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Podcast: Cashflow for eCommerce

Dave G. :

Guys welcome to today’s episode of Marketing Ear Biscuits and something a little bit different today. The man sitting across from me is definitely not J.Janice. It’s definitely not Josh. It’s actually no one from BidPixel. So I want to introduce you, Cameron Evans from CE Finance. Cameron, what are we talking about today? Oh, we’re going to talk about the importance of cashflow for eCommerce inside of the business and the benefits of being able to secure funding for the expansion of a business.

Dave G. :

Perfect. So in particular, we’re going to talk cashflow for eCommerce stores.

Cameron E.:

Correct.

Dave G. :

Now, BidPixel works with a lot of eCommerce stores as they’re growing and scaling. We either work with businesses that get to the point where they can no longer scale fast enough because they can’t bring enough products into the country or like can’t produce products quick enough and we get through that barrier through cashflow or we get to that hurdle and the business kind of goes stale and they can’t grow as fast or as well as they maybe should. So what’s the importance of having cash in a business?

Cameron E.:

Well, it’s the lifeblood of the business. So the general sales cycle is dependent on how much you can fund so far as sales are concerned. It’s probably easiest to use an example. Current client, they’re a pet food business and their sales were to limit that was basically dictated by the amount of stock that they could bring in. They bring in stock from the U.S. and they’ve got a good business, a multimillion-dollar business. The drama that they had was they couldn’t actually break the limit that they had because of their cash flow.

Dave G. :

So it could never grow to the next size of business just because it couldn’t get more stock on the water or on the ground to sell.

Cameron E.:

Correct.

Dave G. :

If they had it there, they’d be able to scale the business a lot quicker.

Cameron E.:

Yeah. That they had backorders and it was actually hurting their business in one sense because they couldn’t supply to fulfil the requirement that was in the market.

Dave G. :

Yeah. Interesting. So we’ll have a chat a little bit later about what they did to overcome that.

Cameron E.:

Sure.

Dave G. :

Let’s talk about products. So you’ve either got widgets, which they’re an off the shelf. You can find a supplier that’s got a widget. It comes from China or the U.S. or wherever it is. There are tens of thousands and you’re drawing down a small percentage of that inventory.

Cameron E.:

Yes.

Dave G. :

What happens when it’s a customer bespoke product for people? Does that play a big part in how you can scale a business as well?

Cameron E.:

Yeah, absolutely. Absolutely. If it’s something that’s a generic widget and there’s a lot of competition for your business, then oftentimes you can negotiate trading terms. So if your sales cycle is say 30 days from when you receive stock, if you get 60-day terms with your supplier, then your sales are funded and that’s fantastic for growing a business.

Dave G. :

You’re cashflow positive I guess. You’re moving product quicker than you’re actually bringing it into the country.

Cameron E.:

Correct.

Dave G. :

Purchasing it.

Cameron E.:

Yeah.

Dave G. :

Awesome. All right, so those trading terms are big things. So you can have either get 60 days, 90-day trading terms or a lot of our customers that we see in eCommerce it’s cash upfront right before manufacturing even starts and that cripples these businesses.

Cameron E.:

Yep.

Dave G. :

So let’s have a chat about a few options about how to get around that crippling of a business. How can cash flow be a good thing in business? Now it’s an interesting conversation for me to have because my wife and I personally live without credit cards, without finance or loans. Like we’ve got our mortgage and that’s the only thing that we owe anyone on anything and we’re trying to pay that down as quick as we can.

Dave G. :

We also have built this business as BidPixel without finance or lending or growing it organically. Now it’s taken us a while to get to where we are and it’s always going to be a process to grow. So I can’t really speak on this having done it myself, but I want to get your opinion. So the first way that someone could get finance for business would be through family and friends.

Cameron E.:

Yes.

Dave G. :

How would maybe the two options of that option work? Is there, I think we talked about equity or flat out loan?

