Why Profit Doesn’t Equal Cash in DTC Brands (with Nate Littlewood of Future Ready CFO)

Welcome back to Supply Chain Moves, the podcast where we talk about real stuff— the numbers, the operations, and the decisions that determine whether your DTC brand actually survives growth or suffocates from it. I'm your host Lara Guevara, and today's episode is one I've been waiting to do for a while because I see this exact play out with founders all the time. Your ROAS looks great, your ads are converting, your marketing team is celebrating, and yet you're staring at your bank account wondering where the money went. My guest today is someone who I really look up to in the space of finance. He has lived both sides of the founder journey, and that's exactly what makes him so valuable to have on the show. Nate Littlewood is the founder of Future Ready CFO, and his Story starts the way a lot of great ones do. He built his own e-commerce brand from scratch, a $40K USD Kickstarter campaign that he bootstrapped all the way into 7-figure business selling through Amazon, Shopify, wholesale, working with vendors, suppliers, co-packers, and 3PLs both domestically and overseas. And before all of that, Nate spent nearly a decade on Wall at a global investment bank. So he's not just a finance guy who reads about business, he's run one. He knows what it feels like to stress about payroll, launch a new product, and ride that emotional rollercoaster founders live on. Today, he works with e-commerce and CPG founders as a fractional CFO, helping them cut through the chaos, understand their numbers, and build financially sustainable business. He's also a lead mentor at the Food Future Co accelerator in New York and an advisor at the Startmate program in Australia. He has an MBA, has worked with dozens of early-stage founders, and is on a mission to turn financial confusion into financial clarity for purpose-driven brands. Nate, welcome to Supply Chain Moves. I'm really glad to have you here. So let's start with the thing that your whole world is built around. Why are profitable brands still going broke? And you're off to the races. Let's get into it. All right, Nate, welcome to the show. Nice to meet you.

Thank you, Lara Guevara. Great to be here. Appreciate you having me on.

Yes, I'm very, very, very excited for this interview. Actually, let's start with the big tension. You know, a founder's meta ads are killing it, strong ROAS, good conversion rates, revenue is up, but their cash flow is a mess. And in your experience, you know, As someone who had been there, what's the first place you look when a brand is profitable on paper but broke in reality?

The first place I would look is their cash conversion cycle, which is basically a measure of how quickly cash and cash flow is cycling or moving through the business. There's 3 components to that. One is the days, um, inventory outstanding, and that's usually the largest of the 3 pieces. Then there's the days sales outstanding and the days payable outstanding. But the cash conversion cycle is essentially measuring like how long it takes to move cash through the business, starting off as purchases for inventory and supplies. And then you convert that into cash and cash flow when you actually sell it to a customer and you receive the payment from customers. Tobias Carlisle: So it is theoretically possible to have a business which is profitable on a P&L basis, but actually be deprived of cash or cash flow because of this cash conversion cycle phenomenon. And it's particularly problematic when you have fast-growing brands because there's perpetually this need to kind of invest more and more in inventory in order to keep up with higher and higher sales and therefore, you know, larger and larger cost of goods sold. And the growth rate of the money going into inventory can sometimes outpace the profit that's being generated.

And then that is exactly why supply chain and finance really have a huge overlap. You know, if the company, if the brand doesn't have an awareness of what is the real lead time of the supplier, because that's part of your formula, what is the payment terms that we can maximize. You know, when they say 30/70, 30% deposit and 70% before it leaves their factory, they just follow it. When, you know, if you have vendors in Vietnam, in China, in other countries, you can also negotiate net terms that could help with the CCC or cash conversion cycle. So I've seen a lot of brands that we've handled, and even when I was working as a supply chain manager 7 years ago, that we are having— we have the capacity to pay deposit, we send POs, we are going to have a little bit of delays in the balance payment, so also delivery is also delayed. And so there are so many things that could happen also in different section like delivery via air, via sea, holding in the port, warehouse. And so if we don't have that real number of lead time, the truth, and considering the emergencies, you know, that is always present in DTC and supply chain, then we will not be able to complete the CCC. And did you have that experience in the past before where you have, you've helped a brand, you're helping a brand that doesn't have that information yet?

