Most product-based business owners think they need something new to grow, a new strategy, a new tool, a game-changing idea. But the truth, you don't need more exciting. You need what actually works. Because the businesses that we nonprofit and cash flow, yeah, they've mastered the fundamentals. And this is exactly what we do inside the inventory genius program. We clean up your financials so that you have a clear, accurate picture of your inventory and your real market. We fix your product next, making sure every single SQ is actually making you money, not just creating revenue. And we build a profit plan so that you can pay off debt. Generate cash and run your business with confidence. No fluff, no guesswork, no chasing trends, just a proven system that helps product-based businesses win again when it comes to profit and when it comes to cash. Because long-term success isn't flashy, it's consistent. Join us in the Inventory Genius program. Let's make your business work for you. Hey friend, welcome to the Inventory Genius podcast, where we work together here to make you an inventory genius. We talk about profit, we talk about cash flow, and we definitely talk about your paycheck. Because at the end of the day, it's all related to your inventory. Let's go. Well, hey there. Welcome to the Inventory Genius Podcast. I'm your host, Sierra, and today we're going to talk about something that you may never have thought about before. And that's the importance of clean financial data. We talk about data around here a lot, like having good numbers to focus on and how to focus on the numbers, why numbers matter and what you should be looking at. But I don't think we've ever had a conversation of why clean information is key to successful decision making. So let's dig in today and talk about why clean financial data is the backbone of every product-based business. All right, I'm really glad that you're here today because in this episode, we're going to be talking about the thing, one of the things that almost nobody talks about, but it affects every single decision you make in your product-based business. We're talking about clean financial data, it's the operating system that your entire business runs on. I want you to think about this scenario for a minute. Just imagine it with me. Imagine this big story, okay? You just placed the biggest purchase order of the year. You ordered 10,000 units of something. And you placed that order because your information or your data was telling you to. Two months later, half of it is sitting in your warehouse or on your shelves. It's not moving. And you're starting to stare at the numbers, trying to figure out what happened. This scenario might not be that big of a story for some of you after all. In fact, I was just talking to a couple clients last week, and they were talking about how they've been using a tool, a financial analysis tool that tells them how to buy, what to purchase. And this tool told them that they needed X amount of data. Both of these business owners sitting on this call with me were telling me the same story, different locations around the country, different products that they were selling, but they were both telling me the same story. That this financial tool that they were using was telling them that they should buy more inventory and buy more inventory and buy more inventory. And so they followed the data, thinking that they were being efficient with their financial strategy, only to find out that they didn't need that much inventory. And here's what happened: the inventory arrived, it was put out on the floor, and there was too much of it, or it was incorrect, and it didn't sell. And so now we had too much inventory with more inventory coming in right behind it, and we had to start marking this inventory down. And here was what was, you know, happening in the business. We were marking down the inventory, we were giving up margin, and now we were running into massive cash flow issues. This was because the financial data that they were looking at was not accurate. That's not a supply chain problem. It's not a marketing problem. This is a data problem. And it happens to product-based businesses every single day. So today we're going to cover three things. First, I want to talk to you about why dirty data is so dangerous. I want you to sear this into your brain, the term dirty data. I'm going to talk to you today about why dirty data is so dangerous and why it's especially dangerous because it doesn't feel dirty. Okay. Second, I want to tell you why clean data, what clean data actually looks like in a product-based business, so that you can start to see the difference between dirty data and clean data. And third, I'm going to walk you through the specific financial data points that every product-based business needs to have to keep clean, current, and visible at all times. All right, part one. Here we go. Why you can't make decisions from dirty data. All right, so we're going to start with the core problem here. In a business, there's this old phrase, garbage in, garbage out. And nowhere is that more true than in the financials of a product-based company. Every major decision you make in a product-based business is downstream of your financial data. That means that every time you make a decision to purchase, to mark things down, to bring in a new product, it's all downstream of the information that you have. Should you order more inventory? That answer lives in your data. Should you raise your prices? That answer lives in your data. Should you hire someone else? Run a promotion, cut a product line. It's all data based. And here's the thing: if the data's wrong, you make wrong decisions confidently, because dirty data doesn't come with a warning label. It looks like good information. Here's the trap: Dirty data doesn't feel dirty. It feels like information. You open a dashboard, you see a number, your brain treats it like fact. But if the underlying data isn't clean, that number is friction dressed as finance. Does that make sense? It's fiction dressed like finance. So what does dirty data actually look like in a product-based business? Let me give you five common things that I see and how it shows up. Number one, transactions that are miscategorized or not categorized at all. You've