Case Study: DTC Travel Brand
The Context:
Travel industry disrupter Away outsourced the management of its books until their Series D round (after raising $156M), at which point they decided to hire a Controller who was tasked with bringing the accounting function in house. When she arrived, she found that the company had quite a bit of, let’s call it, baggage. A few of the core problems included:
The founders and finance team didn’t have a close understanding of the chart of accounts, so the reports delivered by the outsourced accounting team were not providing effective insights.
The outsourced accounting team wasn’t close enough to the business on a regular basis, so they didn’t understand when critical business changes were made (such as change in COG of the main product).
The outsourced accounting team didn’t have the right technical accounting oversight to understand how to properly reconcile revenue to cash and recognize deferred revenue.
Spend management was a bit out of control, with many shared corporate credit cards, so it was nearly impossible for the outsourced team to track down receipts and properly code expenses at month end.
The root cause of these problems was that the outsourced accounting firm seemed to have used the “set it and forget it” approach; the bookkeepers were interacting with the in-house finance team, but only at month end to just get things done. There wasn’t a senior finance leader at the firm who was connecting with the founder or head of finance to understand changes to the business or get feedback on the accounts. At a high-growth company like Away, the business looked different every 4-6 months, but somehow the books looked the same.
Our Impact:
The Controller, now a principal at The Books, understood the importance of keeping the accountants closely aligned with the business, and making sure the founders and key business execs understand what the financials were saying. She performed an efficient audit of the financials and underlying processes, and was able to make the following impacts very quickly:
She set up regular touchpoints with the head of finance and monthly touch points with the founder, to understand how they wanted to view the business. She added new accounts to categorize revenue streams and key spend lines, especially within marketing, which made the P&L much clearer to read for the key stakeholders. Most importantly, she introduced departmental accounting so that reports could be generated showing spend by department, which made the budget vs. actual process much easier for the finance team.
She documented walkthroughs of revenue streams and how ecommerce and retail revenue turned into cash in bank, and implemented technical accounting around revenue recognition so that audits would be easier to pass.
She implemented processes to reconcile inventory on the balance sheet, an often overlooked financial statement. Unfortunately, since this reconciliation hadn’t been performed in years, it resulted in a fairly significant hit to the COG line on the P&L, which had to be explained to investors. This could have been avoided with proper inventory accounting established from the beginning!
She implemented a new expense management system that issued individual digital credit cards to users and made it much easier to submit receipts and explanations of each charge; no more shared credit cards! The system was user friendly, including a Slack integration, so the team didn’t hate submitting expense reports. Even better, she worked with the team to transition large spend (such as ad spend and shipping costs) to the new credit card program, which earned the company over $300,000 in annual cash back! Who said that finance is just a cost center…
The Bottom Line:
Most of these problems could have been prevented by using a proper outsourced accounting firm that understands CPG and can scale with the business. By following a few standard best practices, there might have been a few less hiccups:
Set the right foundation with a chart of accounts that is built for your business today, and the business you want to see in the near future.
Have regular touch points with a real Controller from the outsourced firm (not just the bookkeepers) so they can understand changes to your business and adjust the financial insights to meet your needs.
Ensure your outsourced firm documents each key business process (such as revenue to cash and procurement of inventory) and understands the associated accounting impact to the books. The firm should maintain the documentation at least annually; therefore, if and when you are ready to transition accounting to an in-house team, the documentation will save you thousands of dollars in onboarding and transition costs.
At The Books, we implement these baseline best practices for every client. We have over a decade of experience building and scaling accounting teams for consumer brands, so we know what works and what doesn’t. We love working with founders and understanding what you need, and you’ll be surprised how much value you can actually get from an outsourced team. If you are interested in working with us, or just want to learn more, get in touch! We can’t wait to help your business grow.