Oh yeah, it happens all the time. Um, it's very, very common, especially with my newer clients and folks who've, you know, maybe just broken through 7 figures, um, that they don't even have proper visibility on what the cash conversion cycle is. Um, that might, you you know, sound an odd thing to say, but the reality is that you need fairly good bookkeeping and accounting quality to actually be able to see this. And some of the most common ways that I see the bookkeeping or accounting, uh, let brands down is that they're not recording their accounts payable balance. So they're basically recording payments to suppliers on a, on a cash basis when the payment is actually made rather than when they are issued an invoice. So I actually had an example of this recently. A brand that was, you know, handling their payables in exactly that, that way. And the reality was that they had, you know, well over $100,000 of accounts payable balance, but they weren't reporting it on their balance sheet because they were just, you know, using, um, you know, cash-based accounting for that. So sometimes we lack, uh, visibility on what accounts payable is. The other big area is obviously around, um, you know, inventory accounting. Uh, we can get into situations where the stock on hand, you know, the real version of stock on hand doesn't match what's on the books. It could be over or understated. And yeah, through almost all of my engagements as a fractional CFO, you know, one of the first things I need to do is just understand how the inventory accounting is being done. And I would say 9 times out of 10, within the first, you know, 3 to 6 months, there's some type of cleanup that needs to be done and a reconciliation adjustment that needs to be made. In order to bring the accounting value of inventory in line, in line with the true or actual amount.

What is the timeline usually for gathering data and analysis part, Nate, before you can really actually do the job?

Yeah, so for me to get ramped up with my new client engagements, it's usually a process of, you know, 2 or 3 2 or 3 months. It depends a little bit on whether or not my team is handling the bookkeeping and accounting. You know, I have an accountant that I've been working with a few years and, you know, we have a bit of a system and we've got a flow down. And so when we are working on situations together, we can usually get ramped up a little bit faster. But when I'm dealing with someone else's bookkeeper and accountant and it's a new relationship for me, it sometimes takes, you know, a little bit longer. But over the first few months, I am going through a process of I'm building out the financial models, starting to put in place projections and forecasts. If the business or the founder needs it, then we'll also put together something like a 13-week cash flow model as well. And usually by month 3 or 4, we are starting to go from a list which probably began of, you know, 20 or 30 different priorities. You know, founders will tell me that they want to launch on TikTok Shop. They want to launch this new product. They've got a new sales channel. They've got this, that. There's usually, you know, dozens of these different ideas and priorities. Priorities, but by month 3 or 4, we're usually, you know, working on getting that down to 2 or 3. And so these will be our top 2 or 3 highest priority, you know, growth levers or profit levers. And then we're basically building out an action and implementation plan to make meaningful progress on whatever those top 2 or 3 initiatives are.

Got it. Got it. And this is, this is Probably both our companies, Nate, are experiencing these challenges wherein when we step in, when we get this client, we are trying to get all the information we need, and sometimes some information are not recorded, not yet kept somewhere. So we have to really gather everything first before we can actually start or do the work. And we know that DTC, the first finance, the first supply chain is always the founder. They will— most of them are usually marketing experts, right? They have the skills and expertise in doing paid ads and anything marketing. They can sell anything. So they will In supply chain, they will try to find something in Alibaba and then develop it, new product development. They will change the logo with their logo branding, and then they will deliver it and then sell it, and then they will do their own financial models as well. So in my experience, I keep saying that it is gonna be more— we're gonna save more money if we start supply chain and finance working with marketing in the beginning, you know. But some of them, some of the brands we've worked with, they're learning the hard way wherein they will only get the support of finance or supply chain when it's already broken or when it's already too late. So for you, my next question is, of course, we cannot avoid that the first finance and supply chain of the DTC brand as the founder, when is the best time to ask for support in finance? Like the company, like your company.

