The Dropship Unlocked Podcast

The Ultimate Guide to Ecommerce Finance With Daniel Little (Episode 86)

• Lewis Smith & James Eardley • Season 1 • Episode 86

Share episode

📞 Ready to Take the Next Step? https://dropshipunlocked.com/training-watch-apply?el=podcast-86-ecom-finance-guide-daniel-little

Get started with LinkMyBooks ➡️ https://linkmybooks.com/?fpr=lewis26

Email Daniel for further advice ➡️ daniel@linkmybooks.com 

🗣In this episode of the Dropship Unlocked Podcast, hosts Lewis Smith and James Eardley welcome Daniel Little, Co-Founder & CEO of Link My Books, host of The eCommerce Profitability Show, and a former 7-figure Amazon seller. 

Daniel shares his extensive knowledge on bookkeeping, accounting, and tax for UK ecommerce businesses.

👉 Prefer to watch this on Youtube? Check it out here  ➡️ https://youtu.be/O_xGW2CiL5w

---------------------------------------------------------

Topics Discussed:

★ Financial Literacy Terms for Ecommerce Business Owners: Explanation of gross profit, net profit, and their importance. Definition and significance of EBITDA and cash flow.

★ Understanding P&L in Business: Overview of a Profit and Loss (P&L) statement and its components. How to interpret and use a P&L statement for informed decision-making.

★ The E-commerce Financial Model: Differences in revenue recognition and cost structures. Importance of tracking inventory and Cost of Goods Sold (COGS). 

---------------------------------------------------------

Links and Resources Mentioned:

Pick up a copy of Lewis’ book: https://htabook.com 

Get Shopify for £1 a month for 3 months: https://www.dropshipunlocked.com/shopify 

Get a free trial with a professional phone line: https://www.dropshipunlocked.com/circle 

---------------------------------------------------------

Key Takeaways:

★ P&L Statements: Regular review of P&L statements helps in making informed business decisions.

Avoid common mistakes like misinterpreting revenue and profit margins.

★ Chart of Accounts: A tailored Chart of Accounts specific to ecommerce is vital for detailed financial tracking and analysis.

★ Financial Model Differences: Recognize the unique financial model of dropshipping and its impact on cash flow and profitability.

★ Avoiding Common Mistakes: Regular financial reviews and updates, effective cash flow management, and integration of financial data are key to avoiding common pitfalls.

---------------------------------------------------------

FOLLOW:

Thank you for listening to the Dropship Unlocked Podcast! Don't forget to subscribe and leave a review on your favourite podcast platform.

---------------------------------------------------------

★★★Dropship Unlocked - Lewis Smith★★★

🌏Watch Our Free Training ➽ https://www.dropshipunlocked.com/training?el=podcast-86-ecom-finance-guide-daniel-little

