The Most Common Money Mistakes That Keep Product-Based Business Owners Financially Stuck

If you've ever had a month where you find yourself asking, "Is it worth it? Am I ever going to get to the point where I make an income that is aligned with all this work I'm doing? Am I ever going to stop worrying about cash flow?"... this one is for you.

Ciara Stockland has been in the inventory side of business since 2006. She started a retail store, opened another, franchised it, and built and sold a subscription box. Today she works with inventory and product-based businesses on creating profitability. Specifically, using inventory to create more profit and keep more cash.

What follows is a conversation about the most common money mistakes that keep product-based business owners financially stuck, and what you need to do to fix them. Fair warning: these are mistakes both of us have made ourselves.

Mistake #1: Hiding From Your Numbers

Here's the thing about product-based business owners: almost every single one of them is really good at their craft. They're good at sourcing product, making product, or selling and merchandising product. But numbers don't come naturally, and because of that, they ignore them.

We hear "know your numbers" all the time — they say it on Shark Tank. But what does that actually mean? Most of us don't really know, so we just go back to making things and selling things. The money comes and the money goes, and it's, "Well, I hope more money comes and goes." That's how a lot of us run our businesses, at least at first.

If we break it down, "know your numbers" means that when you make a sale, you understand what that sale costs you. It means that if you hire someone, you expect a return on that investment. 

And those are things entrepreneurs can do — because this is not algebra. This is addition and subtraction. At the end of the day, when you subtract numbers from other numbers, you want a positive one at the bottom. If it's not positive, how do you back into it?

It's really about demystifying what that actually means and saying, "I do know how to do math."

One of the most common things Ciara hears from business owners is, "I'm just not good with numbers." Stop saying that. Because the longer you say it, the more you live and build your business that way. It absolves you from doing the work.

Here's what to say instead: I'm not good at the numbers yet. I don't understand my financials yet. Put "yet" on the end and you take ownership. It opens up the question: how do I get to the other side of yet? Maybe you hire help. Maybe you take a course, do some research. There are a lot of options if you truly want to fix the problem.

The biggest barrier for most people is that they never prioritize it enough to really put focus on it. And most people don't come looking for help because they woke up one day with nothing else to do. They come when the pain gets bad enough. But the key is not to wait so long that you cross the threshold of no turning back.

What the Warning Signs Look Like

It's worth talking about the signs that something is off financially, because a lot of us have been there without fully recognizing it for what it was.

Beyond the obvious financial indicators, Ciara points to two less obvious signs that often have money problems at their root.

1. The first is scattered time.
   Time management and money management go together. You can't have a calm life and a calm schedule when you're frantically selling and emotionally buying. When you feel that agitation, it's often about more than just the math.
   
2. The second is holding onto bad employees.
   When you find yourself keeping someone who has a terrible attitude or poor work ethic because they're your best salesperson and you need the revenue, that's a money issue at its root. You're being held hostage because you need the sales.

This recalibration has to happen consistently, by the way. It's not something you solve once and never think about again. Even now, there are months where the math doesn't feel right. The difference, over time, is learning to feel that and see it right away instead of kicking it down the road and telling yourself to just sell more stuff.

What To Do When You Spot a Problem

When you identify a money problem, the temptation is to try to squeeze the fix in alongside everything else you're already doing. Don't do that. You'll be garbage at it.

You really have to find the time and the attention to properly address it. Finding out why you have the problem — why you can't pay your line of credit off, for example — might take you all the way back to pricing, or costing, or the way you've been treating your bank account. You're going to need to gather information.

Think of it like a puzzle. You throw all the pieces out and start turning them over. Where are all the blue pieces? Where are all the green pieces? You find the straight edges and corners, sort through the numbers — which are just puzzle pieces — and figure out the picture you're trying to create. And that takes time. 

You can't sit down and finish a 2,000-piece puzzle in 15 minutes. You think about it, step away, come back, get stressed, step away again. That's what we should be doing with our numbers too.

It's also okay to slow down while you do this work. You don't have to grow. You can keep the balls in the air, keep things status quo, and focus on getting your financial house in order. Even if you have to let a team member go temporarily, getting this right is the best investment you'll ever make. It will set you up for years of profitability down the road.

Confusing Sales Goals with Profit Goals

Almost every business owner, when asked what their goal is, names a sales number. A six-figure business. A seven-figure business. Very rarely does anyone say, "My goal is to be at 20% net profit by the end of the year."

The problem is that building your business around a sales goal instead of a profit goal means you're working the math backward. Here's how it should actually work: start with profitability. 

What does it cost to run your business? How much margin do you need to cover that and drive the profit you want? Now, how much do you actually have to sell to get there? That's your sales goal, and now it has purpose.

When you set a sales goal without doing that math first, you end up with situations like having a six-figure business selling $9.99 widgets with a massive warehouse and a big team, and the six-figure revenue still isn't enough.

And here's something worth being really clear about: markup is not margin. 

A lot of business owners are proud to say they mark things up three times, and that's great, but that's not your margin. Your margin is what's left at the end of the day, after reality has had its way with your inventory.

Here's a simple illustration: you buy a six-pack of shirts. You sell three of them at full price. One gets damaged and goes in the trash. Two are extra-smalls you can never sell, so you mark them down to $5. Your actual margin for that period is not 60%. It could be 42%. And 42% might not be enough to survive on.

Misunderstanding Gross Margin

Here's something that comes up constantly: a business owner will share their margin and say something like, "My gross margin is 60%." And they're proud of it. But the price point is so low that even a 60% margin isn't generating enough dollars to cover expenses.

Say it costs $2,000 a month to run a store. Products are selling for $19.97 with a 50% margin (that's about $10 per order). It sounds like a great margin percentage. But $10 per order simply isn't enough to make that $2,000 and generate profit on top of it.

