369: How To Get Top Dollar For Your Business, FBA Rollups & More With Joe Valley

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You’re listening to the My Wife, Quit or Job podcast, the place where I bring on successful bootstrap business owners and dig deep into what strategies they use to grow their businesses. Today, I have my friend Joe Valley on the show, and Joe is the co-founder of Quiet Light Brokerage, which is an online brokerage firm that helps you buy and sell businesses. Now, I’ve had other members of Quiet Light on the show before, but the reason I asked Joe to come on is to discuss the overall online business market, the typical valuations for buying and selling online businesses, and the ridiculous Amazon FBA roll-up craze that is going on right now.

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But before I begin, I want to thank Klaviyo for sponsoring this episode. Always super excited to talk about Klaviyo because they’re the email marketing platform that I personally use for my e-commerce store and it depend on them for over 30 % of my revenue. Now you’re probably wondering why Klaviyo and not another provider. Well Klaviyo is the only email platform out there that is specifically built for e-commerce stores and here’s why it’s so powerful. Klaviyo can track every single customer who is shopped in your store and exactly what they bought. So let’s say I want to send out an email to everyone who purchased a red handkerchief in the last week. Boom.

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Let’s say I want to set up a special autoresponder sequence to my customers depending on what they bought, piece of cake, and there’s full revenue tracking on every email sent. Now, Klaviyo is the most powerful email platform that I’ve ever used, and you can try them for free over at klaviyo.com slash my wife. That’s K-L-A-V-I-Y-O dot com slash my wife. I also want to thank Postscript for sponsoring this episode. Now, if you run an e-commerce business of any kind, you know how important it is to own your own customer contact list. And this is why I’m focusing a significant amount of my efforts on SMS marketing.

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SMS or text message marketing is already a top five revenue source for my store, and I couldn’t have done it without Postscript.io, which is my text message provider. Now, why did I choose Postscript? It’s because they specialize in e-commerce stores, and e-commerce is their primary focus. Not only is it easy to use, but you can quickly segment your audience based on your exact sales data and implement automated flows like an abandoned cart at the push of a button. Not only that, but it’s price well too, and SMS is the perfect way to engage with your customers.

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So head on over to postscript.io slash Steve and try it for free. That’s P-O-S-T-S-E-R-I-P-T dot I-O slash Steve. And then finally, I wanted to mention a new podcast that I recently released with my partner, Tony. And unlike this podcast, where I interview successful entrepreneurs in e-commerce, the Profitable Audience podcast covers all things related to content creation and building an audience. No topic is off the table and we tell it like how it is in a raw and entertaining way. So be sure to check out the Profitable Audience podcast on your favorite podcast app.

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Now onto the show.

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Welcome to the My Wife Could Her Job podcast. Today I’m happy to have Joe Valley on the show. Now Joe is the co-owner of Quite Light Brokerage, where he has mentored thousands of entrepreneurs to achieve their own eventual exit. And Joe has built, bought, or sold over half a dozen of his own companies, and he’s recently documented his story in his latest book, The Exitpreneur’s Playbook. Now as an entrepreneur, at some point you will eventually want to sell your business, but you can’t just decide one day that you want to sell and be all set. It’s not like selling a car.

03:03
You have to plan ahead and prepare your business as you are running it to get top dollar. So today, Joe and I are to talk about how to become an exitpreneur. And we’ll talk about some examples of what not to do and crazy stories about some of the exits that Joe has participated in. And with that, welcome to the show, Joe. How are doing today? I’m doing great, Steve. Good to be here, Man, Joe, I feel like I’ve known you forever. Like you’re literally at every event that I go to and we always chat. But for the listeners out there who do not know who you are, just

03:32
Tell us how you got to where you are and what you do. Okay, sure. Well, I’ve been self-employed since 1997. I consider myself a bit of an old guy in the industry. I was an original remote worker actually as well. It’s all the rage these days, but I had a remote staff and worked from home way back to 2005. I sold my first online business in 2010. I was 100 % online.

04:01
in 05 went through the best of and the worst of that economy came out the other end tired and did what you just said you shouldn’t do, which is I woke up and decided to sell my business. Fortunately, I got some good advice from a guy named Mark Dows, who’s now my business partner. And he recommended I wait about six months because the economy was coming back. My business was coming back. And, and about six months later, I ended up listing the business with quiet light, sold it in November of 2010.

04:29
joined the company in early 2012. And at that time, we had four, four was the entire team for advisors, including Mark. And now we’ve got a total of 15 advisors and an entire staff and it’s a completely different world in 2021 than it was back in 2012. For some reason, I thought you were one of the founders, but so you’re just you’re a co owner. But yeah, technically, Mark calls me a founder because we were so tiny when we when we started out and yep.

04:57
and I was the guy producing 70 % of the transactional revenue for Quiet Light and then we became partners. So technically Mark’s the founder, it was founded in 2007, but he goes around calling me a founder, so that’s probably why. I don’t mind. All right, Joe, a couple of questions. I just want to get out of the way because these are some of the questions that I get almost every single day when people want to sell their business. I want to talk about the valuation range for an e-commerce business. Let’s just call them the seven figure range.

05:25
And what I want to know is what the difference is between an Amazon business versus your own website and also wholesale versus private label versus drop shipping. Okay. So let’s start with your own site versus Amazon. It’s going to, it’s going to tear up depending upon the size of the business. So if you’re like, say less than a hundred thousand in discretionary earnings,

05:50
That’s one benchmark. The next would be a hundred grand to five hundred thousand in discretionary earnings and then five hundred to a million and then north of a million. So we’ve got those four areas. OK, so historically, Steve, I used to be able to clearly and definitively say that your own site is going to be worth 15 to 20 percent more than if it was an FBA site because you own the customer. Right. You’ve got all that benefit. You can launch products to them with less money. That kind of thing.