In today's episode, we're thrilled to have Daniel little with us co founder and CEO of link my books and the host of the E commerce profitability show. Daniel has a wealth of experience in bookkeeping, accounting and tax for UK e commerce businesses. And he's here to share his valuable insights. Yeah, absolutely. Lewis a crucial episode for anyone looking to keep on top of their finances with an e commerce Store, because he talks a lot about financial literacy, and the importance of profit and loss, common financial mistakes, things that we all need to know if we're going to run a successful business. Daniel will also share a bit more about link my books and how that can really streamline the bookkeeping process for your online stores. The app will cover some essential strategies for managing your E commerce finances effectively and highlight some advanced tips as well in our members only session. So if you're ready to learn from one of the best in the business, let's get started. Welcome to the dropship unlocked Podcast. I'm Louis Smith, the founder of dropship unlocked and with me is our Client Success Coach James Adly. Now when we're not recording the podcast episodes, we're running our own e commerce businesses and helping aspiring entrepreneurs launch their own high ticket drop shipping businesses, keen to build your own six or even seven figure business. My book the home turf advantage is your blueprint for launching a profitable online store. Grab your copy at H T A book.com To date, and let's get you started. Now sit back, relax, and let's unlock your potential with the dropship unlocked Podcast. Today we're excited to welcome Dan little a co founder and CEO of link my books, a host of the E commerce profitability show and an ex seven figure Amazon seller. Daniel, it's fantastic to have you with us today to share your insights on bookkeeping, accounting, and tax for UK ecommerce businesses. Thanks for having me, James, you've just teed me up with the most boring subject there. So now everyone's turned off. Yeah, well, it's vital. It's vital. I'm not saying it's boring at all. I'm saying it's vital for you ecommerce business owners. Actually, I think some of the strategies and tips we're going to share in here will make a huge difference for people's businesses. And we're doing it for finances. At the end of the day. It's a big reason. So we need to understand what we're talking about when it comes to finances as well. Yeah, I think that's key as well, I think that it is a boring topic. But it's one it's important. And it's one that can drastically impact your bottom line. So it's worth listening. Exactly. Yeah. So I'm gonna start with some foundational knowledge, really just set the scene, what are some of the key financial terms that ecommerce business owners really need to be aware of? Okay, so I made a little list. So we've got gross profit, which is your revenue minus your cost of goods sold, then you've got net profit, which is your total revenue, minus your total expenses. And the reason there's a difference between those two is because most sellers will be calculating like their margins. So they'll be looking at the FBA calculator thing online, they'll be putting in the sale price that they're going to sell the goods for, minus any costs that Amazon is going to take, and the cost of the that they've paid for the item. That's what we would call gross profit. But on top of that, you've also got a whole load of other things like you might be paying for a virtual assistant, you might have someone who designs your packaging, you might have staff, you might have software's, so all of those additional costs will form, what's part of your net profit. So a lot of sellers will make the mistake of just looking at gross profit, which will come due in another question, I guess. And then you've got stuff like EBIT da. Personally, I don't really feel like it's a mega relevant to e commerce businesses until you're going to come to sell. Because when it comes to sell, that's when your private equity company or your aggregator or your private buyer is going to want to probably look at something like that. And that is effectively the add certain things back. So it's your net income, interest, taxes, depreciation and amortization. And so it's a measure of profitability. And the reason that EBIT DA is good from that point of view is that it focuses on a company's core performance, rather than the non core financial expenses, which can be optimized later on. So that's why investors tend to look at that one. And then the last one that I think is important is cash flow. And so cash flow refers to the amount of money that's coming into the business, actual physical cash, and the cash that's going out of the business. It's normally measured on a monthly basis. And the reason that this is important is because in my eyes is one of the biggest limitations to growth. Speaking firsthand, like when I was running my Amazon business, it was the thing that held me back from launching new products, because if you don't have enough cash flow, positive cash flow, then you can't really launch your next two or three products cart Be thinking about buying them. So it's a real important thing to, to growth. And they will be the they'll be the main things I would say. Yeah, fantastic. It's the same. So a lot of our audience, a Shopify, and similar to Amazon, these are the four most important things, I'm glad you pick them up straightaway, for this conversation, our gross margin, so gross profit that will be dependent on the margin that we can arrange with our suppliers that will drop ship the products for us, and the products that we sell on our Shopify site. And the net profit, that's when your sort of ads come into play the virtual assistants that you hire all of the software. And now with your experience and sort of helping with with business owners, I wonder if there's some sort of figures around margins that we could dive into a little bit. And then margins that like gross margins, for example, that you just don't think people should entertain? If a supplier is offering them at certain low margin? This is always a really tricky question. I had exactly the same conversation with Ben Leonard on the first episode of the E commerce profitability short around what should be an ideal gross margin and what should be an ideal net margin? And I think the answer is that we would, we would say something around 40 to 50%. Gross, because that then gives you the opportunity to still have some meat on the bone to pay for all your other costs, that if you can end up with between a 15 and 25%. net margin, then you're on to a real good profit. And I think that it becomes important to realize that it forms part of your return on investment as well, because it's, it's all sort of tied together. Like if you don't have enough return on investment, then you have to sell that product so many times before you'll even recoup the initial investment for the first time you purchased it. So ideally, what you were you want to be doing is like selling something that's high margin high return on investment as well. And that's it's a formula to run inside of Excel or something like that. Yeah, though, it's good to have some figures around so that we know what we're aiming for. And if if it's apply that we reach out to you says that we can offer you 20% gross margins, we know that we can set these thresholds higher from the start and just say we won't accept anything below 30. For