I don’t know why you continue to read these articles. Of late, they have not been very nice. This is yet again, another tough love article. I am going to risk coming across as a bit harsh because I believe the message is essential.
If you don’t know your numbers, you don’t know your business. Too many of you reading this, don’t. I am not writing this to be cruel or judgmental, just truthful. Your numbers tell you everything. It is hard to successfully build and scale a brand in the natural products industry. If you aren’t deeply familiar with the underlying fundamental numbers of your business, you are in deep $hit!
Let’s start with cash. If you’ve heard Gary Hirshberg’s story on “How I Built This,” or if you have attended any of his institutes, you’ll know that for years, Gary was monitoring Stonyfield’s cash flow on a daily basis. I hope you don’t have to be that extreme, but, at the very least, you should be tracking cash in and cash out. Furthermore, it would help if you understood the cash implications of every decision you make.
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Breaking this down a little further: What are some of the critical numbers that impact your cash position? How about inventory, payables, and receivables? Starting with inventory, knowing your average days on-hand of finished goods, ingredients, and packaging is a must. Also, it is vital to identify what percentage that ingredients and packaging contribute to your total COGS. What are the average days outstanding of your payables? Are you paying your vendors before you are paid, or are you financing some of your inventory with receivables? What are the average days outstanding of your receivables? Are you on top of collections activities and managing deductions?
Let’s explore your margin for a minute. What is the delta between your gross and net margin? As a percentage of revenue, how much is your trade spend, freight, and discounts/allowances? Looking at your net margin, is there enough left to offset marketing, SG&A, and more?
You get the point. This is vital information. Sadly, without you being in control of these numbers, growth can actually kill your business. If your fundamentals are weak, the more pressure you place upon them as you grow, the more likely they are to collapse.
I am guessing that not many of you got into this because of your love of numbers. You are here because you are entrepreneurs who are passionate about the problem being solved, the unmet need being filled, or the category disruption being unleashed. I get that and applaud you for it. But if you are not on top of your numbers, you’ll never reach the finish line. Somewhere along the road, you will stall. Either your dream will go unfulfilled, or someone else will beat you to it.
Again, I take no joy in delivering this type of message. The sad fact is, however, that too many brands are built on a house of cards. There is no foundation and no sound fundamentals. Only a select few will survive, the rest will die. As a founder, if you are serious about the long-term success and viability of your brand, it starts and finishes with knowing your numbers.