06:20
But because of the FBA aggregators and the rise of these guys raising billions of dollars competing for FBA businesses, negotiating, climbing all over themselves to buy them, those valuations have come up and are on par with somebody that is just owning a, let’s say Shopify site. I’m seeing it more and more. And there are more FBA businesses available for sale than Shopify sites. So value range though, take this with a grain of salt.

06:48
really important to do that because things change and things change a lot and no two businesses are alike. So I don’t want anybody listening to this going, but Joe said, then this is recorded. So yeah, this is just, this is the easy part. This is the math part, right? Right. It’s, it’s your discretionary earnings times a multiple. That’s not how businesses are valued. That’s, that’s like 10 % of it. The other 90 % is art and experience. You just don’t want to get in that area. So

07:18
I’d say they’re kind of similar with FBA businesses in your own site. So less than a hundred grand, you’re looking at probably a three to four time multiple plus or minus. thing to understand is that’s not including inventory. We’ll touch on that in a second. A hundred to 500, it’s now in the three to five time multiple range. And just five years ago, Steve, when we first connected, we were not listing anything above 2.75. In fact, we’d listed at 2.74. So it didn’t round up to three online.

07:47
That’s how sensitive buyers were. The world’s changed quite a bit now. And then 500 a million, you’re looking at four to six times. And then north of a million, you’re looking at six plus or minus. notice that I was at three to four, three to five, four to six, six plus or minus. They all overlap and they all overlap intentionally. Yeah. Yeah. As I said, it’s inventory is different, right? So if it’s an inventory based businesses and those, those, those ranges for

08:16
strictly content sites and SaaS businesses, those will bump up, right? You’re to be in the higher end of those ranges that I just mentioned. physical product business, you’re going to do the plus the landed cost of good sellable inventory on hand at the time of closing. So it’s what you pay to ship it to your fulfillment center. That cost, the cost of goods and the, and the shipping to it is what you get paid for the, for the inventory. So if you’re selling it for a million, but you get 150 in inventory, it’s

08:45
a million for the list price plus that inventory. The inventory is not included in the list price. Right. Okay. Can you comment on having your own brand versus selling wholesale versus drop shipping other people’s brands? Absolutely. having your own brand is the ideal scenario because then you can take it off of the third party platforms if that’s where the majority or even half of the revenue is and grow it much more substantially on your own site. That’s going to be the gold standard for buyers. That’s what they ultimately prefer.

09:14
A wholesale when you are just selling other people’s products in bulk and things of this nature. The challenge there is that every Tom, Dick and Harry might be doing it as well. So the, you’re definitely going to get a lower multiple. You just be, let’s say on the low end of that multiple range that I just gave you. And even then you might be teetering just below it. Unless you’ve got a lot of clients and contracts with all of them. So you’re exclusively selling.

09:44
online or exclusively selling on FBA or eBay or Target or Walmart or Amazon and things of that nature. So you got to have some contracts to set you apart because the problem there is that anybody can do it and compete with you. So you want to be able to separate yourself there. Dropship, it’s a funny thing. know, we just don’t see as many dropship businesses being sold these days. In the last five years, you know, I think it’s been a handful of them.

10:08
Mainly because the margins aren’t as good and buyers definitely prefer a branded product. So you’re going to be again on the low end of those multiple ranges and teetering even below that for a drop ship business unless it’s really unique, quite defensible. And again, contracts are key because being defensible is one of the key pillars. And if you’re

10:37
constantly fighting against others for the same product, for the buy box, for the ranking, for a pay-per-click, whatever it might be, it’s gonna concern buyers. And the greater risk there is in that regard, the lower multiple they’re gonna pay you. For some reason, I would have thought drop shipping would have had a higher multiple because they don’t have to deal with inventory, but I guess that’s not the case, Yeah, it’s not what we’ve seen because the margins generally aren’t as good and it doesn’t take much to get into it, right? Yeah. It does certainly.

11:05
take a lot to get your rankings where they need to be and things of that nature. But there just hasn’t been enough data in the last five years, in my experience on dropship businesses, and the ones that we have seen the buyers responses have been they prefer to have their own brand where they can grow a much bigger business and eventually have a greater exit. Joe, I actually just published a tick tock with you in it like a big fat picture of you. Because

11:32
The one thing that stood out in my mind from one of our conversations was this. Every single dollar that you save or add back in your business is four to five dollars more in your pocket, right? And so you just mentioned some of these valuations. Quick question, just in case people are considering selling right now, with that multiple, let’s say it’s like three to four, why not just run your business for three or four more years, pocket the revenue and then sell?

12:00
And in your experience, what’s like the single biggest reason people sell their businesses? Okay, so I’m going to answer those questions all together at once. The problem is that most people just run their business thinking, yeah, I’ll figure out how to sell it and I get to that someday. And then they wake up and someday is here. They’re exhausted, they’re worn out, they’re tired, they’re over leveraged and they just want out. That’s the unfortunate truth. If I could talk to everybody that owns an online business,

12:29
I would say, let’s get you some training little bits and pieces here and there. Get some knowledge so you understand, you know, what the process is to get maximum value on your exit. There’s, four or five things that you should focus on, take them in bite sized pieces and let’s go ahead and do that. If, if a business though, Steve is less than five years old, generally speaking, you know, if, especially if it’s a physical products business, you’re to earn much more money.

12:56
at least 50 % of the money you’re ever going to make in the business, you’re going to earn the day that you sell it. That’s a critical piece of information that people should be aware of, especially if they’re just in the infancies of launching a physical product business. the first four five years, you’re bootstrapping it. You’ve probably borrowed some money to get it launched. You’re launching new SKUs all the time and you’re just trying to keep up with inventory demand. If you’re doing well, that’s the case. So you’re taking a lot of cash from the business and putting it right back into the business.