example, when you first get in, I think it's a healthy position to be in. Another follow up I've got for you there, Dan is is cashflow. And the difference between cash flow and the net profit that we're generating, I think when I first got into business, I thought they were very closely tied. Well, if you're profitable, then surely your cash flow is in a great position as well. But how are the two connected and at the same time, not connected. So cash flow is a measure of solely the money, like the actual cash that is coming into the business and going out of the business, whereas your net profit is a measure of your turnover minus all your expenses. And what you're left over with is your net profit. And the reason that they are different, but similar is because one is measuring the actual money that is coming in physically in that month. So for example, say in January, you purchased a load of added all office equipment, and also some inventory. I know this has dropped in focus, but if you see your purchase some inventory to be sold as well. And then you saw that inventory through January, February, March. And if you looked at your cash flow, then you would see that you've got a real negative dip in January. And you've got a massive spike in February March because you've had loads of income coming in, but all your expenses were in one month. And so that can be similar with net profit, because with your net profit, if you're doing things wrong, you shouldn't be doing it this way. But see our SSI account for all of that inventory purchase as a cost straight away in January, then it's going to be the same picture, what you really should be doing is you should be counting for that inventory and those office equipment things as balance sheet items. And they should be stretched out over a longer period of time that your office equipment should factor depreciation should be thinking about a buy an office, I don't know how buys a screen from a computer over normally people depreciate those over four or five years. So you should only be allocating the cost 20 to 25% per year. And therefore that's going to change the net profit picture. And also for your inventory, you should only really be accounting for the cost of that inventory once it's been physically sold. So if you bought 10,000 pounds worth of inventory and then sold it in January, February, March, you should be working out how much of that inventory has been sold in January, February, March to work out your net profit per month. So that's where there can be different. And but yeah, that's the are quite similar measures. They are they're linked to the same time. Even if you're profitable. You can get into a bad cash flow situation. If you take on risks or if you take on decisions. That means that you have a large output in one go and then you're you're left without cash. I think we've dropshipping the differences is that the large algos that we have sort of worn off, tend to be perhaps you upgrade your your laptop or you get some extra piece of equipment or maybe you decide that you want to offer a finance provider on your store and their setup fee. Is 1000 pounds? Or these are sort of one off fees that I would see. Would there? What sort of cashflow position would you? Would you need to be in? Would you need to be profitable to see this? Or do you ever? How would you be able to make a case for a business to take on extra costs? To know that they can spread that out across 12 months? How would you help a business owner sort of come to those decisions, so that would probably be something that's done inside of Xero. QuickBooks, they have cashflow forecasting tools. So with them, what you can do is you can have a look at your historical results. And then you can forecast them forwards. So you can see if my revenue continues at this trend, and if my expenses continue with that trend, what does my cash flow picture look like each month? And then you can think Okay, so now if I add in these additional costs that I'm thinking about adding in, am I actually going to alter that picture? Would it mean that come April, I'm actually not going to have enough funds to be able to pay the VA to do the work that they're going to do that month sort of thing. So I think that it's something that you would do inside your bookkeeping system, there's also other tools that you can software's you can hook into Xero and QuickBooks to make them even better for cash flow forecasts and the like specific tools that are all around cash flow forecasting. And I think you can even get them where they're like specifically tailored towards e commerce businesses as well. Pretty handy tools there, I think, for people that are listening in and maybe they're not getting started, but they hear about, okay, I need to do a cash flow forecast before I start a business. And sometimes a supplier will even ask you for, like forecasting your sales. If you if somebody was starting and deciding to get into E commerce and they they asked you, okay, I need to do a cash flow forecast and understand what sort of money I need to put aside before starting. What questions would you be having back to them? I guess, what are how would you start to come in and put together a cash flow forecast for a new business owner? That's good question. While since it is all about your revenue coming in, and your expenses coming out, the first thing I would get them to do is to first of all, forecast what they predict their sales are going to be, and on a month to month basis, obviously factoring in that probably going to grow over time. And I would probably get them to do that on a three tier system. So like, what's the absolute lowest you think your sales could be? What's the medium that you think that could be and what's the highest you think that could beat so that you've got a bit of a range to play with there. And then in terms of your costs, I would get them to list all of the potential costs that are going to come up like reaching out to suppliers, you're going to have someone do that there's going to be a cost towards that, there's going to be a cost towards the marketing side of things like creating your store, like any apps that you're going to use for your store, like or the ongoing costs, or the one off costs. And I would get them to list all of those. And again, probably with some sort of tier maybe not as much as with revenue, but like, this is what I think there will be and this is what I'm going to use as my like stretch limit, and then dump all of that into a spreadsheet and basically try to work out what the picture is going to look like each month. And okay, how much money am I going to have to put in on day one? Do I also have to continue to invest money on a monthly basis? Or can I just get away with for 10 grand in on day one. And by month three, I'm cashflow positive, ie, I've used my investment but now it's been recouped. So that's that's probably where I would start. There's probably also more software advanced things that you can do. But I think for someone who's just starting out, an important piece that I find as part of the puzzle is to not go overboard with like no other software providers, this is sort of going against myself here. But don't jump into software straightaway. Like you don't need certain software's until you've run in the business, like make the decisions about how you're going to get started as easily as possible without any cost. And then later on, you can always take a manual process that you've been