Cameron E.:

Yeah. So family and friends can invest in your business and then effectively you get a business partner that you become accountable to. Sometimes that can be a little bit of a challenge because people who don’t really understand your business then want to come in and tell you how to run your business. It can create a lot of conflicts, particularly with family and friends. You’ve got to sit down together at Christmas time and be able to break bread and enjoy each other’s company. If there are tensions in relation to financial issues, it can be a drama and that can be whether it’s a loan that there’s some sort of a hassle with because not everybody is set up with the understanding of the risks that are associated with providing a loan. They think everything’s going to be peachy otherwise they wouldn’t have done it in the first one.

Dave G. :

That’s right. Family or friends give you a sum of money and say, that’s cool. Well, you can repay it and maybe they are naive enough that they don’t put an interest rate on that or they don’t ask you to repay it in a certain period of time and you start taking the liberties on them and obviously Christmas dinner is going to be pretty hard to handle if that’s the case. Then you’ve got maybe the equity side of things and like you said, giving a family member or a friend a percentage of your business for life to get you through a small cash flow hurdle, or going out to a venture capital firm, or getting yourself on Shark Tank, which would be a small percentage of people. Right? You’re literally giving up a say in your business and you’re always going to have to answer to someone else in that business as well. Right?

Cameron E.:

That’s exactly right.

Dave G. :

Cool. So family and friends can be good if they’ve got the same interest at heart from you and possibly if maybe you can buy them back out in the future. It’s something that’s going to be very personal to that person actually thinking about family and friends loans.

Cameron E.:

That’s right.

Dave G. :

I introduced you to the wonderful things of PayPal advances before we went on the air today.

Cameron E.:

Yes.

Dave G. :

How crazy are PayPal advances?

Cameron E.:

I was amazed that they would charge as much as they do. It just seems ridiculous clearly it shows that there’s a need in the market I guess is probably the first point. That they’ve put a facility in place that you can borrow 35,000 and I think the numbers we had, you pay back $80,000 over a period of time.

Dave G. :

So the sums that we worked out quickly for those listening in, you can borrow up to 35% of your annual PayPal sales. So anything you put through PayPal in a year, they will allow you to borrow 35% of that. Say if you make $100,000 in sales that go through Paypal, remember they’ve already taken a clip-on that $100,000 in sales through their fee. If you turn it over $100,000 a year through PayPal, you can then borrow up to 35,000 through PayPal. There’s a massive fixed fee in place depending on how much you want to repay or how quickly you’d want to repay it. They’re taking a percentage of each sale, right? So you could be giving up to 30% of each sale to repay the PayPal on this money.

Dave G. :

So the sum’s kind of worked out. If you want to take the largest percentage of each sale and stay profitable when you’re repaying your loan, you might borrow $35,000, but repay $85,000 to PayPal for a quick cash flow loan to maybe get stock on the ground. Like that doesn’t make sense. You’re repaying double, more than double what you borrowed off PayPal. People would probably buyer beware, people would need to research that option and then have a look at different options or some more options. So the next option that we discussed was a traditional overdraft. So it’d go into your bank. Tell me about the pitfalls of a traditional overdraft and why that’s maybe changed in the last decade or two.

Cameron E.:

Yeah, yeah. I mean traditionally it’s been probably the only place you could go and generally, it needs to be secured by a property. Tying up the family home. One of the biggest challenges and I’ve got sort of a live example that we discussed earlier, is the amount of time that it can take, particularly with smaller amounts. So I’ve got a client who’s a pet food client that I alluded to earlier. They applied in November 2018 for a hundred thousand dollar overdraft.

Dave G. :

So November 2018 remember that?

Cameron E.:

Correct. Understanding that these people have got multiple properties, they’ve been in business for five years, they’ve got a strong turnover business.

Dave G. :

So they look good to a financial institution.

Cameron E.:

Absolutely, absolutely. By April of 2019, they still didn’t have an answer.

Dave G. :

What’s that? Six months.

Cameron E.:

Six months, six months. They still don’t have an answer. Now not that they didn’t qualify, but the banks, in general, aren’t really interested in smaller overdraft facilities, smaller cashflow facilities. The reason why is it takes the same amount of effort to approve a 50 or a hundred thousand dollars overdraft as it does to approve a 500,000 or a million dollar facility for someone.

Dave G. :

Is that person writing that overdraft getting a commission based on what they’re writing? Are they getting incentives based on what they’re writing through the bank?