13:26
Right. If you do that for four or five years, odds are you’re going to make more money on the exit than you are running the business. But as you said, if you run the business for another four five years beyond that, then the tipping point leans towards it might be better to hold it for a longer period of time. The problem is though, as entrepreneurs like we are, we get this shiny object syndrome. look around and we want to do something new and we

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have an affliction called I can do that. We think we can do anything. It’s helped us get to where we are, but it also gets in the way of doing what we’re doing now really, really well. What’s your definition of an exitpreneur, by the way? Somebody that actually understands the value of what they have and that most of the money that they’ll make is in the exit. know, somebody that’s built a business, sold it and realizes, wow, I actually have money in the bank now. I’m less stressed. have

14:20
money in my retirement fund, my kids’ tuitions funded, and I’m going to be less bootstrapped when I do it again. And my learning curve is going to be shorter as well. So take all of those things and now you’re an exitpreneur instead of an entrepreneur because you’re building a business with an eventual exit in mind. Entrepreneurs, like I was early on, you’re just running a business because you want that freedom and luxury of not having a boss and making more money. But you never think about that exit. know in my first few businesses, I

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never thought about the exit and I could have exited. I just didn’t consider it and I just wore myself thin and moved on to something else. So it’s when they’re thinking about that exit, actually doing it and repeating it over and over again, because that’s gonna get them the most money. Can you comment on that 50 % number? Is it because of taxes the way when you sell it’s tax differently? I’d say number down. Yeah, for for taxes. Yes. I mean, that’s part of it, right? So you’re to pay

15:16
It’s going to vary depending upon where you live. Out there in California, you’re to pay a ridiculous amount of personal income taxes in the state. Whereas if you’re in Texas or South Carolina, North Carolina, it’s a zero income tax on the state level. So you’re going to pay at least, let’s say 10 % higher in income taxes when you’re operating the business than on the exit because it would be capital gains taxes. And then it’s for physical product businesses, you’ve got a lot of money tied up in inventory. And if you’re growing rapidly, you’re going to keep doing that.

15:46
So you’re not able to take that money out of the business. It’s sitting there on the balance sheet. So it’s there, it’s value, but it’s not cashflow to you. It’s capital operations for the business. So Joe, can we talk a little bit about the prep? Like you mentioned in one of your stories, like you woke up one day and you wanted to sell and that was just a bad idea. What can people do as they’re running their businesses to kind of help facilitate the sale when they do decide to sell? Well, the first thing they got to do, Steve, is set some goals, right? I mean, I think you’ve probably heard it that

16:16
You know, you’re more likely to achieve your goals simply by writing them down. think it’s something like 42 % more likely just by writing down your goals. And I’m sure you heard of it as well back. think you went to Stanford, right? I did. Yeah. So I know it’s only a Harvard business study. wasn’t Stanford, but these guys found that there’s a direct correlation between goal setting and success. said that 14 % of people who have their goals written down are

16:44
10 times more successful than those that don’t have goals. 10 times more successful. So the first thing I try to convince people to do is think about dollars, date and feelings. Sounds kind of weird, but dollars, date and feelings. Uh, example, I want to sell my business for $2 million in the third quarter of 2023. It’s very specific, right? Dollars and date. And then when I sell my business, I will feel unburdened because I have money in the bank.

17:14
And I get to spend more time with my family. It’s a funny thing. That second part in feeling, because, you know, every time I close a business and I’ve personally closed about a hundred thousand, a hundred million in transactions. So I’ve had a lot of clients over the years. I’m always asking them, how do you feel? And it’s funny. The things that they say more often than not, like, man, I feel like a huge late weight is lifted off my shoulder. Right. Um, so it’s, it’s really important to focus on that feeling as well and where you want to be. The second thing they’ve got to do.

17:44
At that point, first they got to set a goal. Think about it as if you want to travel to Tulsa, Oklahoma from where you are now, but you don’t know where you are now, it’s going to be really hard to get there. So you’ve set these goals, but you don’t know where you are now. You don’t know what the value of your business is. don’t know how close or how far you are from it. So you’ve got to calculate your sellers discretionary earnings and learn how to do that, get some education on it, and then firm up what your current value is.

18:14
So you’ve set this exit goal down the road. Now you’ve got to reverse engineer a path to that by figuring out exactly where you are today and how close or how far you are from that goal. And at that point, you’re going to hopefully have a cruel accounting, which is critical. You’re going to calculate your ad backs, which is critical. You’re to get some expert advice because 90 % of the the value ranges of a company that comes from nuances. It’s the art part that 10 % is math. The multiple times discretionary earnings,

18:43
The 90 % really comes from expertise. So you should talk to an advisor. Um, but then you want to sort of shift your mindset. This is a weird thing, Steve. When, when you, when I first started our businesses, we were probably going, I don’t want to work for the man. This is not my life. That’s not the life I want to live. I just want to, I want to be on my own and make some money. Now when an ex-opinor mindset jumps in, I want them to shift their mindset from.

19:12
That kind of mentality to building a great business for a great buyer to take over at a great price Right thinking about that next person and that actually gets you more value at the end of the day So that implies that when you’re starting the business you’re already thinking about the exit like that’s really hard to do because I Have no intention to sell. Why would I want to think about that stuff? Like yeah part at least yeah, I’ve never really bought into that that that line, you know that

19:42
You should start thinking about your exit the day you start your business. I’m not there. I’m okay. I’m more of look, you have bootstrapped this thing. You’re so focused should make sure the wheels don’t fall off the bus. And now that you’ve got them bolted on nice instead of a duct tape, you’re making connections in the industry and you should start to think about if you’re to run this forever or if you’re going to have an eventual exit, you are going to exit your business someday. You’re either going to

20:11
die, pass it on to your children and sell it to a partner or just let it die on the vine. One way or another, you’re not running your business forever. Right. So why not maximize that exit along the way? So yeah, I’m not a advocate of that line. I’m more in reality and that is because I’ve done it, you know, half a dozen times and I never thought about the exit until, until I matured actually, right. Because I was, you know,

20:40
ignorant, confused. didn’t understand that most of the money that I would make would be the day I sell. For me in my process, right, I’m not someone that builds a business and runs it forever. More of bootstrap, get it going, launch it, grow it, sell it, repeat. Right. That’s more of my mindset these days than in the past. So with that in mind, as you’re running your business, what are some of like the key financial metrics that you want to be tracking?