doing, you've been spending time on and swap your time for money, agreed, stay nice and lean initially is always the advice I give. And then from that position, you start to buy back your time, and you put processes in place. That means you can just keep focusing on growing to the next level. That was good to have that frame when we first get started. And something else that new business owners will come across and maybe for language to weave when you first get started is a profit and loss statement or a p&l statement. Why is that critical for E commerce business owners. So a p&l statement is effectively looking at your revenue minus all of your expenses. So we talked earlier about your net profit being a measure of that, and that's effectively what a p&l is doing. So it actually shows the gross profit and net profit. So it'll show at the top all of your revenue. And then underneath that, all of your expenses that are directly related to that revenue. And then underneath that all of your other business expenses, like we're talking about software stuff and overheads, etc. And so at the very bottom, you've got your net profit figure. And the reason that it's important to know your p&l Inside Out is sort of twofold. One is that is a true measure of what your business is actually doing in terms of success. Because as we said, like if you're looking at these, if your suppliers told you, you can get a 30% gross margin and you just think, happy days. I'll sell it As many of these as I can, and I'll make 30% Not exactly the end of the picture, because you've also got all these other expenses that go with running a business and go with running a Shopify store to take into account. And that's what you'll see in your p&l. But our think that a p&l is important, but also be able to break it down by revenue streams. So if you're only selling on Shopify, that's fair enough one, overall p&l is absolutely fine. But most sellers these days online will be summoned across multiple platforms, I don't know whether you would agree. But they'll have, say, a Shopify store. And then they'll also have some sort of presence on Amazon. And they'll be selling across multiple marketplaces there, that might also be doing tick tock shop, that's a new one that's just come into the mix, like recently, and saw being able to run their p&l by marketplace or by channel to be able to see, okay, now this is my overall business picture. But actually, the vast majority, like 50% plus of my profit is actually coming from tick tock shop. And that's where I'm spending the least amount of time because it's just a new marketplace, I've just slapped some products up there. That's an opportunity. And that's what I see the p&l as the p&l is just a chart, which tells you the opportunities for your business from a financial point of view. So I think that being able to take a look at that once a week, or once a month, to be able to say, okay, am I trending in the right direction for revenue? Am I reducing my costs cannot optimize anything here, I've been able to work all that out and see the business opportunities, I think that's a good place to start. And then I think in terms of like mistakes that I see people making in the p&l is, it's all to do with sort of the bookkeeping side of things. So the p&l is a picture of whatever you've accounted for. So if you are doing your bookkeeping wrong, you're going to be seen the wrong picture. And so sort of a little plug for link my books here, but not great. I think the mistakes that we typically see are people treating deposits as revenue, so they get a deposit from Shopify payments, or they get a deposit from Amazon. And they just think, okay, that's my revenue, and that a slap that enters revenue. And that couldn't be further from the truth. If you take either of those an example, those payouts are going to be made up of sales refunds, fees that have already been deducted, sometimes Shopify and Amazon will withhold funds for later, like transfer. So the like, reserve those funds, so an example I always give is, imagine you've had a payout from one of those sales channels for 10,000 pound, you probably think, okay, that's 10,000 pounds with revenue, and then you pay your corporation tax or your personal income tax on that. And you just think that's it job done. But it couldn't be further from the truth, that could easily be 50,000 pounds worth of sales, 30,000 pounds worth of costs, fees that they've deducted, and then 10,000 pounds worth of reserved funds, which means that you've under declared your turnover. So you've paid less tax than you should have. You've also probably under declared your VAT if your VAT registered, because he should be paying that on your total turnover of 50. And you should be reclaiming it on any expenses that have got that on. And so you've probably paid the wrong amount of VAT as well. And you don't have that TennCare reserved funds sitting on your balance sheet as a payment from Amazon, that's due to you, you've just, you've declared it all as TennCare revenue, so you couldn't be further from the truth. So then when you come in, you're looking at your p&l. It's just it's not, it's not an accurate reflection of your business. So getting it right from the start either using software, or by doing it right through an E commerce bookkeeper or something like that. That's really important. But then I also think that once you're in the p&l, a lot of people tend to think of the gross margins is the be all and end all we've talked about this now a few times. And it's because it's really important people look at I'm making 30% on that product. And they just try and sell as many as they can, you really need to be thinking about the bigger picture in terms of my net profit is what my business is actually making. And my old business partner was used to say, revenue is vanity. Profit is sanity. And I think that is really, it's really stuck with me, it stuck with me so much so nearly forgot it there. But I think that it's a key, the key point, it's like you need to be able to treat your business as you're only in it to make money. That's it. And then the third thing that people get wrong in the p&l is to get the VAT wrong. So they've accounted for the wrong tax rates. The key example here is exports. A lot of people treat all our sales with 20% of our income when you need to separate out things like your exports, if you're using any plugins to Shopify, some of those may actually be liable for collecting the VAT on your behalf. And therefore you shouldn't be paying VAT on those yourself. So that's two ways that people overpay VAT, and we see that quite a lot as well. And that again, can affect your p&l because now you're including or excluding VAT in your profit and loss statement that you shouldn't be, and therefore it's giving you the wrong picture of net profit. So lots to consider. I think if we need to have an eye on on a p&l statement, I agree. And for people that are gay started the practice, they haven't got an accountant yet, because they're waiting for when they become VAT registered, or when they hit the first 12 months of being in business, and they need to do that first, you know, HMRC Companies House statement and keep on top of everything. Before that point, would you recommend that they start doing the PnL statements themselves, I don't think it's a bad idea, when you're just very, very early days to sort of understand the information that's coming into the p&l to be able to then better understand what