jaimie – Bloom Money (01:49)
Yeah, I think with a lot of eCommerce owners I've worked with before, a lot of them focus a lot on Shopify and the financial numbers that are in Shopify. And while they're all super important, and there's a few important metrics in there to be tracking, I do think we need to bring it together with Xero and look at the whole picture. One of the things I get from clients multiple times is, no, that profit and loss isn't showing what's in Shopify. Like they're different. So I think actually understanding why they're different is a really important one, because not all of that is a higher figure. We're not including fees and GST in that number, so what you're looking at in Xero is more like a true reflection of your revenue.

Dahna Borg – Bright Red Marketing (02:44)
Very interesting. What do you think are usually the biggest differentiators in that? Because I have never had a client give me profit and loss from Xero, it's always numbers based off Shopify. So let's go into that a bit because I think that's really interesting.

Jaimie – Bloom Money (03:00)
Yeah, so why are they different? Yeah.

Dahna Borg – Bright Red Marketing (03:02)
Yeah. Really?

Jaimie – Bloom Money (03:04)
So it's giving you the actual number, like the customer is paying. So that will include the GST if there's GST applicable on it. Shopify doesn't actually have access to a lot of the fees, like the PayPal fees or the Afterpay fees or anything like that. So it's literally just telling you how much the client has paid, and doesn't take that other stuff into account.

Dahna Borg – Bright Red Marketing (03:26)
And then you're trying to work out profit margins to tell someone like me how much profit you're making, and then they wonder why the money is not matching up. Right. Does Shopify make it easier to integrate into Xero?

Jaimie – Bloom Money (03:36)
It's pretty, you kind of usually need a connector to make it accurate, especially if you have Afterpay and all the different payment types. Yeah, the best one I've used is A2X. Because that one can connect, it kind of connects everything, and then you can really choose how it feeds into Xero. And you can also turn on, for extra, a cost of sales function too. So every time it posts a sale into Xero, it can post the corresponding cost of sale into Xero. So you can put the landed costs into Shopify and then it can feed through A2X to push it into Xero in real time. So then you have a really true gross profit in there.

Dahna Borg – Bright Red Marketing (04:27)
Yeah, okay, that's really interesting, because I know that's something a lot of business owners really struggle with, in terms of trying to find out those landed costs and then the profit margins that are actually their true profit margins. Because obviously there's cost of goods margins, but then there's what that actually looks like at the very end. Okay, so if people are setting that up, I know the biggest thing I learned from you in the last episode was around stock management, in terms of cash flow. Like they've obviously gone and ordered tens of thousands of dollars worth of stock, sometimes hundreds of thousands of dollars worth of stock, and then they have really bad cash flow months. You have a really interesting approach to that. Can you please explain how that works for those listening, so that people can stop freaking out about really bad cash flow months when that's not actually what's happening as a whole in their business?

Jaimie – Bloom Money (05:16)
So I think there's two types of reports in Xero. We've got our profit and loss, which shows our revenue and our expenses and gives us our profit. But then we also have a separate report called a balance sheet, and that's where our assets and our liabilities sit. And our assets are our inventory. So inventory doesn't sit on a profit and loss, it sits on a balance sheet. And then those two together are your cash flow, it's everything.

So when we're worried about cash flow, it's not affecting our profit. So if you're buying stock on June 30 for the deduction, you're not going to get it, because it doesn't sit in a profit and loss. That sits over on the balance sheet. And then every time you're making a sale, that one stock item you sell moves from our balance sheet into our cost of sales section, to recognise the expense.

So then that way we're getting a really accurate profit and loss. And a profit and loss is like the picture of a period of time, so how that month has gone. So we have an accurate view of just the sales we've sold and the costs related to those sales, which again, isn't cash flow, but it is a tricky thing to manage the cash when you are doing that.

And honestly, cash is king. So we really have to be bold, because if their stock management isn't right, like they've put too much money into stock and the stock's not moving, then what are you going to do in that meantime? You have to pay wages, you have to pay ads. And if you can't, and you don't have those credit lines or a plan of how you're managing that, it's...

Dahna Borg – Bright Red Marketing (07:07)
Any tips around that, because I know that's something a lot of businesses really struggle with, in terms of going, okay, well I still have stock that's not clearing, but I know I need to start placing orders for things in the future. What are your strategies or tips on trying to manage that in the best way, so that you do have that cash flow when you need to get stock, but you're not overextending yourself too much?