21:08
as you go along, even if you have no intention of selling anytime soon. Well, the toughest one, Steve, there’s a number, right? There’s a number of things that buyers look at. And so you got to think about it from a buyer’s perspective. And then there’s from your perspective in determining how close or how far you are from your goal. And the simplest and toughest thing to do is calculate sellers discretionary earnings and understanding what ad backs are. Right. So

21:37
It’s, it’s a net income plus ad backs equals sellers discretionary earnings. Net incomes on the bottom of the P and L when you export it from QuickBooks or zero, but that’s not what your business is worth. That net income number of the trailing 12 months. It’s, that plus ad backs and ad backs. there’s let’s define an ad back for the people listening real quick. Yeah. And add back. Think, think about, uh, adjusted EBITDA, right? So there’s some basic ones in there, but it’s, it’s really, it’s a one-time expense or an owner benefit.

22:07
that does not carry forward to the new owner of the business. And that can come in the form of owner salary, your mobile phone that you run through the business, a reduction in cost of goods sold halfway through the year prior to you selling the business. That jumps right to the level three ad-bacs that are really complicated. Interest expense, depreciation. When you went out to the Prosper show, but you stayed an extra week and traveled with your spouse.

22:36
and wrote it off through the business. These are owner benefits and perks that we have. Members of mastermind groups, right? So if I’m a member of your mastermind group and I sell my business, that mastermind membership does not carry forward to the new owner of the business. In fact, they may have their own that they prefer. So little things like that add up to an awful lot. So Joe, that imply that when you’re ready to sell, you don’t necessarily need to tighten the ship a little bit in terms of

23:04
spending like that, like travel expenses or going out to eat and that sort of thing, because you can always add them back when you sell. you don’t. Yeah, I wouldn’t. I wouldn’t tighten the ship in that sense. I don’t want you reducing your advertising costs and traveling less if that’s part of your life in the business itself and what perks you get from it. What you do want to do though is tighten things up in terms of spending where you’re not going to get a positive return on investment, where it’s it’s an expense that’s not an ad back. So if you’re launching

23:34
You know, historically you’re launching six new skews a year. You want to make sure that in the year prior to listing, that at the very least you’re to break even on those because otherwise, you know, you, you launched them. If, know, we’ve got to, we’ve got a friend in common, Mr. Jackness that, you know, he puts a lot of money behind a skew and is okay going negative for a while before breaking even. And the recommendation there would be, don’t do that in the 12 months prior to closing. So, you know,

24:01
If that while is, if it takes three months to at least break even, you want to do that at least six months prior to listing the business for sale so that we’re at least zero or positive. Otherwise, if you’re negative 10,000 on a new SKU that launched, then that negative 10,000 times a four time multiple is going to reduce your list price by $40,000. So you want to tighten the ship in that regard where you’re not going to get a positive return on investments that you normally.

24:31
invest in prior to listing the business. But all the other stuff that you normally do is okay. Like from a buyer perspective, and I think it’s really hard to put yourself in the buyer’s shoes, but like if that were me, and you traditionally launched six SKUs a year and all of sudden you’re not, that would almost alarm me a little bit, right? Yeah, and don’t launch six SKUs. I’m just saying be cognizant of the timing, right? So if it takes you three months to break even on one.

24:58
And nobody really, nobody I’ve ever met launches consistently the same amount of skews every year. So we’re talking about 1 % of there, but But be, be, cognizant of the timing. So you don’t want to launch a bunch of them too quickly before you list the business for sale. Make sure you’ve at least got some, some headway timing wise to at least get it break even before you list the business for sale.

25:23
Let’s break this down just in case there’s people listening to this that don’t quite understand how the ad backs work. So let’s say I make $100,000 in my business, but then I pay myself $100,000. Technically my SDE is zero, but the business is still worth it’s really a hundred thousand after the ad backs, right? That was confusing for me. So I’m sure it was confusing for the listeners. Okay. Make $100,000 in profit, but you pay yourself that $100,000. So technically the business isn’t making a hundred thousand dollars. Well, right. Okay. So if.

25:53
If you run a profit loss statement and in the last 12 months, your net income says $100,000, right? That’s what we’re looking at there. But up above the net income line, there’s a payroll line that’s just for you. And there’s an expense that is also a hundred thousand. You’re going to add that expense back underneath the net income lines. You’ve got a hundred thousand net income already. Plus your ad back of your payroll equals 200,000.

26:21
So your discretionary earnings would be 200,000.

26:25
If you sell on Amazon or run any online business for that matter, the most important aspect of your long-term success will be your brand. And this is why I work with Steven Weigler and his team from Emerge Council to protect my brand over at Bumblebee Linens. Now, what’s unique about Emerge Council is that Steve focuses his legal practice on e-commerce and provides strategic and legal representation to entrepreneurs to protect their IP. So for example, if you’ve ever been ripped off or knocked off on Amazon, then Steve can help you fight back and protect yourself.

26:54
Now, first and foremost, protecting our IP starts with a solid trademark and Emerge Council provides attorney-advised strategic trademark prosecution, both in the United States and abroad for a very low price. And furthermore, the students in my course have used Steve for copyrighting their designs, policing against counterfeits and knockoffs, agreements with co-founders and employees, website and social media policies, privacy policies, vendor agreements, brand registry, you name it. So if you need IP protection services, go to EmergeCouncil.com and get a free consult.

27:23
And if you tell Steve that I sent you, you’ll get a $100 discount. That’s E-M-E-R-G-E-C-O-U-N-S-E-L dot com. Now back to the show.

27:34
Right. That was the point I wanted to get across. Like your salary is an ad back. Actually, it might be helpful just to go through some of the obvious ad backs. Okay. Yeah. So there’s a lot of them, but we can definitely poke around on some of the really obvious ones. I try to focus. I call it the three levels of ad backs and there’s six layers per level. Level one, let’s call them obvious. We’re talking about one owner’s salary, owner’s health insurance, retirement contributions.