It's either a margin play or a volume play. You have to figure out what type of business model you are. If you're volume, you can have a lower margin, but you have to do a lot of volume. The key is knowing which one you are — and pricing accordingly.

One thing that's also widely misunderstood: gross margin is not net profit. 

Even professionals in the e-commerce education space sometimes say "I'm at 50% profit" when they're actually looking at gross margin. There's a lot of math that happens between gross margin and net profit. As Ciara puts it: just because you buy something for $5 and sell it for $10 does not mean you made $5. It cost money to open the doors that morning. It cost money for insurance, for packaging, for labor. You might actually be losing money on a buy-for-$5, sell-for-$10.

Sometimes it just takes somebody shining a light on that. It's not that anyone is stupid. It's just another problem to solve.

Not Accounting for the True Cost of Growth

A lot of product-based business owners are really good at selling. So say someone is doing $50,000 in sales and sets a goal to hit $100,000. They have a path to get there and everything should be better at $100,000. So why is there still no money?

It's because doubling your sales goal, unless you're very strategic about it, means doubling the cost of your inventory. You have to make that investment upfront to have the products available to ship those orders. The cost goes out before the revenue comes in.

And it's not just inventory. If you're running ads, you often double the cost of those sales too, unless you're being strategic. 

Growing a business without doubling the cost of sales is possible, but only if you understand the numbers well enough to plan for it.

There are also thresholds to understand. You might know that your operational costs won't increase until you hit $250,000 in revenue, meaning you can build up to that point and actually become more profitable along the way. But when you cross that threshold, you might need two more people, another piece of equipment, and a larger space. People who don't know their numbers don't see that coming. They think about how exciting it will be to hit $500,000. They don't think about the seven-figure problems and the lack of sleep that comes with it.

When the goal is to grow, one of the most powerful things you can do is pick one “hero product” and use that as your vehicle to scale. The biggest issue with inventory-based businesses is that they can't turn inventory over fast enough to actually realize the profit. A 50% margin sounds great, but you don't have that money until you sell the product. So instead of scaling everything, find the product you can turn over 15 times a year instead of three. That's where the real profit lives.

Not Paying Yourself — and Not Knowing What It Costs to Wake Up Every Day

"I don't pay myself, but I'm going to when I hit 250 subscribers." It's one of the most common things product-based business owners say. And it comes from a real place,  the sense that you're investing sweat equity into building something. 

But here's the reality: if you get hit by a bus tomorrow and want this business to continue, there is no one on earth who will do what you do for free.

Here's the hard truth: the person who says they'll pay themselves at 250 subscribers probably won't. When they get there, there will be more people to hire, more costs. It was always going to be "after the next hire" or "after we open another store." That pattern can continue for 10, 15, 20 years — with no consistent paycheck to show for it.

One practical tool that helps is figuring out what it costs to wake up every day. What is payroll? What are all the platform expenses? What are all the things that have to get paid whether one item sells or ten? Divide that by 30. That's your daily cost of doing business. Most people look at their P&L, see a lump of expenses, and never do that simple division. But once you know that number (whether it's $800 a day or $1,000 a day) you can actually build a plan around it. You're not going to get profitable by cutting expenses alone. You have to know what it costs you and then go figure out how to be profitable around it.

A Note on Taxes — and Your P&L

Here's something basic that trips up a lot of people: the money coming in is not yours. At bare minimum, you need to set aside a percentage for taxes. A good target is 15%, but you can start at 3% or 5%.

Critically, that percentage comes off of your gross margin, not your top-line revenue. If you have a $10,000 week and cost of goods was $5,000, the 3% comes off the $5,000 difference, not the full $10,000. This is especially important for anyone trying to follow the Profit First system. A lot of people come in overwhelmed because they're calculating off top-line revenue and it makes the numbers feel impossible.

And none of this works if you're not looking at a monthly P&L. A lot of business owners don't run one at all, or they get it from a bookkeeper six months after the fact. It's like getting a credit card bill and not opening it. Just because you're not looking at it doesn't make the numbers go away. 

Getting a monthly P&L — and actually reading it — is one of the single most impactful things you can do, especially early on. Ask questions about it. There are communities where people will help you understand it.

Where to Go From Here

None of this is meant to be overwhelming. These are all solvable problems. The goal is simply to make sure you're not still solving them 10 or 20 years from now.

Three things to take action on:

• Start getting a monthly P&L and actually look at it. Ask for help understanding it if you need to.

• Price your products to pay for the labor you are currently giving away for free.

• Understand that growth requires investment — and plan for it before you commit to a sales goal.

And one more thing: find yourself good business friends. Not complainers. People you want to level up with. People who say, "Here's how I problem-solved. Here's my plan. Here's the smart person I talked to this week." Be in a room where you are not the smartest person, so you can keep growing.

Ciara Stockland works with inventory and product-based businesses to create profitability and keep more cash. You can find her at sierrastockland.com, where she offers free blogs, free calculators, free workshops, and her book, Inventory Genius — available on Amazon in hardcover, Kindle, and Audible formats. At $9.99, it's one of the best investments an inventory-based business owner can make.

RELATED LINKS:

Ciara’s Debt Detox Bootcamp: https://www.ciarastockeland.com/a/2148268513/2cz2f3cA

What Every Store Owner Needs to Know About Business Debt https://www.thesocialsalesgirls.com/blog/what-every-store-owner-needs-to-know-about-business-debt-episode-267

How to create profit goals https://www.thesocialsalesgirls.com/blog/how-to-create-profit-goals-episode-209

How to get control of your $ https://www.thesocialsalesgirls.com/blog/how-to-get-control-of-your-episode-158