Jaimie – Bloom Money (07:28)
I mean, it kind of depends on the risk profile of the business owner too. If you're a little bit more risky, happy to take the risk or get the funding. Sometimes not all debt is bad, and I think if you are going to be spending money to make money, and you're confident in that and happy to risk it, there are, I think there's even Shopify that fund inventory now, like PayPal fund inventory. And it works kind of well in that.

Every time you sell the stock, they just take a percentage. So what I've done with clients before is build that percentage into their sale price. So we have the cost of sale, and then we've built in a part for the overheads and then a part for the profit. Obviously we need that, and the tax. So we're kind of building the price backwards, based on, we need 10% for GST, we need 3% for fees, we need 20% to fund the inventory.

And then that way it kind of builds a good cash flow too, because you're paying down the loan, and it kind of just helps put all that together. Yeah, I do think eCommerce is one of the most complex inventory industries from an accounting perspective, because a lot of the banking stuff comes from overseas. Do you have FX? You have stock management, inventory, you've got all the accounting things that are really quite tricky.

Dahna Borg – Bright Red Marketing (08:58)
Yeah, and I think that's maybe where people are getting stuck, is maybe they don't have accountants that know these things. So stuff's just kind of getting reconciled by the business owner, because they don't really know where things go. And they're like, well, I made so little money this month because my profit and loss is so bad, and then they freak out because they don't have cash. And it all just accumulates if you don't know the inner details and workings of that, because it's just so complicated.

Jaimie – Bloom Money (09:24)
It is.

Dahna Borg – Bright Red Marketing (09:26)
Having that really good system that you talked about, and having it all mapped out, I think is really, really helpful. So I'm gonna say if you're listening to this and you're like, that's not how I have it set up, maybe start asking some questions.

Jaimie – Bloom Money (09:38)
Yeah. And a lot of accountants, if they're just trained in tax accounting as well, they only really do the tax accounting. So they're kind of assuming that what you've got in your Xero file is just ready for them to process their part of it. And in most small businesses, there's no real need to make adjustments for things like prepayments, because a lot of businesses are just small, starting on a cash basis. So there's no need for all these crazy adjustments, because it requires a whole different level of skill and a lot of time, and people are just trying to minimise the accounting piece. So I would even get that system set up by someone if they don't have that skill set.

Dahna Borg – Bright Red Marketing (10:25)
Yeah, for sure. I mean, even something you said, like working it backwards to work out price, I feel like a lot of business owners don't do that, because a lot of small businesses in eComm start just them, myself and I. So you don't really have anyone to go, okay, well here's how much it costs me to land, and I'll put a fifty percent margin on it, or a hundred percent margin, or whatever it is, and then go out into the world and never really look at their pricing again.

So I think some of those things you talked about in terms of pricing, is there anything off the top of your head, what are those things that go into calculating that price as you grow and scale?

Jaimie – Bloom Money (11:03)
Yeah, I think a lot of people, when they're just testing the water or starting out, they're like, I won't pay myself, I'll just see how it goes. But I think building in, if you're like, well, I want to get paid eighty grand a year, say eighty grand, divide that by twelve, and go, I need to make this much per month. And then go one step further and go, okay, well my average sales at the moment are like two hundred sales per month, so I need to go... like whatever the monthly amount is, what is it, four grand, five grand, divided by two hundred products. So I need to make this much for myself in every sale. And if you're like, wow, that's not achievable, either you need to sell more, or you need to say, okay, well this business isn't viable, I can't actually make enough to cover all that stuff and pay myself a decent amount that I want to be paid.

Dahna Borg – Bright Red Marketing (11:58)
Yeah, I think a lot of people go into it thinking, I'll just get to that later. But if you never actually go and do the maths, it's very hard to come back later and try to work it all out.

Jaimie – Bloom Money (12:08)
Does the maths math? The maths fan.

Dahna Borg – Bright Red Marketing (12:11)
We need the maths to math. We cannot go without it, it'll end up broken. Talking about tax and those sorts of things, are there any deductions that you see easily get missed? Obviously we're filming this at the end of July. It's a good time to start being aware of what things you can claim for next year that maybe aren't as obvious. Are there any kind of deductions that you think are really good in the eCommerce space?