the p&l actually reflect. But I think it's key that you understand how to accurately account for all of your stuff. Because if you get it wrong from day one, and then you start to grow your business based on information that's wrong, then you're going to end up in a position where come two, three years down the line, when you come to get an accountant, the first thing we're going to do is Telly off, and say that you've made a mistake all these years, and you've either underpaid or overpaid tax, and we have to redo all of that, and then you're going to have more costs than if you just took them on in the beginning. So I don't know, it's a really tricky one, because obviously, it is a cost to have an accountant. But I think that that's so valuable in terms of they should, they should effectively save you more than the cost them. So you can probably get a basic like rubber stamping of your accounts at the end of the year. And a quick check of your VAT return for like less than 1000 pound a year. And I think that it's probably worth it. Because if you get it wrong as to say it can just be it can be even more costly. Later on, they might end up charging you 1500 pound to go back each year that you've got wrong and like redo everything because they don't like picking apart things. They like to start with a fresh start. So the other alternative is to use something like link my books to like, automate the bookkeeping accurately. And then you know that at least the stuff that's going into your Xero QuickBooks account is accurate. And then maybe you can submit your own VAT returns, maybe consent meet your own, like stuff at the end of the year. But still, I still feel like you should probably have at least someone who is an accountant or bookkeeper to rubber stamp it and give you a bit that okay that it's good. Yeah, I'm a big advocate of having an accountant onboard early in the business, like you say, because they put the right processes in place so that there's not this big unpicking exercise at the end. I also think that you end up the amount of time that you spend on bookkeeping and accountant is time in not spending on growing your business and saw why. Try and be an expert in two things like now you've started a business, you want to learn how dropshipping works, and you're wanting to make that profitable. And now also you're going to learn how to be a bookkeeper or accountant, like you to just pick one thing to focus on and let the accountant or bookkeeper who is qualified to do that. Exactly, yeah, I mean, there's a minefield of things that it's not just as simple as looking at your, the sheet that you're tracking your orders or something and just go, that's how much money is the bottom line and start paying taxes, you can get yourself into hot water, I think that's always worried me. And I feel like when I pay for an accountant, it's actually just paying to remove headaches, pay to regain time to make sure that everything is taken care of. So definitely something I do now with every business is get an accountant on board early to really help you out in terms of the actions that a business owner would need to take. It comes down to bookkeeping initially, and just keeping on top of the invoices, keeping on top of understanding the orders that you've got, and having some form of tracking system of the invoices that you're getting from suppliers and the payments that you're making. Well, how would you recommend early on that, that people start to bookkeeping, they just need to keep an eye on the the invoices that they're paying separate bank account really basic things that people need to do initially. Yeah, I think that's exactly it, you've nailed that, you've hit the nail on the head there, have a separate bank account from day one, purchase all your stuff through that, make all your income come into that. And then if you've really early days, and you're only getting like, I don't know, a couple of orders a week or something like that, I don't really see any problem. And you just use a spreadsheet initially, until you hit the VAT threshold, just account for all your income account for all your expenses, break it down by month. And as long as you're working with an accountant from day one and saying this is what I'm planning on doing. There might even have a template that will say like, oh, we'll just put it all in here. And then at the end of the year, I can help you. And it's it's not going to cost you that much like they may charge you five and record at the end of the year, like wrap all that up into a Submittable entry sort of thing that as soon as you have that registered, then you're going to need something like a software to separate everything out, or at least an accountant who understands all of that. He'll probably use the software anyway. Because it's just there's so many, like pitfalls that you can fall into. Exactly. The last thing we want is to be told off by an accountant when we first sign up with a head start that relationship on a bad foot because they realize they've got a mountain of work to dig through to sort everything out. So yeah, yeah, I think if he came to an accountant and said, Listen, I've started an E commerce business. I'm doing X, Y, and Zed, I've started to track my stuff in a spreadsheet, I'm realizing that I'm getting close to the VAT threshold, I'm thinking that it might be a good idea to engage with an accountant and possibly use some software. What do you think we should do? I think it'd be well impressed. Because I don't think many people come to them like that. Yeah. Agreed. I think they'd want to work with you immediately. Yes, snap you up, because I know you've got your head screwed on, right. And yeah, they can make a lot of money with you knowing that you're a responsible business owner. And yeah, it's how we recommend people start in the dropship. Online masterclass, we do start with a Google Sheet, and making sure we track every order, we can see the gross profit per order. And then we're very clear with Google ads is the way that we primarily get customers in. So we make sure we know. Okay, what is our return on adspend? And what do we need that to be to make sure that we're actually profitable on each of those sales. And once you've got that in place, then that gets you up to that threshold, which with high ticket dropshipping, getting up to 90k in sales can easily be done within the first few months, it doesn't take long, and then it's not you know, you're never too far away from then reaching out to an accountant and getting on board. So that's the way we, we recommend, we'll get started with that with these businesses around a sensible, cool. So something else to touch on is the E commerce Chart of Accounts, and how that differs from a traditional business account. So I think this one is really easy for me, when you open your Xero and QuickBooks account, it's going to have like a standardized Chart of Accounts in there. So all your sales will be grouped together, all your expenses will be grouped together, because the idea of Xero and QuickBooks is that they can be used for any business. So builders, hairdressers, butchers, ecommerce businesses, and it's just so far from the truth, you do not want to use their standard chart of accounts. And the reason for that it goes back to like understanding your business profitability. And so if you literally are just looking at two lines in your p&l, one for revenue, and one for expenses, how on earth are you going to understand what the