28:02
And then the obvious EBITDA stuff, amortization, depreciation, interest expenses, it’s also charitable contributions. Those are pretty obvious add backs. Level two, what I call the not so obvious. A lot of people miss the payroll tax on that owner’s salary. A lot of people put their estimated income taxes in the P and L and through the business and paying them that way instead of their personal accounts. And I’ve seen people miss it when selling on their own. that’s a major snafu. Trademarks, copyrights, patents, design.

28:31
logo design, things of that nature. Those are the one-time expenses that don’t carry forward. You know, if you’re filing for a utility patent this year and you spend $20,000, pretty good chance you’re not doing that next year as well. You just have to look at the history of the business, but that would be a one-time expense that doesn’t carry forward. let’s say you and I were business partners, Steve, and we decided to part ways and we spent about $15,000 in legal fees to part ways amicably. then

29:00
you decide to go ahead and sell the business. You bought me out. These legal expenses are in the P &L. We decided to run through the business. That’s a one-time expense that doesn’t carry forward, right? Because the new owner of the business doesn’t have those legal fees next year because he’s buying the business. So I’m not going to separate with a partner. It’s not something that recurs. Other things that are not so obvious might be the personal miscellaneous expenses that you just mentioned. Every year when I look at P &Ls, Q4 generally,

29:30
has an increase in office supplies for owner operators of the business because it’s back to school supplies and it’s Christmas gifts. So those things can add up, right? When you’re selling an online business and you bought a new laptop in December, you’re not giving your laptop to the new owner of the business. And since it’s an asset sale, they’re just getting the access to the cloud information. They’re not getting your laptop as well. that’s an equipment purchase would be an ad back.

30:00
The level three, we could spend an hour talking about these and it would get really confusing. So this is what I say, you you got to, you got to dig deep and focus. So one that may sound strange is a website redesign, right? That’s a business expense, right? Do it every year. Probably not. Right. If it’s, if you’ve historically done it every single year and you spend 10 grand a year on a new website redesign, it’s not an ad back, but I’ve never met anyone that does that. So if you.

30:30
uh, re you know, redesign your website every two years and you spend 10 grand a year doing it at the very least 50 % of it is an ad back. And I’ve seen in many cases where a hundred percent’s an ad back because it was a big redesign every five years. So that is pretty critical. Most people miss that if they’ve just done a redesign, as I mentioned earlier, mastermind groups, don’t carry forward. Number three is pretty critical. A lot of people miss this as well. I just did a,

30:58
an AMA with our buddy Walker from Acquisition Lab. It’s cash back, right? Cash back monies. Most people just put this in their personal accounts and they use this money for whatever they want, or they take the reward points and get discounts on flights and vacations and buy things with things of that nature.

31:22
Technically, the IRS hasn’t figured out how to tax this. It’s a discount on advertising. It’s a discount on purchases and things of this nature. So most people don’t have it in their P &L. They just go, well, that’s a cool little perk for me. That’s called an owner benefit. And an owner benefit gets added back to the ad back schedule because it doesn’t necessarily, well, it doesn’t carry forward into the owner. It will in some ways, but let me explain this one. So if you spend, you know,

31:50
enough money to get $1,000 in cash back every month. That’s $12,000 a year. That’s an owner benefit. If it’s not on your P &L, we put it on the P &L and the cash in the ad back section. And that adds $48,000 to the list price of your business. Now, if you don’t take cash back, if you don’t take cash back and all you do are rewards, like I do rewards, I’ve got Amex, right? And I get four times, but there’s a conversion rate. It’s 1 % for Amex.

32:18
So I’ve got to look at what I spent in January, February, March, April, May, and how many rewards I got, and then do the math in the ad-back schedule on the conversion. What’s the 1 % value of that? This line alone, people ignore it, especially with the FBA, the aggregators these days are buying up these businesses and they’re flattering people and talking about how amazing their businesses are and that the buyer with cash and all this other stuff. I guarantee you the FBA aggregators are not saying.

32:46
Hey, wait a minute. You didn’t put in an ad back for your cash back rewards. It’s not in their benefit to talk about any bad backs, right? No, not at all. Not at all. You know, so this is a huge one. And when I was on that AMA with Walker, someone spoke up, said, you know what? You just pissed me off, Joe. I’m like, oh, really? What did I say? He goes, I just sold my business. I was so excited to tell the owner, the new owner about, the benefits of cash back and

33:11
And I think I lost about $30,000 in the sale of my business. didn’t read your book beforehand, so you’re pissing me off. I’m going to make sure I do this next time.” And he was joking, of course, but it’s a classic example of not getting trained, not taking this process seriously enough because we all have that, can do that mentality. And these little nuances will cost people tens of thousands, if not hundreds of thousands of dollars a year. There’s three more here.

33:40
But let me jump to number five, which is a reduced cost of goods sold. So our buddy, Mike, when I sold his business, he had reduced his cost of goods sold on a major skew by a dollar 80, but let’s, let’s do $2 for good simple math here, right? I didn’t go to Stanford. went to Northeastern. So he reduced his cost of goods. So let’s say six months prior to listing the business for sale, he sells us a thousand units a month consistently every, every month. So in the last six months, he saved $2,000 a month.

34:09
That’s a savings that carries forward to the new owner of the business. Those first six months of the year, there’s a higher expense in there that should be reduced because it carries forward. It’s no longer on the books. It’s not going to be carrying forward. So we took $2 times $1,000 units a month, two grand a month, and added that back to his ad back schedule. How do know how long to add that back?

34:37
Like you have a reduced cost from here on out. So how do you, just went, we went back. We, think we had three years of P and L’s. we just went back the whole way just to make sure it was a of money right there. We just went, well, well it’s, it’s a multiple of the trailing 12 months. So the rest of it was just to make sure we were looking at apples to apples. Okay. Got it. Um, but, but yeah, in his case, he was selling a lot more than a thousand units a month. But I think in his case, we had this, this adjustment alone added something like $54,000 to the list price of his business.