Yeah, that's a good question. And I have a couple of different frameworks to think about or ways to answer that. Um, before I get to those two or maybe three frameworks, I just want to circle back on the point you made about founders being marketers because Um, the profile that you described, I would say, is one of the founder archetypes that I see, but there are a couple of others. Um, and these are worth mentioning because they tend to behave quite differently and have different types of issues and problems in the business. So Type 1, I call the maker or creator. They're usually a designer. They might be a subject matter expert. I had a founder at one point last year who was like a herbalist and nutritionist and she had this supplement brand. And what I commonly see with those types of founders is that they have way too many SKUs because they just love making products and they overdesign, they overmake, and they perpetually think that the answer to solving their revenue problems is, oh, I need more stuff, right? The reason I don't have sales is because I don't have enough SKUs. And I mean, you would empathize with this. The more SKUs you make, like the more complicated your supply chain becomes and, you know, the more money you have tied up in, in inventory. So with founders like that, I'm often on the lookout for a revenue per SKU metric. So I want to understand like how much revenue or profit are they actually generating relative to the size of the catalog. And usually it's a disappointingly low number. So that's profile one. Profile 2 is what you described, which is the digital marketer or customer acquisition guru. These people understand often, you know, the Meta, the Google platforms, understand CAC and LTVs. And very often if they are comfortable with the CAC and LTV economics and they can see that their marketing is profitable, then they're usually pretty content just having a bookkeeper or finance person kind of following them around and cleaning up their mess, so to speak. The third archetype that I come across is what I call the business owner archetype. They're not necessarily an expert in any one discipline or domain. In my experience, they're often a little bit more seasoned. They've usually, you know, been around the block a few times and they're much more inclined to, you know, want to talk about or, you know, think about things like ROI and is this a good or bad investment? And they tend to be a little bit more rational when it comes to finance-driven arguments. And unsurprisingly, Archetype 3 tends to be the best type of customer for someone like me. They're usually the most receptive to, you know, what I'm selling. Now, to get back to your question, which is like, when is the right time here? I think the right time to be investing in support from someone like me is when you are The first criteria is that you need to be post-product market fit. All right. We need to know that customers actually want and desire this product and customers are actually going to come back and repurchase it, you know, more than once. If you haven't gotten to that point, then I will argue that your sole reason for existing as a business owner is to get to that point, right? Which means that every dollar cent hour that you have of man or lady labor available to you should be invested in figuring out how to scalably and repeatedly sell your product and determine product market fit. Because the truth is, there is no level of finance support that can, you know, help solve a product that the people don't want to buy. Okay. I can't help you. You probably can't help them either. Like customers have to want the product. Before either of, either of us is, is really gonna be in a position to help that, that business or, or the business owner. So that's criteria one. The other, the, the next framework I wanted to mention is just around the level and complexity of the, the decisions that we have to make as a founder or business owner. So the way I like to, to frame this is that when you are managing a business, your role is a little bit like an investment manager. In a way. What I mean by that is that you are sourcing capital, you are sourcing funds from various places, and it could be equity investors, it could be debt. You could be sourcing money from sales to customers. You could be sourcing money out of inventory or, you know, accounts payable, accounts receivable. They're all theoretically sources of cash and capital. And then you've got a number of decisions to make around what you actually do with that capital. In other words, where you're going to invest it. And you could invest it in inventory, you can invest it in ads, you could invest it in people, you know, you could invest it in plant and equipment. There's many different, you know, possible investment options for your capital. Now where I'm going with this is that the larger the number of choices you have on both of these axes, the more value a fractional CFO is going to give for you. So a lot of choices about where cap, cash and capital can come from and a lot of choices about what you might do with it. A CFO is going to be very, very helpful. To give you a couple of examples, I did some work with a founder a couple of years ago who was doing about $15 million a year, but he was doing it with basically two SKUs. He was the only employee and he had like 3 or 4 freelancers and subcontractors working below him. And he was archetype 2. He was the digital marketing guy. Now he knew exactly where his next dollar was going to come from. It was going to come from profitable sales of product. He also knew exactly what he was going to do with that money when he got it. He was going to buy more ads and more inventory, right? There was no, you know, product diversification. There was no channels he was looking at. There was no extra people he needed. Like it was just simple in terms of the decisions that he had to make. And we eventually got to the point where we concluded he really didn't need me. And you know, that, that engagement didn't end up you know, becoming a recurring thing. Meanwhile, I worked with another founder who was doing less than $1 million a year. Now admittedly, very, very profitable, but she owned a beauty salon and her own e-commerce brand of beauty products. And so she had a huge number of decisions to make about expanding the product, hiring a 3PL, expanding the salon. Should she hire people? If so, how should she hire people? Should she move into a larger facility so she can have more customers? And so she had like dozens and dozens and dozens of different choices and decisions to make. She also had a lot of options around where she was going to get her capital from. She was looking at grants, she was looking at debt, she was contemplating an equity raise. And so I actually did end up working with her for quite a while and, you know, felt like I was adding quite a lot of value because the landscape of decisions that she made, had to make was very, you know, significant and complex. So that's the first framework I would encourage things, uh, folks to think about. The next is really just, you know, being self-aware of your zone of genius and what are the things that you're actually good at as a business owner and operator. Um, if you're from an engineering technical background and you're comfortable with spreadsheets, like, yeah, you can probably watch a few YouTube videos, download some templates, And you can probably get yourself to a few million dollars, like just managing the finances yourself. But if you are the sort of person who's just overwhelmed by that and you don't enjoy it, you're not good at it, you're inclined to not engage with your financials. And, you know, maybe there's other parts of the business where you can add a lot more value, for example, running ads or building products, then go do that. Like understand where you add value to your business. I mean, understand what are the things that you can contribute that actually add value. And if numbers and finance stuff isn't it, then by all means, get help. Like you don't need to be good at everything. So yeah, they're the two frameworks I usually walk people through. I'm curious, how do you see it from your end? When do you feel like founders should or could be hiring someone for supply chain and operations support?