opportunities are in your business, you're just not going to be able to see that. So you have to have an E commerce Chart of Accounts, which breaks down the revenue into at least like sales and refunds, and then reimbursements of any type that you've had from the sales channels. So that you can know where you can focus your attention. Like if you are looking at your p&l, and you're looking at it by channel, and you see that your refunds have really high as a percentage of your sales for one of your channels or one of your countries, then that is an opportunity in itself. It's like, okay, why go away and do a bit of research. But if you're literally just looking at a revenue figure, you don't know that. So you'll just continue plodding on and you could just be like, it could be a really simple thing like this happened to me personally, where it was like, in Germany, my refunds are really high. And it was because Germans don't like it when there's not German tax on the packaging. So I made a change to my packaging, slapped some German text on, all of a sudden my refunds dropped off a cliff. So small changes like that can make a big change to the bottom line. And then on your expenses side of things, instead of just having costs, if it's broken down into like, fulfillment costs, commissions, advertising costs, all the different types of costs, so that you can identify the ones that you can actually make a difference about, it's all about, again, coming back to opportunities in the p&l, you need a chart of accounts that that does allow that he's accurate. And then, as a business owner, our role is to be able to look at what the chart of accounts or that the p&l statement is telling us and make the right decisions based off that to the quality of the data that you get in will influence the quality of the data that you put out and the decisions that you make, it's important that we're looking at the right, the right chart of accounts, and specifically making sure it talks about the business that we're actually in. Because dropshipping is quite a specific type of business model where it's quite different to a lot of traditional e commerce or traditional businesses at large. And so how would you look at sort of from a financial point of view, the model of dropshipping. So I think for any e commerce model, whether it's private label arbitrage or dropshipping, it will be a case of thinking about the costs and revenues that are going to be important to you making decisions, whatever the expenses are, that you're going to actually be at to do something about that. The other ones you want to be tracking because if it is the ad costs, if it is your product, packaging costs, and you want to make sure that you split those things out, so that you can actually make a difference. So what common mistakes do you see that ecommerce business owners are making when it comes to their financial management? actually had some slides for this? I know you said that most of the audience won't see them, but I'm gonna gonna share the slides and then the ones who can't Can't we just great idea. Yeah, that's right. So if people are watching on YouTube, you got the slides up, otherwise listening, then we can still make it clear. This is a webinar that we did recently for our audience, and it's basically the three main things that people get wrong in terms of E commerce, bookkeeping, and why that affects the profitability. So I think it's sort of ties in nicely to this question. And so Reason one, I always call his stop the bleeding. And I think that as we've sort of talked about today, all businesses have good channels and good countries. And it's about identifying those, it's not good enough just to say that you're making profit, and therefore just keep selling your items which have been going on and on about now, I think you need to know where your profit is coming from, you need to know which are your optimizable costs, you need to know why you're profitable in some markets and not others. And it'd be really nice to know how you stack up against industry averages, which is actually quite a cool thing. So where your profit is coming from this comes into your p&l. So this is actually p&l here. And this is actually from inside of like my books where we show breakdown by channel. So you can see like where your revenue away or expenses and all the different types are coming from so that you can identify opportunities. So that's the where your profit is coming from, then, which are your optimizable costs. This is more tailored towards Amazon, if I'm completely honest, but it can probably apply to drop shipping on Shopify as well, not so much for the storage, but advertising, your foreign exchange fees, there's all sorts of costs that you can identify, which can be making a difference to your bottom line. So you should be tracking those, and you should be trying to optimize them month over month. And then you should be looking at why you're profitable in some markets and not others. And that can come back to things like your return relative Forex fees, support languages, packaging languages, which I've obviously got personal experience of. And then the golden goose would be if you could see how you could stack up against industry averages. And this is going to be another plug for Link metrics. Because since we did this presentation, we actually launched this, so like three months ago will launch this thing called industry benchmark and which basically allows you to once you've connected your account to say your Shopify account, you can actually see how you stack up against other Shopify stores that are the same size as you in terms of revenue, to be able to see all sorts of KPIs. And one of those KPIs is your sales growth, your refund ratio, but also all the different types of fees that you've got. So you'll be able to see like, are you on track. And I think that's really helpful for new sellers and growing size. So that's quite cool. So then number two, the reason is overpaying tax. So again, like 75% of people who come to link my books, we find that been overpaying tax and some reason. And that can be for basic things like that are supplying the wrong tax rates in general. So as a new seller, you probably do as I say, you're not an expert in bookkeeping or accountant. So you're probably not going to get this right from the get go unless you do a lot of research or you work with an accountant or a software that understands it, that you're not separating out sales correctly. So you end up overpaying VAT, or you're declaring your net income as revenue, which is what we talked about before, and so many more reasons. So don't overpay attacks, biggest reason number two. And then number three is making better decisions. And I think that this comes down to not necessarily just having like analysis, paralysis and getting data from absolutely everywhere, what you need to be able to do is to have an easy source flow of data that comes into your bookkeeping system, so that you can make better decisions quickly. Because I think that for me, personally, if I look at like if I download data from our Stripe account, and I could spend six hours looking at it, but it's about having like that overall bird's eye view of your business where it's just enough detail for you to see and make differences. But it's not too much detail for you just to spend hours and hours thinking about it need to have like it's like the Goldilocks amount of data, isn't it? And so I think that my overall tip here is that accurate accountant is required for compliance. But understanding what it means is essential for your growth. And that's where you'll find your opportunities in business, I think. So I thought that those few slides would probably help at this point. They're perfectly Yeah, perfectly clear reasons why people are not quite getting it right. And I like the distinction you make as well, I think you can summarize it there, as the compliance should sit with between yourself and the accountant, you know, to make sure that you're compliant. But the growth is going to come from you as a business owner being able to read the data and see where the opportunities are. And yeah, I mean, it's all about for ICS buyers having like a single source of truth, making sure that something is tracked together, so you know exactly where the figures are. And then from that position, you can you can grow there really from there. 