35:06
Yeah. And, and, you know, people listening, Michael, wow, that sounds kind of tricky, kind of gray. Um, it’s not, it’s total black and white math and logic. think about the opposite of it. If I’m buying your business, Steve, and your cost of goods sold went up by $2 a unit in the last six months, that is an expense to me. That’s going to carry forward. If I look at your trailing 12 months, I’m going to, you know, buyer’s going to say, did you cost a good sold co-op?

35:34
If it’s there for 12 months, fine. It’s already on the books, but if it’s only there for six, I’m to go, wait a minute, wait a minute. In the first six months of the year, the cost of goods sold are lower. That’s an expense that is not going to carry forward. It’s higher now. So I’m going to take your, you know, your, your, your 6,000 units times two, uh, that’s 12,000. I need a $48,000 reduction in the purchase price. So the, the opposite is true when you, when your costs go down and you can do that with reduced third party.

36:03
fees because you’ve redesigned your packaging to reduce the fulfillment. You can even do that with overpaid relatives and bookkeepers. Too many people pay their mother to do their bookkeeping when she’s not really qualified. I was the Grinch one year. tried to be anyways. Yes, I’m proud to try to be the Grinch. I’ve started a business for about a million and a half bucks and the owner was paying his brother about $30,000 a year to do customer service work.

36:33
And by interviewing him, he was working about five hours a week and everything was canned responses. So he wouldn’t fire his brother, but there was enough logic there that I was able to do an ad back of about $20,000 and then put an expense in there for a VA to outsource it, to overpay a VA, you know, $10 at 20 hours a week. you have to physically put that in place before? I guess it’s just all part of the negotiation. Yeah. Ideally, ideally if you can.

37:03
Usually it’s usually it’s high skilled workers that you want to put in place first, right? Don’t worry about the VA’s because if it’s VA, you know, it’s it’s it’s delicate, right? If you can do it, do it. Because if I’m your buyer, Steve, I’m going to tell you, look, man, I don’t hire anyone but US employees. And, you know, I pay a minimum of $25 an hour. So that’s what we’re going to do as an adback. Whereas if you go ahead and find a better educated person in the Philippines,

37:33
and have them do the work at a high $10 an hour, it’s definitely in your benefit. You do it for me, you get it done. I can’t argue the facts. And it’s already on the books. Yeah. Joe, I want to switch gears a little bit. You did mention FBA roll-ups. Can you just kind of talk? I mean, it’s been all the rage right now. Can you just comment on them and how it differs from just like a traditional deal? Yeah. So I don’t know if it differs from a traditional deal.

38:02
be honest with you, other than the fact that, you know, initially their focus was on FBA businesses only. Right. For the most part, that’s what it is. Their focus is on FBA businesses, but there’s so many of them now. Um, you know, anybody that owns an FBA business has gotten an email. Hey, we love your business. It’s amazing. We’d love to buy it. You know, we’ll pay all the cash and clothes in 30 days and you can avoid the broker fee. So it’s all too good to be true. That sounds attractive, right? mean, if someone can, very flattering. Yeah. Yeah. Very flattering.

38:32
and dangerous. Right. What’s the catch? Yeah, there’s always a catch, right? We can get into that for sure. But their impact, the FBA aggregators, their impact on the industry has been phenomenal, right? So now we have middle market players, people with lots and lots of money going, hey, these FBA businesses, wow, they’re selling at a pretty low multiple. Let’s buy them up. Let’s put them in our portfolio.

38:59
And because of the size and breadth of our portfolio, it’s de-risked. Therefore the multiple is going to be higher. So they’re buying things initially at two to three times, putting them in their portfolio and it’s immediately worth 10 times. lots of, lots of equity there for them. But now that they’re all competing against each other, it’s pushing the multiples up for FBA business owners. And it’s overflowing to other areas as well, because they can’t buy enough of these FBA businesses. have too much money.

39:29
and they need to allocate it. So they’re starting to look beyond FBA and go, wait a minute, wait a minute. Why can’t we just buy that Shopify brand, own it, and then use our FBA team to get it launched and rocking on Amazon? Oh, wait a minute. Let’s allocate some money to buy some content sites. I don’t care if it’s got a product in it or not. And then run our ads, run our product ads.

39:55
you know, to that content site so that people are clicking on it and going and buying our FBA products on Amazon. So they’re, they’re, putting them all together now. In fact, we got an email from one of the aggregators where they’ve set aside eight figures to buy content sites recently. So they’re all going to end up taking their eye off of just FBA and it’s going to benefit everybody else as well. don’t want to generalize here, but, uh, you know, when you see like a sign that says, Hey, we buy houses. Yeah. I don’t want to like,

40:25
make these rollups sound like that, but to a certain extent, like they’re just advertising the ease of the sale, right? Would you agree then that if you were to just go through the whole sales process by yourself, you could probably get more money than what a rollup would offer you individually? Is that too much of a stretch? Not necessarily. If you’re doing the same thing, you’re just going through the whole sales process yourself and trying to sell it on your own to one buyer.

40:52
You know, there’s, there’s a number of things that you’ve got to do. And, and, you know, one of them is create competition, right? So just imagine going on shark tank, you know, you’re excited, you’re going to pitch your brand. You’re going to get lots of money from the sharks. Maybe you get all four of them, but you go in and everybody else, everybody calls in sick, but Mr. Wonderful, you know, you’re going to get a crap deal. It’s going to be a royalty deal. He might even say you’re dead to me. You never know. So I think the important thing is, you know, when, you go,

41:21
Back to setting goals and calculating discretionary earnings, then firming up your value so you know where you are and how close or how far you are from the business. You know, when you’re ready to sell, you need to do it in an environment where there’s competition. Just by these aggregators competing against each other, the values have gone up. So if you get an email from an aggregator or anybody that says, Hey man, I love what you’ve done. It’s a perfect match for me and our company. will pay all cash in close in 30 days. What do you say?

