Grow Your Ecom Business From £1M - £10M With These Financial Insights

Elspeth: Hi everyone. Today I'm joined by Frank Martin, co-founder of Triffin. Triffin is a UK-based accounting firm and FinTech platform that helps consumer-product brands see exactly what's going on in their finances. It all happens in real time, all in one place. So hopefully that means fewer surprises, better decisions and the confidence to scale without running into cash-flow issues. If you've ever found yourself wondering how your ecommerce brand is really performing, not just the sales but margins, cash position and forecasting, Triffin can help you. There's a link in the description to book a free chat with one of their finance experts after this video. So welcome Franklyn, it's great to have you here. Can you kick things off by telling us a bit more about Triffin and what you do?

Franklyn: Thanks, Elspeth. Delighted to join you. And yeah, very well covered there in the introduction. Triffin is a finance platform built specifically for consumer brands. We support businesses in verticals like beauty, health and wellness, fashion, accessories, luxury, and other ecom verticals, FMCG too. We're really providing a technology platform that provides real-time finance information, so more connected real-time P&L, balance sheet, and cash flow information. And we combine that with both strategic and operational finance support, which covers everything from bookkeeping right through to strategic FD and CFO support. It's really targeted towards brands in the early part of their life cycle, so all our customers are typically somewhere between zero and 20 million a year in annual sales. The majority are on that one to 10 million a year journey and very much looking to grow. Our platform and service helps them do that.

Elspeth: Brilliant. So that segues really well into the topic for this video. We're going to be chatting all things scaling your business from 1 million to 10 million. We'll talk hopefully not just about the theory, Franklyn has a lot of practical experience, so we'll be talking about the numbers and things you can actually do. So we'll jump straight in. Imagine we have two ecommerce brands, both at the 1 million mark. One is heading for 10 million and the other is hitting the ceiling. In your experience, Franklyn, what's the one finance habit that would best predict which path they'll take?

Franklyn: I think there are so many things that go into that. For one, you can't really go on that journey with success without being really good at managing the finance of your business. If I was just going to pick out one habit, and the thing which I think causes a lot of stress for founders in particular, but for businesses on that journey, it's the budgeting side of things. To budget effectively, and when I'm talking about budgeting, it's things like how much to budget for inventory purchasing and production, how much to budget for marketing and new customer acquisition. But to do that, you really have to understand your P&L and your margins in good detail, and you really have to be on top of your cash flow. So I'd say that budgeting is the habit which, done well, can have a really positive impact on that growth trajectory, but you really need to have some underlying fundamentals to enable that.

Elspeth: So Franklyn, you've mentioned how important budgeting is for businesses. Can you tell us how businesses would go about having a really solid budget to project forward?

Franklyn: Yeah, I think the first thing comes from having really well processed finance information and being able to understand the P&L and various margin calculations in a lot of detail. And then also being very much on top of the bookkeeping to have an accurate view of cash and cash flow. That's probably the key thing when it comes to budgeting. Small businesses need to be agile, they suffer a lot of volatility, they need to be able to flex based on the varying trading performance of the business and actually work to smaller budgeting cycles than larger businesses would. So really being very much on top of the transaction processing, the bookkeeping, the financial management is key to effective budgeting.

Elspeth: Yeah, that makes loads of sense. Here at A2X, we do still meet multi-million pound brands that manage their books in spreadsheets. I do think that tells us a couple of things. Firstly, bookkeeping isn't always seen as a priority by these brands. And the second is that some of these businesses will still see it as a cost rather than an investment in their business. So we've got a two-part question for you, Franklyn. The first is, have you come across that mindset when you're dealing with customers yourself? And the second is, why is upgrading to proper bookkeeping and reporting basically a non-negotiable for businesses that want to scale?

Franklyn: Yeah, so I think the first point is probably that many of the founders that start ecommerce businesses are not from a finance background. They'll be marketers, product specialists, industry specialists who either see a gap in the market or have a passion project that turns into a business and can grow quite quickly. But in the beginning, finance can often be an afterthought. And it's only really when things become challenging, and maybe some of the lack of finance fundamentals in the business start to become damaging, that they then try to solve them retrospectively, which is quite painful to do. I see this a lot across the industry.