100% I think having a single source of truth and being able to measure yourself against that every month, I think is a great idea. I think if you end up tracking too many things, and you try and make too many changes in one month, you don't know what which changes actually made the difference. So it's about like split testing business like that. You'll do that a lot on your Shopify store, you'll think about like, I'm gonna change this title, I'm gonna change this Adam and change this creative. And it's about measuring the results and making sure that it's always putting you in the right direction. Yeah, so in contact with the dropshipping businesses that we run, it's often I mean, Google ads will probably be the biggest lever we can pull in terms of what are the optimizable costs that we're seeing So what's our cost per acquisition? And how can we reduce that? And yeah, the only way we can make those decisions is the data that we're tracking, and how it all feeds down into the bottom line, not just looking at that revenue, for vanity reasons and really seeing what are you making at the end of the month? What about in terms of actually in your Shopify store, though, like optimizing your checkout process and stuff like that? Or a one? Click upsells? Can you do that type of thing with drop shipping as well? Yeah, not upset. Yeah. So the apps that we install, we can see whether we get a positive return on the on the changes that we're making, you can split test with a lot of apps. And then we can work with CRO experts as well, that will run tests on our behalf. And they can then inform us as to the changes that they've made. But we often advocate people to look after their own Google Ads accounts. So it's about getting really clear on the data that they're seeing in that. And with the breakdown that we give them in terms of like the return on adspend, being really clear on what that breakeven figure is, then that's the biggest levers that we pull the different campaigns that we run different campaign types, etc, etc. I definitely agree on people running their own ads, I think that you know, your business, the best, you know, your audience, the best that you are the one who's going to be at the right, the best copy, like someone who understands ads is one thing, but someone who understands how to psychologically persuade someone to buy something, the best person position for those you. Exactly, yeah, I mean, your incentives with your own business are perfectly aligned. Whereas Yeah, that's why I always put myself just in the driving seat without taking upside expertise, learning as much as I can from podcasts like these. But ultimately being in the steering ship, I think he's going to be for the long term, you get a lot more leverage from learning how to do something yourself, like Teach a man to fish instead of giving him fish, etc, etc. That's my that's my sort of thinking about ads, but also financial management that we've been talking about today, if you can get really clued up yourself, you don't have that Reliance then on other people so much. And also having the right software in place, something you refer to a couple of times is, is leaked my books down. And that's the work that you're doing at the moment and building this software up for us. So yeah, tell me a little bit more about link my books and how that works. Yeah. So link my books is basically an automated bookkeeping system for E commerce sellers in general. So we support Amazon, eBay, Etsy, Shopify, Walmart, tick tock shop, square and WooCommerce. Currently, and effectively, what we do is we sync the data from your sales channels to your bookkeeping system. So we are like the middleman in between. And so what you end up with is an accurate breakdown of your sales, revenue, fees, taxes, any reserve balances, all sorts of things like that. They're put in exactly the right places in your accounting system with all the correct tax rates applied. So you know that you're paying the right amount of tax. So we're taking off that first part of the equation, accurate accounting for compliance. But then we also try and tick off the second part of the equation, which is we have internal profit analytics, and the industry benchmark, and then I was talking about, so that allows you to tick off the bit where we're talking about understanding those figures is essential for growth, because now you can dive a bit deeper into what is it that's driving the success of your business? And how can I make it better? And from the industry benchmarking point of view all the KPIs that we're sure you are sure you like where you fall on the bell curve compared to businesses of your size, but we'll also go further than that. And we're telling you how to improve those metrics. So we'll look at what are the top sellers doing, that you aren't doing? And we basically tell you to do those things as well. Amazing. Yeah, it's one of the common questions I hear a lot is, okay, this is the numbers that I'm seeing, but how does that match up to others? And what does that actually mean? Or where am I? So industry benchmarking is something I'm sure that there's been a valuable contribution that you've added recently. Yeah, we've had that three, maybe three months now. And it's been a pretty good success. And we're working on sort of the next version of that with customer feedback of what are their benchmarks they want to see, because we've got like six at the moment. But eventually, we could have a full suite of like things we can compare. So yeah, fantastic, but I can see how how valuable it would be from Shopify, something you touched on before we Shopify, predominantly. And this normally comes from the fact that the suppliers we work with, they normally domestic suppliers, so UK based if we're selling to UK customers, they often have a requirement that the products that we sell can only be sold through our website, and then they don't want them to be on Amazon or eBay, etc, or other marketplaces. But in terms of using leaked my books, it would be around seeing Shopify if we use tiktoks shop as a sales channel. And then would it separate out your meta sales channel? Would that be something that you'd separate out? Or I guess a lot of the depends if we get a sale through meta shop or whether they come back onto our Shopify store, but if somebody has purchased through meta with that track there, so we're doing to have a direct integration with Matt as a platform, but if you are importing sales from meta into your Shopify stores. And those can be separated out inside of QuickBooks as