Oh, gosh. This is really, really— what you've said, the archetypes, is blowing my mind because, you know, majority of our clients right now, probably 70% of those is archetype 2, the marketers. And now that you've mentioned that there are new product development founder types that keeps creating products, more and more SKUs. Now I remember that we have some of them too, and I'm realizing how difficult it is for us to also manage their supply chain if we don't have, like, if you're just focusing in new product development and not much strategy in that good side. So that was very helpful, I think, even for me and for the listeners of this podcast, is how are we going on, when do we, what, depending on what type you are of a founder, then there's a different path for you. For us, actually, it's very, very, very similar with what you've mentioned, Lee. There was a point actually that we had to ask our client to find a CFO first before we continue working with them because we keep— yes, because we keep on working and nothing is happening. And he would like to continue the supply chain because what we're doing is a fractional supply chain. So if you need sourcing, if you need new product development, if you need inventory planner, create that group and then we deploy them to you. So they mainly require end-to-end of supply chain at that time, even coordinating coordinator. So what's not working is our inventory planning and it's always broken and it always come back to the point where cash flow is always broken as well and there is no like annual forecasting, or even we don't know when the money is coming in, and we don't know how to continue with the POs or the plans. Because we will keep on planning, we will keep on creating draft POs until the founder says that it can't be, there's no budget for that. Or we will share with them the right number of inventory to store, but because of budget issue, it will be slashed into half. So what's the point of having us if inventory planners— what's the point of having an inventory planner if you will not follow the recommendation, you know? So it came to a point, this is a UK brand and very, the growth is very high, very quick, and we really asked the client to find a CFO first. And that's why I'm very, very excited with this partnership and interviewing you because a lot of our success depends on the financial situation of the company, right? We can be the best, as I've mentioned earlier, you can have the best inventory planner, demand forecasting, but if you don't have the right management of your cash flow, nothing will happen. And I've seen this many, many times in the clients that we're handling. So right now, if the client needs like a bookkeeping or a controller position, we keep on just referring that so that it can also help us, and we're working together with this finance person. So when the founder is the marketing and then they have now a third-party support in finance and us, It works so much better when we're talking even before they launch a product. You know, I'm thinking of launching this, and then supply chain will have their input, finance will have their input as well. And so even before we spend time in researching or product ideation, we already have an answer if this is doable or not. The timeline, you know, when do we want to launch this product, what is the what is the margin of this product. And it's so much easier for the work of everyone if the three, supply chain, marketing, and finance is talking. So, absolutely. We, in Move Supply Chain, it's kind of tricky in terms of what kind of the archetype of our clients because we have pre-revenue types. Those are the ones getting our new product development service. So we do source, we go to China, Vietnam, develop the products that they want. Sometimes these are, I think, are the type 1 founders that you've mentioned. They have a passion for this product, or they are a formulator that would want to launch a specific, a specific CPG. So in that case, they will ask us to source, develop products, sampling, and then they will test marketing, and it will end up either not continuing because because it didn't have a market fit, or it will continue and they will also continue getting our service. So we have those little projects that we do with our clients, but our bread and butter is the end-to-end supply chain, which I shared earlier.

Yeah, so yeah, okay, yeah, interesting.

Yeah, so I wanted to go into inventory as the hidden cash drain. We've mentioned this, you've mentioned this earlier, so supply chain people like me talk a lot about inventory Inventory being the number one cash killer in DTC. You know, you buy inventory before you sell it, and that gap can absolutely wreck the brand. Like you've said, the cash conversion cycle. So how do you help founders see inventory not just as an asset on the balance sheet, but as frozen cash that has real cost, just so that we can avoid overstocking and understocking as well?

