Today’s ecommerce businesses are prime targets for investment or acquisition and a successful company can become a financial windfall. Sadly, many business owners leave money or equity on the table through poor accounting techniques that understate the value of their business. These problems are easy to avoid if you know how to handle your accounting correctly. In this break-out, we will cover advanced accounting techniques to help you attract investment money and protect your exit valuation. Three take-aways:
1. Learn the key elements investors and buyers are looking at and how to present your company in the most favorable way possible.
2. Learn why default accounting approaches will understate the value of your company and how to correct those issues.
3. Learn to correctly record cost of goods sold and inventory to reflect accurate and favorable margins.
A. Investors are looking for opportunity and potential
a. Attributes of successfully funded product companies
b. What investment capital can do to accelerate product companies.
c. How your accounting makes you look like a good investment or purchase (My ideas but I will also interview some investors to have real data):
i. Financial information that is clearly in order and reliable reflects well on your business and creates buyer/ investor confidence.
ii. Business owners who are informed and confident command more respect at the negotiations table
iii. Accurate margins and metrics reflect the true value
iv. Clearly able to see where the opportunities are
1. Currently selling on Amazon but other markets are untouched still
2. Great margins on the product
3. New product lines
4. Relationships with Vendors
5. Market Opportunity
B. Valuation is based on
a. I will research this and have solid data from those who are purchasing on how they are valuing.
b. This is very often a multiple of revenue and with net income and margins considered
c. How do you maximize your revenue and correctly reflect the high performance of your business?
d. A buyer can:
i. Change the shipping methods
ii. Change the overhead structure
iii. Warehouse differently
iv. The only things that really matter are revenue, COGS, key relationships, and market reach/opportunity
1. These are the hardest parts to get right with ecommerce accounting.
C. Advanced Accounting Practices to maximize valuation
a. Ecommerce accounting done poorly almost ALWAYS understates revenue and shows margins that are too low. These are the very things that valuations are based off.
i. Amazon sales recorded too low with default accounting approach. What is the problem and what is the solution?
ii. How to handle amazon activity correctly
iii. Tools to use to make this easy
iv. Real statistics from our clients who had us clean up their books and the financial restatements on revenue were in the $100’s of thousands v. Brief Discussion of other channels understating revenue
vi. Brief Discussion of Crowd Funding understating revenue
vii. Lots of customer examples and stories
D. COGS: The second most important number to get right
a. Done incorrectly this shows huge volatility in your profitability that is misleading (scares away investors and buyers when your business is much more stable)
b. Shows margins that are too low (therefore understating the opportunity)
i. Profit and Loss is NOT cash flow
ii. Expensing right away versus moving through inventory
iii. Tracking your cost per SKU iv. Tools and solutions’
v. Lots of customer examples and stories
E. But really before the investors and buyers, these numbers are for YOU!
a. Managing by the numbers proactively
b. The KPI’s and trends to watch
c. The numbers to look at every month
d. Questions you should ask