got expenses floating in no man's land with a category assigned, or worse yet, assigned the wrong one. So transactions that are miscategorized or not categorized at all. I was just looking at a client's spreadsheet this morning, you guys, in preparation for this podcast. I didn't know that I was prepping for the podcast when I helped her open up this data set. We were looking at it, I'm like, oh my word, this is exactly what I'm talking about on the podcast today. So we're looking at her spreadsheet of all of the sales that came into the business. And she has multiple categories of sales that come in. She has service, she has classes, she has product inventory. And in all of these columns, there's a specific number assigned. So in a period of time, she's got sales coming in here, she's got sales coming in over here, she's selling classes, she's selling services, she's selling inventory. And she looked at that and she said, I don't think that's right. In fact, it's not even adding up. And it doesn't make sense. This is dirty data. So these categories have been miscategorized. In other words, when a sale comes in, it was assigned to the wrong revenue stream or the wrong category. And if she had just looked at those numbers and made a financial decision off of that, she would have possibly opened more classes up or purchased more inventory, thinking that the sales that were attached to those categories were correct. So transactions that are miscategorized or not categorized at all, that's dirty data. Number two, cost of goods sold mixed up with operating expenses. This is a big one. When your cost of goods and your opex are blurted together, you literally cannot see your true margin. You think you're profitable at a product level when you're actually not. So the way that this would show up on a PL, let's say, would be if you had your sales and then you had your cost of goods sold, but that cost of goods sold was actually the inventory you purchased and not actually the cost of the goods that left the building. Okay. Then it looks like operating expense or it looks like inventory expense or true cost of goods sold is not categorized properly, but it looks like it is. So you might say, oh my word, last month we had a horrible margin, but that's simply because you made a lot of inventory purchases and they were categorized incorrectly on the PL. And so your margin is not showing up correctly. This is the biggest thing that I see with product-based business owners when I look at their financials for the first time, is that our inventory a lot of times is not categorized properly. It's mixed in with operating expenses or it's above the line and mixed in with actual cost of goods sold, and it's making a mess and of the financial data that we're actually looking at. Number three, revenue recognized in the wrong period. So this is a cash basis versus accrual basis confusion. If you're recording revenue when cash hits instead of when it's actually earned, your monthly PLs are going to be all over the place. So of course, we want you on accrual if you're a product-based business owner. And we talk a lot about why accrual matters when it comes to inventory, but accrual actually matters when it comes to sales as well, if you have a lot of deferred income coming in. So let's say you um you let's say you sell um events. Okay. So I had a client once who sold tickets to like live painting events in her store. So perhaps she sold the, you know, all of the tickets in May, and the event was actually in September. So the sales are going to be coming in in the month of May. That's when she's recognizing the revenue, but all the cost for that event is going to happen in September when she brings in the painters to teach the classes, when she brings in the wine and the cheese for the event, right? So all of the sales are occurring one month, and all the cost of those sales is occurring five, four, three months down the line. This is a cash versus accrual problem. And that data can skew what's actually happening. So the PL might look really good in May because we brought in a ton of sales in those tickets, and the PL might look awful in September when we're actually seeing the cost of what that event truly was. Number four, inventory values don't match what's actually in stock. Okay. Your books say that you have 800 units, but your warehouse says you have 500 units. That gap is costing you money and you don't even know it. It's it's operating, you're operating off of dirty data. And number five, refunds, chargebacks, discounts that aren't properly netted against the revenue. This is another cash accrual thing. So if your top line revenue looks great, but the actual cash you collected is significantly lower, you're not working off of information that can give you good decision-making power. Here's the real danger: these errors do not stay contained, you guys. They travel all through your business. A bad cost of goods number corrupts your margin. A bad margin corrupts your pricing decisions. A bad pricing decision corrupts your cash flow projection. And before long, you're making financing decisions, making debt or turning down, um, taking on debt or turning down the line of credit based on the numbers that were wrong three steps back. That's how businesses get into trouble without seeing it coming. So let's slip, let's switch the narrative here. Let's flip the script. Let's talk about clean data and what it looks like. Okay, so we talked about dirty data and different places it might show up. Let's talk about clean data. Okay, so this is the alternative, clean data and what does it mean or what does it actually mean when we put it into practice? So clean financial data has three traits. It's consistent, it's connected, and it's current. If you have a pen and paper, write that down. Clean data, the three C's with clean data, consistent, connected, and current. Consistent means that the same rules are applied every single month, the same categories, the same treatment for returns, the same timing for revenue. When your rules change month to month, you cannot compare periods. You can't see trends. You're basically just like flying in the dark. Connected. This means that your systems are talking to each other and telling the same story. So your sales