41:51
You say, sounds great. Let’s talk. And by the way, I’m talking to, you know, 30 other people that do what you do as well. That’s going to get their attention and make sure that they’re not thinking just about themselves and trying to rake you over the coals. You want to make sure you’re getting the best deal structure, the most cash negotiating, all the little nuances and terms that can sometimes be really scary and tricky with these guys and what they’ve done. You want to definitely learn about all those deal structures.

42:21
Can I give you an example of one of the things that they’ve done, which is just stunning? I want, when we’re all done here and anybody listening, I want you to Google the words to stability payments. When selling your online business, you’ll come up blank unless my site, you know, brings it up and it was only launched a month and a half ago. So probably not, but they’ve made up a term stability payments, right? They are trying to buy your business with as little cash as possible.

42:50
They say they’re buying all cash. They’re not, you know, they’re going to pay as little cash as possible. One of the things that was a big stickler early on was they’d say, look, this is a risky business. So we’re going to hold back 10 % in escrow. It’s there. It’s your money, but we’re to hold it in temper in escrow and we’ll pay you that money in 12 months, as long as the revenue of the company is within 90 % on the day of closing. That’s dangerous part. if it’s 89.999 %

43:20
and you sold the business for $2 million, you lose $200,000. So this is the danger of doing it on your own. You’ve got to go in and you’ve got to understand the nuances there and say, all right, well, look, I’m good with 90 % or above or 90 to a hundred percent. I’ll get that 200,000. If it’s 85 to 90%, I want 175. I’m not going to zero. If it’s 80 to 85, it’s 150 and so on and so forth. And then you can say,

43:47
Look, I’m happy to do all of that. And then if it’s a hundred to 110, I want 225,000. If it’s 110, it both ways. It can go both ways. Yeah. Uh, and then they’ve, they’ve also convinced sellers. Look, these guys, I like these guys are likable. I mean, they’re some of your customers too. would imagine, right? Oh, absolutely. They’re intelligent. They’re well-educated. They’re kind. They’re funny. They’re complimentary. You want to do business with them. And that’s dangerous.

44:17
Because if you’re only working with one of them, you’re not going to get the best deal. So you want to definitely have them all competing against each other for your business. But they somehow managed to get the buzz out there that they pay profit sharing plans. Basically, Steve, I want you to tell me what you how you would define this structure. I’m going to buy your business for a million dollars, but I’m to give you seven hundred thousand dollars.

44:44
And then I’m going to give you a 10 % of revenue up to $300,000. You know, that three, the 10 % sounds like a Mr. Wonderful deal. It’s, it’s technically an earn out, right? But they somehow flipped the scripts and got folks thinking it’s, it’s, it’s a profit sharing plan. And it might be because they, you know, instead of giving 10 % of the revenues, they actually give 10 % of the profits.

45:12
Right. So it’s a profit sharing plan. It’s an earn out people. It’s just got a pretty name on it. But it sounds better. It sounds so much better. And you know, these guys have done some things, you know, quite like it’s been around since 2007. And, know, we have not been able to reach the volume of people and educate them the way that these guys have, you know, in terms of, hey, you can make a lot of money when you sell your business. So they’ve been good for everyone, I think.

45:40
Except individual buyers. have to say for individual buyers that are trying to, you know, buy a great brand, it’s become very tough because there’s now so much incredible competition for it and all the values have gone out. There’s no more great deals anymore. I don’t think I think the main attraction is just the ease of the transaction supposedly, right? I mean, plus the fact that there’s no fees. I actually, I just want to ask you real quick, like realistically, if I wanted to sell my business, how much would it cost me to sell?

46:09
and what would be the timeframe? Yeah, definitely want to answer those. I’m going to do it with an example. So we’ve got someone that we’re actually going to do a how much going to give away here. I can’t give any details. Let’s just say this person had an F had an aggregator approach them and said, hey, we love your business. Yada, yada, yada. And it’s actually a really well known one. Let’s just call it one of the top 10. Call anybody out.

46:38
They ended up offering $2.6 million for her business. Now she had bought it 18 months prior for about 1.2. So that’s a pretty good return on investment for her, but she wasn’t convinced that that’s what the business was worth. She’d been listening to our podcast. She’d been listening to a lot of other podcasts as well and said, yeah, I don’t know. I don’t think so. I need to just talk to some different folks. So she got on a call with Chuck here at Quiet Light. Chuck ended up

47:07
listing the business and getting it sold for $5.5 million plus inventory. That same aggregator made offers way above 2.6, but they didn’t get the business. had seven offers altogether. so they offered her all cash, closing 30 days, great deal. Don’t worry about it. Don’t pay a broker fee. it wasn’t a good number. I saw the emails.

47:34
they really were convincing telling her why her business was never going to sell for more. It was one skew, basically, with three variations and things of this nature. It made you go, wow, these guys are really smart. It makes a lot of sense. I guess I should just sell it to them. It changed her life, really. Chuck did with a 5.5 number. did she pay more or save money on the broker fee by selling to them? No, because she made an awful lot more money.

48:03
even with the brokery involved. So the broker fee is, uh, it’s called the modern Lehman scale, not the Lehman scale. It’s a, it’s a success fee. First and foremost, we only get paid if the business sells and then we get paid a percentage of the total rep of the total transaction value. So we’re very motivated to make sure you’re getting maximum value, right? Whereas an aggregator is very motivated to make sure you’re getting as little as possible with as little as cash as possible. Cause that gives them

48:32
cash on hand to go buy other businesses. So it’s the modern Lehman scale, which is 10 % on the first million, 8 % on the second million, 6%, so on and so forth all the way down. think we lock it in at 3%. So it varies like that. And we only get paid if the business actually sells. mean, basically to sum it up, like when you’re working with an aggregator, they don’t have your interests in mind. Whereas if you go with the broker, they’re on your side. And the key here is to get multiple buyers to compete against each other.