Yeah. Yeah. Great question. So a number of different ways. Let me, I guess, address this question in maybe 3 parts. So first of all, let's talk conceptually about what investing in inventory really means for you and your business. The framework I like to use here is that whenever you invest in inventory, you're essentially placing a bet. right? $100, $1,000, $100,000, whatever the number is, you're putting a bet on the table. And that bet you're making is that you are going to be able to recover some earnings or profit. You are going to be able to sell that inventory for more than what it costs you. Now, when you look at the typical margins and profitability for these businesses, the returns on this are not great. Right? Like if you put a dollar into inventory, you'd be doing really, really well to get $2 back at the end of the day. That would actually be a fantastic amount, uh, outcome for a lot of D2C brands. So the odds aren't amazing. At the same time, it doesn't take that many things to go wrong for you to actually recoup less than a dollar. Which means that you're effectively losing money on that bet. I mean, it could be that you end up spending more on marketing. Your marketing efficiency is less efficient. It could be that you overshot your forecasts and there's some shrinkage or spoilage and we have to throw a big chunk of it away. It could be that you, you know, it's a slow-moving product and you eventually decide to make it obsolete because you come up with a better version or you redesign it and you end up throwing, you know, half of it away. So there's a lot of risks that could potentially see you writing off that investment. But you know, it's part of your responsibility as a business owner to think about this as investment that you're making or a bet that you're placing, and you need to be doing all you can to kind of maximize the odds of recouping that capital and doing so profitably. Now, in terms of the ways that I help founders, one is through cash flow forecast. Forecasting, cash and cash flow forecasting, which is a completely different exercise. It is related, but it is a completely different exercise to profitability forecasting. The profit and loss and cash flow statement are two different financial statements. They are linked in some ways, but there's some very, very important differences between the two. The profit and loss statement is kind of your, your long-term performance scorecard that tells us whether we are, you know, successfully making these bets that I referenced earlier. And whether we're doing so generating a profit. The cash flow and the cash flow forecasting is really about forecasting, you know, it's about forecasting the oxygen and the blood that's pumping through the veins of the company. And it is possible to have a business that is profitable, but at the same time be completely deprived of cash. And the reason for that is in this industry, because the investments that we're making in inventory are so damn expensive. Right? For most of us, these inventory investments are one of, if not the most expensive thing that we have to buy to run the business. And not only that, they tend to be very, very lumpy, right? We might be making an inventory purchase to last us, say, I don't know, 3 or 4 months at a time, let's say, which means that in the month that we're actually purchasing that inventory, there's a very, very strong likelihood that the cash outgoings, what we're deploying to invest in that inventory, is actually more in that month than what we're recouping in terms of revenue or income. So there's going to be, you know, the first month where we're paying for this inventory where we're cash flow negative, but then we need to wait for the subsequent 2, 3, 4, whatever it is, months to actually recover that cash flow from that investment. And getting that timing lined up and managing the cash flow so that you don't run out of cash, can be a real challenge, which is why we go through, you know, separate cash flow forecasting exercises. So I'm actually doing this with one of my, my new clients at the moment. We've put together a, a database or a spreadsheet of all of their different suppliers into which we've inputted all of their payment terms. You know, how much they have to put down on order, how much gets paid when shipping, how much gets paid 30 days later, whatever. And then we have mapped out every single one of their purchase orders as well. So we've got a list of like dozens and dozens of different purchase orders. I know the amounts, I know the payment terms. So with those two pieces of information, I can actually calculate on a week-by-week basis how much cash they're going to have going out the door for all these inventory purchases. So then what I can do is take that, that those cash outgoings, which we can forecast, you know, 13 or even 26 weeks into the future if we wanted to. And I'll compare that to the rest of the cost of the, of the business, like, you know, all the overheads and most importantly, the revenue of the stuff that's actually coming in. And so what we're doing on a week by week basis is basically forecasting what the cash at the bank is gonna look like and just making sure that we are not gonna get into a situation where we run out of cash. Now the benefit of doing this whole exercise is it's like having a clear windscreen. It's like being able to see 2 or 3 miles down the road when you're hurtling along at 100 or 110 kilometers an hour. The further you can see down the road and the better visibility you have, the more potholes you can identify, the longer you have to adjust and maneuver them, right? If you see there's an obstacle on the road and it's, you know, to 2 or 3 months away, you can gently swerve to the other side, make sure you don't hit it, and gently swerve back. And that might mean cutting back on overheads. It could mean negotiating a loan. It could mean running a sale or promotion to get a, you know, a bit more revenue in the door. There's a lot of things we could do. But to your earlier point, when you don't become aware of that pothole until, you know, a day before you hit it, then you're kind of stuck. Like, you don't have a whole lot of options then. Right? And that's when founders get into a highly reactive mode and suddenly they're running around putting out fires going, oh my God, I don't have enough money. I like, I have to halve the size of this purchase order at the last minute. And it's just not an efficient way to run a business, right?

Yeah.