Jaimie – Bloom Money (12:37)
So yeah, I guess one of the misconceptions would be stock, thinking that that's a deduction, and it's actually not. So we'll do a stock take at the end of June, and whatever you still have on hand gets added back into your tax. You don't get any kind of deduction from that, even if you're coding it to an expense account. So the accountant takes that, because it's not an expense, and adds it back manually.

So there's that. And I guess super could be one. If you're paying super late after the due date, I guess now it's harder in this financial year, but if you pay super late, you don't get a deduction for it. So that's an easy one that you'd assume applies for the April to June quarter, but if you pay it late, it's not deductible. It gets added back again.

One of the ones I see blended in and sometimes missed is the fees, like I was talking about before. So if you're not using a connector system, whatever lands in your bank account is being coded to sales. But the fees should have been deducted from a gross amount, so you deduct the fees and then you have the net sales. So the fees, usually not PayPal but the other ones like Shopify and Afterpay, have GST on the fees. So you could be missing out on that GST credit if you're just recognising the lower net figure.

Dahna Borg – Bright Red Marketing (14:14)
So pulling in the final numbers, you're missing out on a whole bunch of GST claims.

Jaimie – Bloom Money (14:19)
Yeah, I see that one a bit. And I guess getting the GST, I think it's probably less likely now, but making sure your GST on your Facebook and ad platforms is being accounted for correctly. If you don't put your ABN into Facebook, then you don't get the claim. And I've seen people do that. They assume the bookkeeper doesn't really know anything about Facebook, assumes it's an American company, goes GST free, but then the client hadn't put the ABN in. So then they're being charged GST. And in this case, because they had three hundred grand of ad spend, it was a huge GST thing. So we had to go back and amend all the BASes and then get that sorted.

Dahna Borg – Bright Red Marketing (15:12)
That's so confusing, because it comes up and it's like, do you have an ABN, do you want to pay GST, and everyone's like, I don't know. But if you do put your ABN in and you're GST registered, they don't charge you GST. If you don't put it in, they do add GST, which I understand now, why it works, but it's not clearly explained to anyone.

Jaimie – Bloom Money (15:30)
No, it's not. And that's why we have to look at the tax invoice, which is also really hard to find.

Dahna Borg – Bright Red Marketing (15:38)
It's also poorly explained even on that. It's like, why did I get charged ten percent extra that I didn't think I needed to be charged, and chaos. That's fascinating though, because that could be huge for some businesses, not knowing which way it goes.

Jaimie – Bloom Money (15:52)
Yeah, definitely.

Dahna Borg – Bright Red Marketing (15:54)
Even then, if they're doing it wrong and claiming GST on something that's not got GST because they do have their ABN, then, different problem.

Jaimie – Bloom Money (16:00)
Yes, that's a different problem, but still a problem, definitely.

Dahna Borg – Bright Red Marketing (16:05)
The ATO will still be mad at you. I mean, you've sort of touched on it a little bit in terms of tax deductions, but is there anything else that people are claiming wrong, or just big problems you see with eCommerce businesses? I mean, we've touched on a lot at this point and my brain already hurts, so it's good.

Jaimie – Bloom Money (16:23)
I think FX would probably be another one, like foreign currency, because a lot of people are buying stock overseas and maybe not using the multi-currency Xero subscription, because that's more expensive. There's a benefit in that, you could get gains and losses that you can then use in your profit and loss to get a deduction, because that'll flow through. But if you're not recording it and using that function, then it's just your best guess, and you're converting back to AUD every time you make a payment.

Dahna Borg – Bright Red Marketing (17:01)
Does that apply to international subscriptions and stuff, or mostly just purchasing stock?

Jaimie – Bloom Money (17:05)
No, it would be anything. So if you had a USD invoice for anything, it will work out the FX rate on that date, and then when you actually go to pay it, it'll work it out on that date, and you'll make a gain or a loss on that.

Dahna Borg – Bright Red Marketing (17:19)
Interesting. I mean, we've talked about numbers and knowing how things are calculated, and I think if anyone's gotten to this point, if they don't have all this set up in Xero, they're going to go do that, because you can't listen to this and just leave it. This is big stuff. I know that if you had all that set up, this next question would be easier. But let's assume they do or don't. Black Friday is coming up. Biggest sale of the year, everyone's prepared for it, whether you're a consumer or a business. I know people are already making their lists of what they're going to buy this Black Friday, people hold out for it. I also know a lot of businesses go into Black Friday having absolutely no idea how much they should go on sale, or how much they can afford to.

