Sherman Case Study: Cautionary Financial Lesson for eCommerce Businesses
When you are a business owner you are solely responsible for your financial future.
Without having a strong accounting system AND financial system implemented in your business you are destined for failure.
This means that you have to have a strong accounting foundation.
But also, key financial data and key performance indicators that allow you to understand your business finances.
Founder Jody Sherman was able to get $1 million in startup funding.
Unfortunately, he was not an CPA or CFO and, in fact, did not even hire a controller until 2011.
While revenues were solid and growing, the cost of getting those revenues meant the company was losing money.
When an additional $12 million was needed to turn around and scale, investors walked away – they were getting no return on their investments.
In 2013, the company went into bankruptcy.
According to the company’s controller, the company’s aggressive discount culture and Sherman’s lack of financial knowledge dwindled away the company’s account to nothing.
This is why gross profit margin is critical because it immediately gives you an overview of how your current revenue is impacting the rest of your business, and whether it is doing so at a profit or a loss.
This is one of many key financial metrics you should be constantly monitoring and improving.
This has a far-reaching impact on your strategic and tactical options for how to run your business.
Yes, revenue matters but it is not what you make that matters it is what you keep.
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