Cameron E.:

Yeah. Well, certainly their budgets and they’re measured on the amount of volume that they put out the door.

Dave G. :

So a small business looking to get an overdraft can continually maybe get pushed to the bottom of the pile with these live banks.

Cameron E.:

That’s exactly what happened in this case.

Dave G. :

Five months later, no outcome, no result.

Cameron E.:

That’s right.

Dave G. :

That could cripple a business, right? If they needed that money in a hurry to stay afloat or get stock on the ground.

Cameron E.:

Absolutely, absolutely.

Dave G. :

Also traditional overdraft, they’re going to probably want property backing. You’re going to have to have assets that they can fall back on or?

Cameron E.:

That’s right. More and more the banks are looking for that. If you go back 10 years ago, they were doing a lot of unsecured overdrafts and now they definitely need property and sometimes that can be a difficult conversation to have when you’ve got one partner working in the business and one not working in the business. You’re tying up the family home to support one part that another partner doesn’t really have a lot of visibility of.

Dave G. :

I think that probably speaks a lot into the industry that we work in. We’ve got a lot of mumpreneurs who run eCommerce stores. Hubby’s still off in the city running his corporate job or doing his daily job. Yep. He’s got a good superannuation fund that’s getting topped up each month by his employee, employee, employer, but then wifey instead of entering the workforce when the kids get a little bit older, wifey decides to stay at home and run her little online store. It’s little things like not contributing to the mortgage and not contributing to her own superannuation anymore that they don’t think about. When it comes down to scaling this business, hubby or the partner that’s working in the city at this full-time role is suddenly feeling like, well why am I funding this or what’s the risk for the family for you to enjoy your lifestyle business?

Cameron E.:

Yep.

Dave G. :

Cameron, thank you. Let’s talk about the next option for getting cashflow into an eCommerce business or into a small business who’s trading online. So we’ve talked about family and friends and equity or loans. We’ve talked about PayPal advances and the absurd repayment structure that they have. Just before the break, you talked about a traditional overdraft and the long drawn out process that you might have to face with that. Then we’ve also got the conversation now of pre-selling your products. This is something that I can speak into because we watch a lot of our customers do this and pre-selling items is usually the first protocol that they do when they’re trying to grow their business. What I mean by pre-selling is they will go to market with a new product, list it on their website, but not physically have the inventory to sell there and then.

Dave G. :

So if someone purchases that product, there’s a long waiting period through manufacturing or shipping or getting it on the water from overseas. Now the industry has kind of got used to pre-sales and it might be a very visible thing on the website. So I might be preorder or pre-purchase before we get on the ground, but the user experience then is a long wait for the consumer. Social media these day gives everyone the desire for instant gratification. They order something, they want it there yesterday. Amazon in the U.S. with their one-day shipping has made this massive thing that now the small boutique eCommerce store doing a pre-sale where it might be three, four, five weeks before the customer gets their order ends up in bad customer experience. They don’t come back and purchase again.

Dave G. :

Suddenly your lifetime customer value goes down and it’s a nasty cycle to get into. So one of the biggest things we say with pre-selling and this is where you as a broker have a massive leverage of the next topic we talk about. One of the things with pre-sales is our customers often have to discount. So they might go to pre-sale and the negotiation with their end consumer is that we’ll give you a discounted rate on buying this product if you bought and wait for us to manufacture or wait for us to get it. So that could be $30,000, oh sorry. That could be 30% off.

Dave G. :

Buy it at pre-sale, buy it at pre-order, and get 30% off. Now if they do $100,000 in sales, they’ve just effectively lost $30,000 in revenue by pre-selling their product. So that brings us to the next point, which is where you’re the expert and the reason why I wanted to have a chat with you and it’s all about unsecured cashflow and the options about doing that these days. Now, like I preface this conversation, I don’t necessarily subscribe to finance and lending, but I know it’s a valuable thing for a lot of our clients to grow into. Let’s talk about unsecured cashflow and the options that people have these days.

Cameron E.:

Yes. So over the last decade, there’s been a lot of different entrance into the market that is providing true cashflow funding, particularly in this business to consumer space. It’s really important. What a lot of these people or groups will do is lend between 80 to 170% of whatever your current monthly turnover is.