Jaimie – Bloom Money (18:02)
Yeah.

Dahna Borg – Bright Red Marketing (18:03)
What are your best tips around knowing that? Obviously your numbers have to be right to know these things, but considering that, what are your best tips to know how profitable you can be?

Jaimie – Bloom Money (18:17)
I would probably say don't just randomly decide what you want to do based on what other people in your industry are doing, or what worked well last year for somebody else. Going into Black Friday and just guessing could make you lose at scale.

I would just not do the sale if you don't know these numbers. I'd do the numbers first, or get some help with it. Just get a basic spreadsheet, work out what your landed cost is, you need to know what that is. You can't really do the sale without that, because you need to know what your gross margin already is on a product you're selling. And then you're like, what have I got to work with? Do I only have 10% to work with, because then I'm going into a loss anyway?

Look at what you're selling, just do it on a normal month, put your normal month of sales into an Excel spreadsheet, and then go, okay, what would this look like if I did free shipping? Take out all the shipping revenue and compare that against your overheads, are you covering them? Or how's your cost of sale looking? Because you've also probably got to add in extra spend, because you might be spending extra on ad spend. Hopefully that pays off in your sales, but I've heard last year that ad spend was a little bit higher.

Even if you just did free shipping and that doesn't work, what if you did twenty percent off? If you decrease all these sales by twenty percent, how does that flow through to your next...

Dahna Borg – Bright Red Marketing (19:53)
That's a clever way of doing it, because I think it's something people find really overwhelming. It's very like, I don't know, my crystal ball is in the shop and broken, I don't know how this works. So I think being able to go, okay, well let me just take a random month, even last month, and go, what if I did this, what if I did that, what if we doubled the ad spend and the results from that doubled? You can check that in your spreadsheet and go, okay, well if we did that, what would that look like? That's a really actionable way of doing it, because oftentimes it's very like, we're guessing. And this is still guessing, but it's guessing off real numbers that you can actually go in and change. I really love that.

What are your thoughts on, if stock is not clearing, what's the financial accounting perspective on how much of a loss you make on things just to get cash back into the business? Because as you said, it's not really a deduction if it's just sitting there as dead stock. Is there a strategy or approach that makes more sense, I guess?

Jaimie – Bloom Money (20:55)
It depends on how old the stock is, and whether it's going to go, you know, like clothes that are going to go mouldy if you're literally not going to move it. What I'd probably do is make it super cheap, but pair it with a different strategy, like opening yourself up to new clients. Obviously I'm not in marketing, but I'd pair that with a marketing strategy. Yeah, I'm going to lose 25 to 50% of the value I paid, but I'm going to move it, and then I'm going to be able to tap into new clients that might be more interested.

Dahna Borg – Bright Red Marketing (21:30)
So almost like take it as a marketing expense at that point, and go, well, if I can clear it really cheaply, let's call it a marketing cost. I don't know how you'd reconcile that, but call it a marketing cost, clear out the stock that's not selling, use it as a technique to grow the business in a different way. But just know that it's maybe not going to be as profitable at that point in time. But then from our perspective, we look at that and go, okay, well if you lost money on that particular order, maybe they'll come back and buy something else again. And then it's a good thing.

Jaimie – Bloom Money (22:03)
Like a loss leader.

Dahna Borg – Bright Red Marketing (22:05)
Yeah, we like those. Now, I know a lot of people that get into eCommerce, I mean you know me, we're data nerds, not numbers nerds, that's why you get a million emails from me. Not a numbers person, can do data. When people are looking at these numbers, a lot of the time it can get very overwhelming. A lot of the time, keeping track of that cash flow during these high pressure periods is a lot. There are some people out there that tell people to track on a daily basis. My personal opinion is that's maybe a little bit too intense, and a little too stressful for people. When you're in one of these really high pressure sales periods, cash flow is obviously important, we're spending more, we're doing this. Do you have any strategies or techniques for people to keep a really close eye on those sorts of things during those crunch periods?

Jaimie – Bloom Money (22:55)
I would say, if you have all these automations set up correctly and your system is working, I'd just come back at the end of the week and check your profit and loss, because you can nearly get it reconciling automatically, especially with all the recurring things and the automations connecting Shopify into Xero. Then that can basically auto-reconcile by itself, and all you have to do is jump into Xero and run a profit and loss. That takes two seconds, and after a week you can say, well, actually this is going up too much, or our margin's decreasing too much, I need to pivot. And you can pivot before the month is over.