49:01
And that’s just not going to happen in the aggregator unless you go out and find multiple aggregators yourself and do your own legwork. Which is doable these days. Look, let’s face the fact that’s doable. can find a list of 50 of them. You can reach out to all 50. But if you haven’t properly calculated it, sell as discretionary earnings, you haven’t done all three levels of ad backs and all six levels below it, you are definitely going to lose some money. So by doing all of that work right,

49:30
Any any advisor that’s that’s good at what they do is certainly going to earn you more money and keep you You know, you’re gonna have more money in the bank at the end of the day even with the fee That’s what I mean an aggregator is not going to help you calculate your ad backs, right? No, not at all. Yeah, exactly Joe let’s talk about ex-apprentice What did you talk about in it? Where can people get a hold of it? Yeah, it’s called the ex-apprentice playbook and I wrote it because it had to be written Steve there’s

49:58
You know, certain people that are in this audience and beyond that are comfortable setting exit goals, doing their own calculation, and then firming up the value of the business by talking to an expert and advisor like myself or somebody on my team. But there’s tens of thousands more that never want to do that. Hey, have a conversation with somebody step. So I wrote the book, everything we do, everything I know, everything I’ve done in the last 10 years through.

50:24
a hundred million of my own transactions and a half billion through the entire team here at QuietLight is in the book. We go from talking about why you would sell versus hold your business. We talk about some epic failures that I’ve had that others had some great successes as well. A lot of things that are motivating and very relatable stories. But then we go through everything from how to list the business, how to calculate discretionary earnings.

50:50
negotiating deal structures, what all the potential deal structures are with or without an aggregator. it’s a SaaS business, content business, product business, it doesn’t matter. Everything you possibly imagined from, hmm, I think I’d like to sell my business someday to I just sold my business. done with through training and transition and I’m comfortably taking some time off and we’ll eventually do this again. It’s, it’s everything that’s involved in the entire process and it’s very

51:20
at your fingertips type of thing. know, somebody said, well, why not just put this all on a website? And as you know, because you ended up only up by, you know, my, my fault or yours, I can’t remember which you only have the digital copy of the book at this moment. And I’m not talking Kindle. You’ve got a PDF version of it, which is really hard to read. You can’t bookmark it. You can’t dog ear it and things of that nature. Um, and you always have to have your computer or something with you in order to look at it. Whereas the book.

51:48
Whether it’s a Kindle that you can highlight or a paperback or hardcover, you could put on your nightstand and just take it with you or refer back to it when you need to. It’s bite-sized pieces of information that I think is absolutely critical to making sure people get a maximum value exit when they want to. And with a deal structure, that’s really best for them. I’m old school, Joe. I always prefer a paper copy. Me too. Me too. Mark’s like the new thing. He highlights everything in a Kindle.

52:18
I’m an old school. Of course I have to wear readers now. So Joe, if anyone wants to sell their business and they just want to reach out to you directly to ask questions, where can they reach out to you? I think that if they’re already in the mindset of wanting to sell their business, they should just go to quietlight.com. Okay. Fill out the valuation form. One of the advisors on the team will set up a discovery call and have a conversation. And that’s just to

52:46
Get to know you and understand your business and what your goals and objectives are. There’s no pressure. Everybody’s just here to help. We prefer to have conversations 6, 12, 18 months in advance of you signing engagement letter because your business is going to be better prepared. It’s going to be more valuable. Things of that nature. If you’re not ready to have that conversation and you want to dive into the Exitpreneurs playbook, you can go to exitpreneur.io or just do a search for Exitpreneur on Amazon.

53:16
I mean, I would start with the book, uh, cause it’s probably going to explain a lot and then you’ll go into any conversation a lot more educated as well. Yeah, honestly, I would start with a book too, you know, unless you’ve been there, done that and you’re ready to have a conversation and you’re ready to sell. Um, but the book, I know I wrote it, but it is going to give you everything you need to let’s, you’re not going to have a black belt necessarily here, but you’re going to have a blue belt, right? You’re going to be just, just

53:44
well enough educated and understanding to do pretty well on your own and get really motivated and excited about operating your business. I’ve seen time and time again through conversations that I’ve had that last for months and months and months where someone gets really excited about holding the business even longer because now they understand what the real value is going to be on that exit. I think that the book is going to do the same thing for people and it’ll make those

54:14
tough days that we all have as entrepreneurs a little easier because you know you’re working towards a specific goal. Yeah, so I’ll post the link in the show notes for this episode and I literally just read the book right before this interview and it is very complete. is years of conversations with Joe all documented in a nice concise way. So Joe, thanks a lot for coming on this podcast and I appreciate you, Thanks, man. Appreciate you too. Hope you enjoyed that episode.

54:44
Now if you are even remotely interested in buying or selling your business, then I highly recommend that you check out Joe’s book called The Exitpreneur, and there’s a link in the show notes. For more information about this episode, go to mywifecoderjob.com slash episode 369. And once again, I want to thank Postscript, which is my SMS marketing platform of choice for e-commerce. With a few clicks of a button, you can easily segment and send targeted text messages to your client base. SMS is the next big own marketing platform, and you can sign up for free over at postscript.io slash d.

55:12
That’s P-O-S-T-S-E-R-I-P-T dot I-O slash Steve. I also want to thank Clavio, which is my email marketing platform of choice for eCommerce merchants. You can easily put together automated flows like an abandoned card sequence, a post purchase flow, a win back campaign. Basically all these sequences that will make you money on autopilot. So head on over to mywifecoupterjob.com slash K-L-A-V-I-Y-O. Once again, that’s mywifecoupterjob.com slash K-L-A-V-I-Y-O. Now, when I talk about how I these tools on my blog, if you are interested in starting your own eCommerce store,

55:41
Head on over to mywifecoderjob.com and sign up for my free six day mini course. Just type in your email and I’ll send you the course right away. Thanks for listening.