How Cash Flow Management Issues Sunk Neon Beach

You might know Matt Kelly as the founder of Spacegoods. But before Spacegoods, he scaled another ecommerce brand to £10m+ in just 18 months. Then he lost it all. One of the mistakes? Not understanding cash management and having a strong handle on ecommerce accounting and bookkeeping.

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Here’s the story and 6 of his hard-earned lessons:

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How Neon Beach Sunk

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Matt first founded Midnight City, a jewelry brand making 7 figures. Then he started Neon Beach, a dropshipping brand for bespoke neon signs, as a side hustle. Within 4 months, Neon Beach overtook MC in scale and profitability.

With no employees, working from a laptop in his bedroom of an apartment he shared with two roommates, Matt scaled Neon Beach to 8 figures in 18 months. He even had a collaboration with Love Island. Then he crashed and burned…

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Because Neon Beach was a dropshipping brand, each order relied heavily on its supply chain and manufacturing running smoothly. Matt decided to pay £400k to move production from China to the UK. That’s when things went south…

Due to a supplier going bankrupt and not fulfilling £2m+ of orders, things really hit the fan. Neon Beach was getting flooded with terrible reviews, chargebacks and a 25%+ refunds rate. Matt even started receiving death threats.

In order to cover the costs of the refunds, he loaded up his business Amex and took on revenue-based financing. But it wasn’t enough. Payment processors started to withhold money and the cash flow stopped…well, flowing.

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All the while, he was trying to sell his Midnight City brand to stop some bleeding. But due to poor business structuring, both of his brands were under one company.

The contagion from one brand quickly spread to the other since they shared one P&L.

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You can probably guess the result…

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Matt sold 80% of his equity to a private equity fund, and used the proceeds to repay refunds and creditors. He went from being the “king” to a mere employee of the businesses he started.

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Ultimately, Matt went on to start another company (Spacegoods), but not before learning some tough lessons.

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Here are 6 crucial lessons:

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1) Think twice before becoming a solopreneur

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Taking on an experienced partner or investor means you won’t need to endure tough times alone.

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2) Your revenue is not your numbers

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Your bank account isn’t your balance sheet and your balance sheet isn’t as healthy as you think.

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Get a solid bookkeeper with real-time numbers - delayed financials are not enough. If not, you’ll have no concept of the health of your brand.

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3) If you’re using a credit card…

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Have a healthy credit limit and pay off your card in full each month.

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4) Cash flow is everything in your business

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Bad cash management or having cash you can’t access (e.g., due to payment processor reserves) can kill your brand.

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Be on top of your numbers and know them ALWAYS.

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Read our blog What is a Cash Flow Statement: Everything You Need to Know

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5) Bigger isn't always better

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Aim for consistent gradual growth. Don’t grow just because you can, especially without a solid foundation 

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6) Structure your business correctly

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Don’t house two separate brands under one company. It can seriously screw you later on. Always get advice from experts if you plan to scale your brand or expand to multiple brands.

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Read our blog Choosing the right structure for your ecommerce business

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TL;DR

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Being thoughtful about growth, how you structure your business, and knowing your numbers are all critical to surviving in business. Finaloop can help you ensure that your financials are up-to-date and 100% accurate. Sign up HERE to get your financials set up today.

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About Finaloop

We are a technology company providing automated end-to-end accounting service to ecommerce businesses. Our system connects to your apps, syncs all your data and reconciles your books in real-time, replacing your bookkeeper, your accounting software, and your ecomm integrations. We offer reconciled books available 24/7, tax-saving insights, and a single place for all your financial data.

*The information provided on this website does not, and is not intended to, constitute legal advice. All information, content, and materials available on this site are for general informational purposes only. Readers are advised to consult with their attorney or accountant with any questions or concerns.*

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