The final thing I'll, I'll mention here is around biases. Okay. And in this context, biases can work for and against us. Now, there are risks associated with both over and under ordering inventory. Anyone who has ever under ordered inventory has experienced a stock outage. And if you've experienced a stock outage, you know how damn frustrating it can be. You have, you know, you're driving customers to your store. They're going, hey, where's this product? Where's it going to ship? When's it going to ship? The customer service people are, you know, frustrated and annoyed. They're yelling at you going, hey, when's this coming in? I've got all these customers waiting for it. It's like, why are we doing all this damn work if we don't have the product to be able to ship to the customer? And anyone who's experienced that will know how deeply frustrating it is and annoying it is to miss out on that profit and revenue opportunity. And because we've lived through that experience, the founders who've been through that often have a tendency to drastically overcompensate the other way. And so what they go is, oh my God, that was the worst thing in the world. I never want to run, run outta stock again. And so what they'll do, or they'll try to do, is overcompensate by overordering. Now the problem is when it comes to overordering, there are also byproducts and consequences to that. The difference is they do not slap you in the face like a stock outage does. And because they don't slap you in the face like a stock outage does, they tend not to get as noticed. But I assure you, they are there. And these costs come in the form of extra storage costs, right? You're paying for more pallets at the warehouse. You're paying, um, you're paying the cost of product obsolescence. If you get some feedback from a customer about how to improve your product, it's going to take you longer to be able to implement it because you have to sell through all the old stock. And if you've got all this additional money tied up in inventory, there's a good chance you've got more debt. And if you've got more debt, especially if you're using a revenue or MCA-based lender, then you're going to be paying a lot more interest. But the problem is like all of these little costs associated with excess stock, they're much quieter. They're in, they're subtle in the background and they're just, you know, quietly chipping away at your profitability. Um, but they tend not to get, be as noticed as a stock outage does. And because they're not as noticed, founders will always have this tendency to bias towards overordering.

Yeah. And you know, even if they, you know, they receive their invoices from their 3PLs, they don't even check the line items anymore. If they have an invoice that has the outbound shipment and the storage fees, it will just be paid as soon as possible. So they, if they won't check line by line, they wouldn't know that they are overpaying for warehouse or storage or pallet fee, bin cases, because they have a lot of inventory. So we are speaking the same language, Nate. I think this is the biggest, biggest, and because we don't have the finance expertise in supply chain, you know, we have an idea, but we don't have that expertise. It gives— and when there's no finance in the brand that we're working with, we're really also working blindly. So I think that's what everything that you've mentioned, it's super important. And I think what's gonna— what's good in what you're doing, Nate, is same with us in supply chain, we are promoting that awareness because we don't want them to identify the need when it's too late, you know. It's better to start on this now at this level, even if you think that it's not yet the time because you wouldn't know, you don't know what you don't know in the DDC space. And so those are very, very helpful information that you've shared. I think the biggest lesson and takeaway that I got there is There will be silent killers and there will be the obvious ones. And so I think if you don't have an expert guiding you where to look at and to teach you what to understand, then you wouldn't know until it's too late. Yeah.

Yeah. Well, to your earlier point about the way that our two functions work together, the The model that I would encourage you to think about is that finance is kind of like, you know, the conductor of the orchestra. You could be the best violin player in the world, but if you don't have someone else like telling you how to fit in with the rest of the group and what you need to do when, and you know, how loud you need to be and whatever, it's very, very difficult to make music. So, you know, finance is kind of the function that ties marketing and sales and supply chain together, and it makes sure that everything synchronized, everything's, you know, everyone's playing from the same hymn book and that, you know, the whole machine is working at the correct scale. Where you run into real problems is when there is no conductor and there's no one kind of tying all these different functions together and everyone's just making up their own song and, you know, has different goals and priorities. That's, um, you know, a very, very dangerous situation to be in for a D2C brand.

Yeah, because for marketing, they will have these key metrics of ROAS, CAC, LTV, right? And so even if the margin that, um, if, if the margin is not correct or if the margin is too low for the promotions and strategy, marketing strategy that they will do, they will push for it because they have their separate, uh, key metrics. And then things can change, especially in supply chain right now. And I'll go to this topic later on when, you know, the tariff situation last year made a lot of DTC brands to overbuy, you know, because they're scared of losing it. And so now that there are different scenarios that products unit cost is increasing, shipment freight is increasing, lead time is doubling. So There are so many uncertainties in supply chain right now, and we're navigating all of them at the same time. And if there's no, um, to what you've said, if not, no one is orchestrating marketing and supply chain at the same time, we will focus on our own metrics. We will focus on not getting out of stock, and then marketing will focus on increasing the ROAS, you know. But yeah, we have been working in silos, and the impact of that is the cash flow or the finance of the brand is getting weaker and weaker. And so I think we should have a rule that every DTC brand should have these 3 groups working together from the beginning, you know. In my perfect world, Nate, because dealing with DTC for the past 7 years, the number one pain points that I see is the budget. You know, I came from KFC, big brand multinational, CPG, Unilever, and I've worked with these brands and they have very deep pockets. And, you know, I can overbuy 6 months worth of oil if I needed to. But in this scenario, we're handling DTC everything, the budget is tight. So I don't know how you're doing this, but how do you think we can support DTC brands in terms of getting that knowledge and information, educate them while being within their budget?