Dave G. :

Yep.

Cameron E.:

In doing that, it allows people to do things like pay for marketing, fund stock.

Dave G. :

You can come back, you just said pay for marketing. I’ll let you back on the show.

Cameron E.:

Yeah. So those types of expenses that businesses do need to grow and need to be able to get the message out there. It’s important for them to be able to have the cash to be able to do that. So if I could use that pet food example that I spoke about earlier, they spent six months let’s say going through the process of trying to get an overdraft through traditional sources. After sitting down with them, we actually found that their need wasn’t $100,000. It was more like 380,000.

Dave G. :

Yeah. Wow. That’s a business changing amount.

Cameron E.:

Absolutely. Absolutely. We put that facility in place for them in seven days. What then happened was it meant that they could actually increase their quarterly, their revenue increased by $1 million. So that doubled the turnover of their business.

Dave G. :

They doubled the turnover their business by just having the cashflow there to inject into more stock on the water and then getting those backorders out quicker.

Cameron E.:

Absolutely.

Dave G. :

Cash is king in that instance.

Cameron E.:

Yeah.

Dave G. :

So unsecured cashflow. What’s the regulation on this at the moment in Australia?

Cameron E.:

So actually regulation is a really interesting thing.

Dave G. :

Like nothing.

Cameron E.:

Yeah, yeah. It’s interesting specifically when we talk about regulation, Essex had a bit of a look at this space and they’ve found that the industry is self-regulating. So with the Banking Royal Commission that’s come online, they’ve already seen that there’s particular importance of transparency. There’s an importance on clients understanding what their obligations are and understanding what the ramifications are if they’re not able to pay, et cetera. So that part of the industry is actually really well-regulated. So people really know where they’re at. There are a number of different products that are available, some products are lines of credit. Like a come and go, credit card style facility that you can use for buying and selling stock and having expenses.

Cameron E.:

There’s some that are linked specifically to turnover, but just allow you to pay invoices. Some will actually give cash that you can use within the business. So there’s a variety of different options out there with repayment terms from six months to three years.

Dave G. :

What are the general minimum requirements for a business to get funding in this instance?

Cameron E.:

Yeah, so generally you’re looking at a turnover of about $5,000 a month.

Dave G. :

That’s nothing.

Cameron E.:

Yeah, well that’s the sort of the entry point. From there, these facilities at the moment in the market, because it’s still developing, go up to half a million dollars.

Dave G. :

Surely someone who’s turning over $5,000 a month isn’t going to get half a million dollars worth of funding though.

Cameron E.:

No.

Dave G. :

That’s relative.

Cameron E.:

So that’s right. That’s where we talk about, it’ll either be 80% of turnover or it might be up to 175% of the monthly turnover that the facility would be in.

Dave G. :

Sure.

Cameron E.:

So if you’ve got someone who’s turning over $5,000, generally you’d be looking at a $5,000 facility that you would then pay down over time.

Dave G. :

How often is that repayment structure’s fairly fluid? Can they start discussing payment structures, repayment structures or?

Cameron E.:

Yes. So because these are designed to be cashflow and it’s designed to be a churn product, generally there’s a repayment pattern that’s around 12 months.

Dave G. :

Okay.

Cameron E.:

So they would make principal and interest rate payments over 12 month period. Oftentimes what will happen though, so I’ve got a client who’s a carpet or floor coverings sales, carpet sales. They work in the wholesale market.

Dave G. :

Yep.

Cameron E.:

They’ll have a container come out from Indonesia, which is their main supplier. They have a $40,000 facility. After two months they pay that out. Then in a few months after that they’ll do the same thing again. So there’s that cycle.

Dave G. :

Sure.

Cameron E.:

Other customers just prefer to leave the cash in and pay it down over time rather than have that sort of boom-bust type of a cycle.

Dave G. :

So it is unsecured cashflow options, do they need to own a house or have property?

Cameron E.:

No, that’s one of the great things about it is that it’s just based on what your turnover is. You don’t need to own a property. You do need to show bank accounts, bank statements that confirm your turnover and also confirm that you’re responsible with how you conduct your bank accounts.