Dahna Borg – Bright Red Marketing (23:44)
I wonder if that's actually a really good justification for getting your Facebook ads payment thresholds lower. Because I know a lot of people try to get them really maxed out, like, I only want to pay my Facebook bill once a month or once a fortnight. But I wonder if in those high crunch periods it's actually better to have them more frequently, because if you're scaling and spending a bit more on Meta ads than you would usually, at least then that number's coming into your profit and loss as well, and you can go, cool, well we spent five times as much on Facebook than we normally do, but let me see what those numbers are doing across the board.

Jaimie – Bloom Money (24:18)
Yeah. I really like, in big eCommerce businesses where there are investors involved and we're doing the finances, they'll ask for a mid-month update as well. So we'll do month-end reports at the end of the month, close everything off, but we'll also do a mid-month, so they have an estimate and a forecast, and they can pivot on those reports. All the investors get that. It's really important at that level, so I don't see why it wouldn't translate to the smaller business space too.

Dahna Borg – Bright Red Marketing (24:49)
Especially when you're trying to grow, and it's that cash flow thing of going, okay, well I know I've got to be saving for stock, I know I need to be investing in this, I know I want to be spending money on ads, I know I need a new website and I need to get this done, and I want to do all these things. Being able to keep a really close eye on that, and know that those numbers are correct. Because that's the trick. I know a lot of business owners that are just hanging out in Shopify and taking that as everything. And I think that's where people get into trouble, because they're like, I didn't see all of this, and that comes back to bite them later. Or they could have been so much more profitable, but they didn't realise, and then they don't scale as fast as they could have, which is sometimes just as sad, because you're like, we're doing so well, we could have done so much better.

Jaimie – Bloom Money (25:38)
Yeah. Look...

Dahna Borg – Bright Red Marketing (25:39)
Before we wrap up, are there any other tips, tricks, or strategies that you think are really helpful in the eCommerce space?

Jaimie – Bloom Money (25:45)
I think it's just really important, maybe just to even have that one-off session with your accountant if you can, just so you know what's on the profit and loss, what's on the balance sheet, and where to look for them and how to look at them. Because it is one of the most complex industries for sure, so there are so many things that can go wrong or be hard to understand, and it seems pretty and easy because Xero is pretty and easy, but... the last thing you want to do is end up paying too much tax as well. So I think it's just important to have those checks and check in on it.

Dahna Borg – Bright Red Marketing (26:24)
I mean, I know even just in my calls with you, and obviously my business is much simpler, I've learned so much about the back end of Xero that I had no idea of. So on that note, if people want to reach out and have you look at their numbers, what's the best way for people to reach out?

Jaimie – Bloom Money (26:41)
Yeah, so we're on Instagram, Bloom_money, or you can just email us at hi@bloommoney.com.au.

Dahna Borg – Bright Red Marketing (26:51)
Wonderful. Thank you very much. Right into the last couple of questions, do you have a favourite business book or podcast?

Jaimie – Bloom Money (26:57)
My favourite book that's helped me in business and all round would probably be Seven Habits of Highly Effective People.

Dahna Borg – Bright Red Marketing (27:06)
Solid recommendation.

Jaimie – Bloom Money (27:07)
I love it.

Dahna Borg – Bright Red Marketing (27:09)
I'll give you that. What's the best piece of business advice you've ever heard?

Jaimie – Bloom Money (27:14)
I would say, when it comes to running the business, it'd be, a fail to plan is a plan to fail. And...

Dahna Borg – Bright Red Marketing (27:22)
Very relevant to this episode, to be fair. It is, like if you don't know what's going on, you can't...

Jaimie – Bloom Money (27:28)
Mm.

Dahna Borg – Bright Red Marketing (27:28)
I like it. Well, thank you very much for joining us on the show. It's been a pleasure to have you as always.

Jaimie – Bloom Money (27:34)
Thank you so much for having me. Same fun.

Dahna Borg – Bright Red Marketing (27:37)
Thank you for listening to the Bright Minds of eCommerce Podcast. As always, you can find the show notes on our website at brightredmarketing.com.au. Just look for the podcast page. Thanks for listening.