Hmm. How can you support D2C brands while being within their budget? Well, I guess there, I guess the first thing to call out here is that the founder needs to have a willingness and openness to learn about this sort of topic. I see founders commonly move through kind of 4 different phases here. The first phase is what I call denial, and it's where they don't interact or engage with their financials at all. It's like, dunno, don't want to talk about this stuff. Like, get it out of here. This is particularly common with the archetype 1 that I mentioned earlier, which is the maker creator. They're like, I'm just allergic to numbers and spreadsheets. Get it out of here. I don't want to talk about it. The problem with that is that the financials for your business will continue to go on existing whether or not you're interacting with them or not. And they may be telling a story that you don't want to hear, but they're still telling a story. Okay. The next stage is what I call the overwhelm phase. And this is where people have had a go at trying to interact with their finances, but they've gotten confused. They didn't understand too many numbers, too many ratios. I think that a lot of times founders are let down by the reality that they don't have context around all these numbers. You know, so they look at a gross profit margin of 40, 50%, like, is that good? Is that bad? Like, I don't know if you've only got a sample size of one, like, and you've got nothing to compare it to, it's hard to know whether that's good or bad. So, you know, diving in alone and trying to do this stuff without context and benchmarks and support often leads to overwhelm. The third phase is what I call intrigue. And this is where people kind of start to peer over the fence and go, huh, there's some interesting stuff over there. I don't quite understand it all yet, but You know, I probably should. There's seems like something I could learn from that. But then the final phase that I am aiming to get all of my clients to is the enlightenment phase. And this is where it's like, ah, now I get it. Now I understand what all of these numbers mean. And by the time you get to the enlightenment phase, the numbers are no longer overwhelming. In fact, they become a strategic ally. They support clearer, more confident decision-making. They help you be less stressed. They make it clearer which projects and priorities you should pursue and which ones you should not. Now, in my business personally, I offer a few different kind of models for support. Most of my business right now is through one-to-one engagement, you know, I guess similar-ish to yours in that I work with clients on a, you know, a monthly retainer type basis. I also do some group products as well. So, you know, one-to-many or one-to-few. I do have some online courses and content which are, you know, incredibly affordable to get started. And I also have an entire page on my website dedicated to free templates and downloads. So there's, I think there's even a 13-week cashflow model there as well as an explainer video to go along with it. So a huge part of my personal mission statement and what I'm trying to achieve here is to stop a lack of financial knowledge and financial awareness being the reason that these businesses fail. And the reason that that's important to me is because I have a huge amount of respect for founders and entrepreneurs. Having been one myself, I know that it's one of, if not the hardest jobs in the world. But not only that, I kind of view founders as the people in our society who are bold enough to not only say, hey, something about the status quo isn't working. I don't like it. It's not good enough. But they're also the people who are brave enough to have a go at building a better version, right? It's entrepreneurs and founders who are building us better bottles, better computers, better technology, better bicycles, like whatever it is you, you, you want. You know, better, better products, better versions of everything are because of founders and entrepreneurs. And, um, you know, I think they are a very, very important part of our society in the world that I want to be a part of. And I don't like that so many of them are failing because they don't understand finance. Um, I do, um, given how much time I've spent in this space. So really, you know, what Futurity is about and what I'm trying to build here is provide people with the tools and support that they need. To remove finances as a reason for their failure.

That is so great to hear because you have the website that has— that they can consume for free, you know. They can, they can learn as much as they can for awareness, education, and when they are ready with the funnel that you've mentioned earlier, now that they don't have the capacity or the time to do it, that's the time that they will be getting the service, you know. But yeah, what's important with what you've said is that you're trying to make sure that they have the support that they need in order to grow the brand, you know. And it's not like we didn't offer free contents and everything, like it's very helpful that they consume those, and that's very generous of you to create those free templates for them to use. And definitely when the time comes that they grow, they need more support, they want to focus on marketing and selling, then they can get the support that you're offering.

Yeah.