Really, in order to manage even the early stages of growth well and effectively, you really need to be on top of the bookkeeping and broader financial management of the business. It will certainly remove a lot of stress from that journey. It will actually help improve performance, both from a growth point of view, but also help optimize profits, manage cash flow, all these things which are obviously critical to growth.

Elspeth: Okay, so just in terms of what good bookkeeping looks like at Triffin, what practices and tools do you use to make sure your ecommerce clients have clean and reliable data?

Franklyn: Yeah, so I think there are a few things that go into best practice bookkeeping. The first would be related to systems and automation, and the correct setup and management of accounting systems like Xero and QuickBooks, but then other systems like A2X that actually really automate important processes and process transactions effectively and in the correct way, which really helps businesses manage their finances and stay on top of things like profitability and margins in particular.

The other things would be, I'd say, the frequency of reconciliations. Brands, particularly in the early parts of their journey, often work with less frequent reconciliation cycles, and that can become quite challenging in terms of just staying on top of everything. One thing businesses struggle with in the early part of their journey is volatility, they can have volatile sales, volatile costs, and the frequency of reconciliations is super important. Daily reconciliations, in terms of staying on top of everything, is really what the best brands do and what we provide to our customers. And the next one I'd say is around good hygiene when it comes to the use of purchase orders, but broader invoice and bill and purchase order management. Founders that maybe aren't from finance backgrounds come into this without some of these foundational habits, but these things can really provide the foundation that can help a business scale quickly and effectively.

Elspeth: Yeah, absolutely, I agree with you on the purchase order side as well, it's really important to have a good process for that.

Okay, so we'll assume now that our clients are working with clean books, they're using A2X for reconciliation, Triffin's handling the reporting in nearly real time, so they have good numbers and accurate, up-to-date financial reporting. So to scale from 1 million to 10 million, what would you say are the three main financial metrics founders should be reviewing regularly?

Franklyn: Yeah, of course. There's actually quite a lot of metrics, it'd be quite easy to expand the number beyond three. I'm going to just pick three for the sake of this conversation. I think if you do really well on these, it will certainly go a long way to enabling success.

The three I would pick out would be cost of acquiring customers, sometimes called CAC. Contribution margin, which is essentially the margin you make after your product costs, after delivery and transaction fees, warehousing fees, and your marketing costs. And the last one would be repeat purchase rate. If you're really good at those three things, it will certainly go a long way to enabling success on that journey from one to 10 million.

So regardless of the sales channels you sell across, you'll have a number of new and returning customers which drive a number of units and orders, which have an inventory requirement, but essentially generate revenue. If you look at the structure of a P&L, you have revenue across different sales channels, cost of goods, marketing costs, operating expenses, and all of this feeds into your P&L, balance sheet, and cash flow. They're all very, very much connected.

The cost of acquiring new customers is key because with that kind of growth you do need to be acquiring new customers, whichever channels you're selling across, and people don't always realize the impact that can have on cash flow. A lot of businesses struggle with cash flow on that particular journey, and often the really stressful cash flow periods can be a combination of managing inventory, production and purchasing, but also just the effectiveness of acquiring new customers.

The other one is contribution margin. As you work down the P&L, product margin is net sales less cost of goods sold, gross margin is product margin less warehousing, delivery, and transaction fees. When working across or selling across platforms like Amazon and Shopify, you're incurring costs associated with that transaction, so it's a really important thing to be on top of this gross margin figure, because that determines how much you can afford to spend on marketing and acquiring new customers. Product margin less those fees gets us to the gross margin figure. Contribution margin would be the gross margin less online and offline marketing costs. This is absolutely key. One of the things I think businesses struggle with is actually understanding what we'd call a fully loaded cost of acquiring customers, meaning not just taking into account ad spend, but also things like agency fees, photo shoots, branding, and other costs. So really understanding how much contribution you're driving in the business is absolutely essential at that particular stage of the journey.

Elspeth: That's really interesting, Franklyn, so your customers can see that on your platform on a daily basis?

Franklyn: Absolutely, yeah. We'll show all margins down to net profit, but contribution margin by sales channel on a daily basis.

Elspeth: And in terms of the cash flow cycle, how does that play into businesses as they're growing between one and ten million?

Franklyn: It's really key. I think the main driver is that to sell more and generate more revenue, you have to buy more products and increase your marketing spend. So you're naturally in a situation where the more products you buy and the more you spend on marketing, the more pressure it puts on your cash flow. As you grow, you just have to be more on top of that, it's even more important to manage, because cash flow, as you know very well, is the number one killer of small businesses.