well. Yeah. So you can see those separately, you can apply separate chart of accounts to those. So you would be able to track them separately inside of Xero. Correct, fantastic. And see how profitable that is, and how beneficial that work is that you're putting in to each sales channel. incredibly, incredibly valuable. And for anyone that wants to reach out to your dad and work with link my books, how would they get in touch? So me personally, is Daniel, link my books.com as my email, or just head across to link my books.com forward slash meeting. And you can book a meeting with our onboarding team or sales team who can give you a product demo and show you how everything works. Or I'm pretty active on LinkedIn as well. So you can see me that awesome. I'm sure I'll connect after this. Dan, thank you for your time today. Definitely some valuable information. Thanks for being generous sharing email address. I'll make sure that's all linked beneath this episode, as well. So thanks for your time today, Dan. Sounds good. Just James Have a good one. Well, Lewis, that conversation with Daniel has really been enlightening. And it really helps us understand the financial side of running an E commerce business. He really broke down the financial concepts that sometimes can be tough to understand. And he really made them accessible for anyone considering starting or running an online business. Yeah, what stood out to me, I think was Daniel's practical advice on common financial mistakes, and how to avoid them, as well. His insights on how link my books can save time and reduce errors were also pretty eye opening as well. Yeah, exactly. And he showed us that it's not just about avoiding mistakes. It's about implementing strategies early that can really drive your business forward. I think Daniels tips on financial management and tax efficiency are crucial, again, for anyone considering or running an E commerce business to make sure that you are building a sustainable and profitable brand. Exactly. And for those who want to dive deeper into these strategies, Daniel was recorded an in depth training from members area as well. Now combining Daniel's insights with the structured approach I lay out in my book at HT a book.com will provide you with a comprehensive framework for success. Remember, my book, the home turf advantage is the place to start. If you want to apply these strategies effectively, you can pick up a copy now at HT a book.com. Enjoying the podcast, we'd love to hear from you leave a comment or a review. And we might just feature it on an upcoming episode. Also, for detailed show notes and resources, head to dropship unlock.com. Forward slash podcast. If you found value from any episode of this podcast, please take just 10 seconds to leave us a quick five star review on your podcast app of choice. It helps us more than you could imagine. And who knows, you might just hear your comments on the show. Thanks for being part of our community. Your support helps us keep delivering a new episode every week. So now let's answer a question that we've received from a listener. Now remember, if you want a question answered on the podcast we need to do is leave a question beneath the YouTube video version of this episode. And you might just hear us answer it on an upcoming episode. So this question has come in from Emily Turner 4932. And she is asked, I'm worried that the UK market is crowded right now. Is there still room for a new high ticket dropshipping business? Thanks for your question, Emily. And yet short answer is there's definitely still room for a new high ticket dropshipping business in the UK, if done right. So we emphasize finding niches with high levels of demand that steady that's growing, ensuring that you've got a large enough market to enter that you only need a small part of to sustain a healthy and consistent income. So we actually look for competition, we look for the evidence of existing businesses thriving in a market because for us, that's kind of a green light to think about proceeding with that mark. Now there are other factors other criteria that we'll look at as well. But if we found that there was a no demand for a market or that there was no competition, I'd be worried. I'd be thinking well why there's there must be a reason I'm not the first person to have ever thought about selling these things online. So there's probably some unknown reason unknown to me. Why it's not yet working. Maybe it's there's not enough suppliers. Maybe customers aren't interested enough in that product. Maybe there's something there that I don't yet understand. Our program teaches some really advanced marketing and operational strategies that you can use to apply to your business to outperform competitors. Things like optimizing your Google ad campaigns, and creating really compelling offers that convince a portion of an already large growing market to buy from you. So just remember, you don't need the full market you don't need to win 100% market share. If the market you're in is big enough and it's growing, you only need a small slice of that market a small slice of the pie to create a six or seven figure business. We use data driven approaches we use data and analytics to help you make informed decisions about products and marketing so that you can identify and capture flies on gaps in the market. But also make sure that you're navigating and succeeding, even if you enter a busy market. Exactly. And we've covered this in episode number 32 of the dropship unlock podcast, because we are often asked about competition. So watch that episode if you are unsure if you can still make it work in high ticket dropshipping today. So let's highlight a recent review that we've had in for the podcast as well. So big thank you to major cow pie for the Apple podcast review. And they've said so much value, we have so much out there on the internet claiming to provide a means to building a business online. And we've so much of it being unreliable, and untrustworthy. This podcast from Lewis and James, along with the model they promote really is one of the only credible sources of information out there, having read the book and listened to the podcast regularly, I can highly recommend it to anybody looking to create generational wealth, or a very healthy second income, so much value here, and a great community of people. That's a lovely review. Thank you so much for such a really nice review there. Now, as we wrap up for today, one question I have for you is who do you know, that could benefit from hearing this? Open up your phone and click Share on this episode and send them a link to this episode maybe just on WhatsApp today and just say I thought you might enjoy this. That tiny gesture could be the thing that changes the direction of their life for the better. Thanks for joining us on this episode of the dropship unlocked podcast. We hope you're walking away with insights and inspiration. to kickstart your E commerce journey. Grab a copy of my book The home of turf advantage at HT A book.com is a distilled guide based on real experience to help you build your E commerce venture. Don't forget to hit the subscribe button for more strategies and success stories. If you like what you heard a five star review would mean the world to us and you might just get a shout out on an upcoming episode. And finally, thank you for deciding to spend your time with us today. We can't wait to bring you more insights on the next episode of the dropship unwrapped podcast.