And speaking of growth, you know, we know sometimes that growth becomes the enemy. Here's a scenario that I see all the time with my, with, with DTC, um, space. So a brand 2x their revenue in 12 months and suddenly they're in cash crisis. So how do you explain to a founder that growing too fast without the financial infrastructure can actually close or bankrupt a profitable business?

Yeah, so this really goes back to the cash conversion cycle concept we were talking about earlier and the way that I explain that to founders is to think of your business a little bit like a pipe or a funnel. So you're putting money in, in one end in the form of investment in inventory. The money then kind of sits in that funnel for, you know, days, weeks, or usually months before it comes out the other end as receipts from customers. Now, the problem with having money in this pipe or tube funnel is that there's nothing else you can do with it. You can't spend it on people, you can't spend it on ads, you can't spend it on, you know, new product development. It's just locked up until it comes out the other end. Now the issue to your point about scaling really, really fast is that the volume of money that you're going to need to lock up in that funnel, lock up in the cash conversion cycle, is growing very, very quickly, right? If you double revenue, You've probably also doubled COGS, which means that you probably also need to double your inventory. And it is entirely possible that the amount of money that you're putting into inventory can exceed what the business is actually generating in profit. And therefore the profit that's being created is not enough to finance the growth in inventory investment required, and therefore we run outta cash. That is hopefully, I mean, it's a good way to run out of cash for what it's worth. And a business like that would, you know, usually be a good contender or applicant for some type of financial support. But in order to get financial support and, you know, rely on capital from other sources, you need to be able to talk finance, right? You need to be able to explain these concepts and show a lender or an investor or someone You need to be able to show them what's going on, rightly or wrongly. Like finance is the language of the business world. And if you want to be able to talk to other people about your business, you need to be able to talk finance because that's how they're going to be understanding what you're doing and the significance or magnitude of your business. So yeah, does that answer the question? Put the pieces together. Cool.

Yeah, definitely. And, um, I, I think I can go on and on with that part where there's also like practical steps that they can do right away, you know, to start the education, to start like, you know, the first step that they need to do after, you know, hearing this podcast or interview. So if a founder is listening to this right now and they're nodding along, a little scared with what they've heard, what are the first 2 or 3 things you'd tell them to do this week, not 3 to 6 months, just where do you start, what not to overwhelm them.

I guess 2 things that I would recommend that you can implement pretty quickly is number 1, model out your unit economics, right? Look at what your gross revenue is, look at your discounts, your coupons, your chargebacks, any revenue that you might be making from shipping, get your net revenue, understand your cost of goods sold, your customer acquisition costs, and You know, understand whether there is actually a pathway to profitability here based on the unit economics that you have. That would be task number one, because if you cannot convince yourself that there's a profitable, you know, path, path here through unit economics, then nothing else really matters, right? Yeah. Where we're never going to be able to generate a profit on 1,000 units if we can't generate a profit on 1 unit. So just figure out what the economics around one transaction actually looks like for your business. The next thing you could do, um, if you're not yet, you know, ready to hire a CFO, would to build a cash flow forecast model. So look into the future, look at everything that's going to be coming into your bank account, look at everything that's going to be going out of your bank account, and just make sure that we're in balance here. Make sure that we're not going to run into a situation where our cash balance goes negative. That means that you're overdrafting and you may or may not have a bank that permits that. So yeah, understand unit economics. Two would be understand, you know, cash flow. Cash and cash flow is the scarcest resource and commodity for most early stage brands, especially bootstrap ones. So managing that efficiently and carefully should absolutely be a priority.

Right. Thank you, Nate. Thank you so much for being part of this podcast. And I'll be, of course, last is where can they reach you? That's very important for, for after listening to this and they wanted to reach out to you.

Absolutely. If folks are interested in learning more, they can head to my website, which is futurereadycfo.com, or you can find me on LinkedIn. Um, my name again is Nate Littlewood.

And I will share that everything in the show notes also, Nate.

Perfect.

Thank you so much.

Thanks so much, Lara.

All right.

Take care.

All right. Thank you so much. That was a very, very good conversation, Nate. Thank you for breaking this down in a way that doesn't make founders feel judged, just informed. Here's what I want you to take away from today. Profitable marketing and a healthy business are not the same thing. Revenue is not cash. Growth is not profit. And the sooner your marketing, supply chain, and finance are speaking the same language, the sooner you stop wondering where the money went. If this episode hit home, share it with a founder who needs to hear it. And if you want to dig into how your supply chain might be draining your cash without you realizing it, that's exactly what we do at Noot Supply Chain. Everything that Nate has shared, links to connect with him, it will be in the show notes. Notes. Find us at movesupplychain.com, and I'll see you in the next episode of Supply Chain News. Take care.