Elspeth: Absolutely.

Franklyn: Even in highly profitable businesses, consumer brands have the challenge of having to pay for inventory and marketing before they receive revenue from sales. If you're not profitable on the first transaction, if you're paying a lot to acquire customers on that first transaction, essentially what you're doing is extending your cash conversion cycle. And if you're not well capitalized, which many early stage brands are not, you really have to be on top of both the inventory purchasing and the amount of money you have available. If you're expanding your sales channels to things like wholesale and retail, the payment terms will be different, so you'll have some complexity to manage there too.

Really, on the direct-to-consumer channels and marketplaces, it's important to be on top of margins in relation to how much you can afford to pay to acquire a customer. I think the challenge a lot of founders face is that these things change on a daily basis. Volatility in sales, volatility in supply, volatility in operational costs and factors. All this volatility is really hard to stay on top of. In later-stage companies, they typically have teams of people dedicated to this on a full-time basis, which obviously helps them manage it. But when you're an early-stage brand with a very lean team, it's a hard thing to do, which is really why we exist. We've built both the technology and the service to help brands stay on top of this and manage it.

Elspeth: Yeah, that's really helpful.

Franklyn: This is really just a very simple visualization of a cash-at-bank chart, and it tends to be something we see quite frequently, where businesses go through working capital cycles where they have cash in the bank, pay for inventory, pay for marketing, cash goes low, they sell products, cash goes high. As you're growing, particularly growing from one to 10 million, if you start adding different sales channels, you start to have varying cash cycles, based on things like the payment terms you might have with a wholesale or retail partner. But ultimately, this complexity can lead to volatility and quite challenging cash flow situations. That's something we see quite frequently, a lot of customers come to us in the first place because they struggle managing cash flow. But ultimately, in order to manage that one-to-10-million journey and stay on top of cash flow, a lot of the foundations, processing information correctly, reconciling transactions regularly, making sure all your systems like Xero, QuickBooks, and A2X have been set up and configured correctly, is super important to make that journey less stressful.

Elspeth: Franklyn, I know that at Triffin you help businesses do this all the time to scale up. Can you share a real-life story of one of your clients that you worked with to grow?

Franklyn: Yeah, so we actually released a case study with one of our customers, Nidhya, quite recently. It's a female health and wellness brand. They were in a typical situation that many brands find themselves in, plateauing around the one million mark a couple of years ago. I think the business was doing what lots of similar-stage businesses do, and maybe wasn't spending enough on marketing and customer acquisition. The business had great underlying fundamentals, was very profitable, great repeat purchase rates. It comes back to the budgeting point we discussed earlier, but actually sometimes being free to invest in growth, marketing, and customer acquisition as a result of having a really good understanding of your margins and profitability is key to being able to then go out and acquire more customers and grow.

Elspeth: Okay, so we've talked about why accurate bookkeeping is fundamental if you want meaningful financial insights into your business, and how those insights can help you grow. We've talked about the three key growth metrics that can make a difference, which Franklyn suggested: customer acquisition cost, contribution margin, and repeat purchase rate. So my final question for you, Franklyn, is what's one action viewers can take this week if they want to start their journey toward that 10 million pound milestone?

Franklyn: I would really review how you're processing your finance information and your accounting system. We see this so often across the industry, businesses working on a cash accounting basis rather than an accrual basis, not really understanding what the true P&L looks like, not understanding what the actual cost of goods are, not breaking out sales across their sales channels. These kinds of things are really limiting when it comes to managing and optimizing the finances of your business. So I would be looking at this, and if you are not managing it as you should be, I would address that immediately and find a partner that can help. Obviously that's something we can help with, so please get in touch, we'll happily chat to anyone and provide recommendations. But you can't ignore that. I think it's something a lot of founders come to a bit later in the journey, and it can be quite painful to unravel. So the sooner you can get on top of it, the better really.

Elspeth: Absolutely. Thanks so much for joining us, Franklyn. For everybody watching this video, if you're looking to grow your business and want a clear review of the numbers that matter, the team at Triffin can help you. Click on the link in the description to book your free consultation. Thanks for watching, everyone.

Franklyn: Thank you. Thanks, Elspeth.