Dave G. :

Sure. So they’re going to want to see separate bank accounts, right? Not your personal account with your business transactions. They’re wanting to see honourable traits of where the business is spending money.

Cameron E.:

That’s right. What they want to be able to do too is see that you’re responsible, that you’re not overdrawing and things like that. You’re not too close to the wind, so to speak.

Dave G. :

Yeah, sure. What about time in business? Do they have to be trading for a certain amount of time? Can a startup get access to this kind of funding?

Cameron E.:

Generally, it’s six months trading, which isn’t a long time compared to a lot of other traditional sources. I mean if you go to the bank, it’s two years. There can be some exceptions to that. If someone’s a startup, there are some discussions that we can have around different types of funding for them.

Dave G. :

Yeah sure. So I guess the big thing with the unsecured cashflow is there’s a ton of FinTech options out there. There’s brokers like yourself. So Cameron Evans from CE Finance. What’s your website, mate?

Cameron E.:

CEfinance.com.au.

Dave G. :

Okay, so nice little plug there. So you’ve got a broker that you can go to. So someone like Cameron can get you the best deals or know the best product that might be suited for you. You’ve got all these FinTech companies now Prosper, Moola.

Cameron E.:

Get Capital.

Dave G. :

Get Capital.

Cameron E.:

Lindley.

Dave G. :

They’re marketing massively. You type in business capital or cash flow and you’re going to see their ads come up pretty quickly online these days. So I guess the big thing about unsecured cashflow for when we’re thinking about how eCommerce customers would be, they might get access to their cash flow, which means there’s no need to discount their products at a presale or a pre-order style selling system. So instead of maybe giving 30% off on a presale, they may be only paying what kind of like 12%?

Cameron E.:

Yeah, so I did some quick numbers on someone who might have three months stock turn from order to sale and that would be 6% of the cost of goods would be how much they would pay as a flat cost if you like.

Dave G. :

So a flat cost. So we’re talking maybe a shoe business, a clothing range that cycles their products every three months, toys, anything that your stocks rotating in a quarterly sort of basis instead of discounting by up to 25, 30% to get presales and get stock on the water. You can maybe go cash flow as an option and just be giving up like three to 6% was it?

Cameron E.:

That’s right.

Dave G. :

This sounds like it’s a win to me and it gives you the option to get the stock on the water and have it on the shelves, which then turns into a better customer experience for the end customer as well. Right?

Cameron E.:

Absolutely.

Dave G. :

They’re getting quicker and not having to wait.

Cameron E.:

Yep.

Dave G. :

Awesome. Cameron, thanks so much for your time today. That was a good little chat. You’ve opened my eyes to how cash flow is important for eCommerce and the different options that people have in that regards.

Dave G. :

We’ve got dozens of customers who could benefit from the conversation that we just had and I’d encourage anyone who’s thinking about the cashflow. If finance is the right option for you, look up Cameron. I’ll put your details in the show notes as well, by the way, mate.

Cameron E.:

Great.

Dave G. :

Or talk to someone. Talk to a broker, look at the Fintechs and just see if it’s the right option for you. Definitely go slow and work out which one’s the best option and work out if you can serve whatever you borrow with the cash flow that you’re getting in from the sales. Awesome. Cameron, mate any closing remarks? You don’t have to.

Cameron E.:

No. Look, thanks very much for having me.

Dave G. :

Awesome.

Cameron E.:

It’s a great experience.

Dave G. :

So I think we’re going to get you in again to have another chat about some finance stuff for business just because that is your jam. That’s what you do. Mate, thank you very much for having a chat about cashflow and options today.

Cameron E.:

Wonderful.

Dave G. :

Cheers mate, thanks.

Cameron E.:

Thank you.

Dave G. :

So guys if you liked this episode, please like or subscribe to our channel or our Instagram or our Facebook. If you didn’t listen to the ad that I published halfway through this, ask you a comment in the comment section below and you can go in the draw to win $50,000 cash. Fancy that. What could you do with $50,000 cash in your business to then advertise to make more sales to then get more product? How would that work for you? Right? Comment your questions. We can get Cam back on to answer any of those questions, but I hope you enjoyed this episode. Thanks a lot guys and we’ll talk to you soon.