platform and your bank account, your accounting software and your inventory tool, they should all reconcile, right? At the end of the month, you should be able to say, here's what's in my point of sale as far as inventory goes, and here's what's on my balance sheet. Those two pieces of information are connected and they're consistently being entered, or journal entries are consistently being made so that those two pieces of information can stay connected. Current means that your books are reconciled regularly. I've done podcast episodes on this, what you should expect out of a bookkeeper. But if you are paying for bookkeeper, you need to get those financials every single month by the 15th to 20th for the previous month. You have to have current books and financials to operate off of clean data. I don't want you just doing this at tax time. I can't stress this enough. If you're only looking at your financials once a year when your accountant needs them, you're managing your business in the dark. And by the time you see a problem, it's months, sometimes years old, you guys. And we're down a hole, lots of debt, no cash, and we don't know what happened. Clean data habits look like this. You close your books every month, every single month without fail. Your bookkeepers are doing reconciliations on all of your accounts. When you receive your inventory, you're receiving it with the cost into the system. You're reviewing and counting your inventory monthly, quarterly, and annually. This isn't extreme. This is basic financial hygiene for a product-based business. The goal is not perfection, it's that I want you to have confidence in the information you're looking at. When you look at a number, I want you to be able to trust the number you're looking at. Let that sink in for a minute. Let that sink in for a minute. If you went to your point of sale right now and I asked you for a number and you pulled it up, could you trust that the number you're giving me is correct? If I asked you for a number off of your financials right now and you pulled those up, could you trust that the number you were giving me was correct? Trust lets you make fast and efficient decisions. And slow decision decisions always come when you have uncertainty about the data because you can't trust it because you don't know if it's clean or if it's dirty. All right. So let's now let's talk specifically about what data you need to have clean in a product-based business. I'm gonna walk you through eight different data points. These are gonna be gauges on your dashboard, and I want you to think about each one and ask yourself, do I actually have this number and can I trust it? Okay, number one, gross margin by skew. Meaning, if I ask you, what is your margin in tops? What is your margin in shoes? What is your margin in healthcare? What is your margin in pillows? What is your margin in fabric? Any category I ask, do you have the accurate gross margin by skew? Not an overall gross margin, but by individual categories, departments, brands, et cetera. This means your revenue minus your cost of goods sold for that product or that category or that brand. Number two, inventory valuation. Do you know exactly how much inventory you own at wholesale value and retail value? Very, very important. This means if I say, hey, Susie, how much inventory do you own at wholesale value today? You could pull that up and you could say, Sierra, as of today, I have half a million dollars in inventory. And in fact, you should be able to say it down to the penny. $4,000, $400,000, $300, $400,000, $393,000 and 88 cents in inventory in wholesale value today. And if I say, okay, what's the retail value? That means you could tell me if I sold every single piece in my business for what it's marked today. Here's how much I would get for that inventory. What is the real-time inventory value? Number three, I want you to see your 12 to 13 week cash flow. Now, this is something you've heard me talk about the inventory genius operating system. This is in phase two of implementation of the operating system. I have a cash flow tool that I teach every client how to use. This is a game changer and it is so simple. You guys, everything in the IGOS program, the Inventory Genius operating system and program is simple to use, easy to implement, and it works whether you do 100,000 or a million. Okay, it doesn't matter in your business. The cash flow tool is such a great tool to use because it will show you a projection 12, 13 weeks out. If I make these decisions today, what does that mean for my cash in the future? Number four, your revenue, okay? Your net revenue, not just your gross sales, but your net revenue. This means the gross sales or your total sales minus returns, refunds, discounts, chargebacks, things like platform fees, employee discounts. I want you to know like, here's how much I made in a month, but then here's how much I actually kept in my bank account after I gave back product, returned product, gave out discounts, et cetera, et cetera. Number five, customer acquisition cost. I want you to know without a shadow of a doubt what it costs you to acquire a customer. This is so important. We focus a lot on inventory, but the inventory purchases, who's acquiring them, how often they purchase, their lifetime value, and what it costs to get one of those customers through our door, that's key. That's a really important data point you need when you're making marketing decisions. Number six, your inventory turn. I want you to know what your turn is by department, by brand, by category. And if you don't know it off the top of your head, I want you to know how to get that information. But here's the thing: you can't have an accurate inventory turn if your inventory in your point of sale system is not entered properly. Remember earlier in today's podcast, I talked about how when you make one financial decision and it's based on dirty data, the next decision is based on dirty data. And three steps, four steps down the road, you're making decisions that are based on data and information that was incorrect three or four steps prior. This is what happens with turn. If you don't have the right information to gather to input into the turn formula, you're not going to have a correct insight into what's actually happening, how fast your inventory is actually turning. Number seven, I want you to know your all in cost per unit. This is an example. When I had my outlet store, my designer outlet store, we sold a lot of denim, a lot of denim. You guys, we would buy, we would buy a thousand units of jeans at a time, um, five thousand units of jeans at a time because we were a denim designer denim outlet. And I knew exactly how much I could pay for a pair of jeans to give me the margin that I wanted, as well as how much it cost me per pair of denim to ship. I still remember this, it's like ingrained in my head that we would calculate about $1.20 to $2, depending if it was coming from East Coast, West Coast, et cetera, per pair of jeans. So if I wanted to sell a pair of jeans for $40, I needed to buy that pair of jeans for $10, knowing that I had to add $1.20 for shipping, and that would give me my landed margin. That would give me my all-in cost for that gene. It's not just the cost of the gene, it's the cost of the shipping, it's the cost of the handling. I have to think about the buyer, like what is their cost involved in making those purchases? Number eight, contribution margin. So this is revenue minus all the variable cost per unit sold. This is what tells you what each additional unit actually contributes toward your fixed costs and your profit. Um, there's a tool in the inventory genius buying system called the product pricing matrix. This is an amazing tool that is available to everybody who has the IOGS system where you can literally plug in what you are paying for an item and it will tell you all of the contribution costs associated. So let's say my administrative costs for the year are $50,000. My um, you know, my payroll costs are $100,000, et cetera, et cetera. It adds those together and it divides all of that cost by unit sold so that I know when I buy something for 10, I have to add 20 cents for the payroll overhead allocation. I need to add 10 cents for marketing, I need to add 13 cents for overhead, et cetera, et cetera. When you start to look at your pricing this way, you can make really good financial decisions for what you're buying inventory for, knowing that it's not just about the gross margin, buy it for five, sell it for 15, but what is that contribution margin? What is everything else associated with the selling of inventory? All right, here's what I want you to sit with. These eight numbers, they're not advanced, they're not fancy, they're not tricky, they're not complicated. But most product-based owners that I talk to cannot tell me three of these things off the top of their head. Not because they don't care. You guys, it's not because they don't care. It's because their data is not clean enough to trust. This is why having clean and accurate data and information is so important. So I want to bring this home to you today. I don't want you to finish this episode and just feel like, okay, now I know what clean data means and dirty data means. I want you to finish it and I want you to actually do something about it. Here's your three-step data audit that I'm gonna give you. This is a bite-sized actionable step that you can do today. Number one, I want you to pull your profit and loss and go line by line. Is every single expense correctly categorized? Is your cost of goods sold actually the cost of the goods that's have sold in your business? If you find things that are uncategorized or categorized incorrectly, I want you to fix them this week. Talk to your bookkeeper and fix them this week. Step number two, I want you to ask your bookkeeper if they are reconciling your bank accounts consistently and delivering you, if they aren't already, those profit and loss statements and that balance sheet every single month by the 15th to the 20th. And number three, I want you to make sure that the SKUs in your point of sale system are accurately listed with their costs and that you know exactly how much inventory you own and you could tell me that that amount at any given time. These three steps are your starting point. They're super simple, they're super easy for you to do. I want to leave you today with a mindset shift. Stop treating your books like a tax document. Okay. Stop thinking, well, financials are so that I can file taxes. Your financial data is not something that you just hand to your accountant once a year and forget about it. It is such an important financial tool that, if coupled correctly with your point of sale and your point of sale um reports, can give you such clear insight into what's actually happening to your information. Clean data compounds, good data leads to better decisions, better decisions lead to stronger margins, stronger margins lead to cash, cash leads to more options. It all starts with getting the foundation right. Clean financial data, it's not glamorous, it's not something sexy, it's not always so fun to work on or think about. No one's putting it in a high light reel, you know, on Instagram except for maybe me. But um, you know, there's so many other things that are fun to talk about and easier to think about, but I want you to think about how important it is. So go look at your data today, and I will talk to you on the next episode. All right, see you next week. Bye for now. Hey there, friend. Okay, if you've been around me long enough, you know how important I feel it is that you have a good bookkeeper on your team. And that's why I'm really excited to welcome TNO to the Inventory Genius World. At TO, they help businesses organize and streamline their accounting, set up smart systems, and actually use their financials to make good decisions. They give you the financial tools that you need to grow your business and remain successful. And here's what else I love about them: they have a dedicated team member that will work on cleanups. That's right. So if you have books that are a disaster, maybe you've never kept your books in the past, maybe you kept your books and your past bookkeeper did not do a very good job. Whatever the case, TO has a dedicated team member on staff that works specifically to clean up books and bring them up to date. So if this sounds like something that you'd be interested in, check out TNO. The link for their information and their contact information is in the show notes.