243 : Mark Daoust – Interested in selling your Amazon, Ebay, Shopify ecommerce store?
The more I spoke with Mark, the more I realized selling an ecommerce business is really complicated. Consider where you are selling, what you are selling, how long you have been selling. how much you have been selling, your standing on the site, your feedback, your vendors, your gross profit, your net profit and even more. The real question is your ecommerce business worth anything today and even more tomorrow? Seems waiting and getting your house in order is the smart move and Mark’s advice can help you get the most value.
ps.. And YES, I ask the sales tax question.
Mentioned:
Sponsors:
Gaye’s Million Dollar Arbitrage List
Transcript: (note- this is a new tool I am trying out so it is not perfect)
Stephen: [00:00:00] It just want to jump in and mention my sponsors doing them all in the front. So I hope people appreciate that that’s kind of a new thing that’s been going out in the podcast world and this episode is such a great episode. I’m so excited and I really am. Gail is BS. Interview I hope you listen to that number to 38 and it just blew me away because she is the real deal that arbitraged group she’s running is just rocking it. I’m in it and I’m watching just people just knocking it dead. And you know for$149 for you to be able to get in there. There is a free week that she’s giving if you go through my link and I have a link on this episode. But I mean to me that’s how you can build up this Q4 and if you even can’t get it get on the waiting list because she’s going to pull from there when somebody drops for whatever reason.
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Stephen: [00:01:23] Ultimately that’s how you get the buybacks. You got to know what people were searching for. You put that in there you get that adjusted to know exactly what they’re searching for and boom you get found right being found on that page one. How do you do it by knowing the right keywords. How do you do that. Look at your competitors and use their keywords. That’s how you do it. And sculp allows you to do that. It’s just a powerful thing. Solutions for e-commerce. Karen Lochore you’ve heard me talk a lot about her if you haven’t met her. You should. Smart lady who knows what she’s doing. For example today had four items where I forgot what they called it were flagged for quality.
Stephen: [00:02:00] They were quality alerts. That’s what it was and turns out there’s an image issue and she’s like well yeah there’s Amazon’s now making a change it has to be 80 percent blah blah blah blah blah. I’m like I’ve lost interest already. Could you help me. And she’s like fixed. That’s the value of having an account manager. Right. Or when I get those calls Hey I’m calling about case number blah blah blah like that goes to my other person and that just happens to be my team member who happens to be Karen her team solutions for e-commerce dot com slash momentum. Saves you 50 bucks. You’re going to say 50 bucks and she’s going to do an inventory health report for you. To me that’s how you know what inventory’s healthy. Q4 you still can get some inventory out of this recording for free.
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Cool guy voice: [00:04:20] We’ll get the e-commerce momentum. Good guys. Well we’ll focus on the people the products and the process of Commerce selling today. Your host Stephen Peters welcome back to the e-commerce momentum podcast. This
Stephen: [00:04:36] is episode [2:43]. Mark Doust you know my mind raced so much talking with Mark because I couldn’t get the questions out fast enough because I immediately went to another scenario and what I think I did wrong in my thinking is I keep thinking worst case scenario thinking of every little detail. And it’s funny you know the more I talked with Mark the more calm I got because it sounds like they’ve seen a lot of things. Mark represents a company actually started a company called Quiet Light brokerage where he took and sold his e-commerce site actually I think it was a content site back then but he sold it and he tells the story how he sold it. He almost sold it for a little bit and waited and then got out. However just about doubled in value and he tells about why. I mean I think that’s so important.
Stephen: [00:05:27] The other thing I did get to ask him but it was all the way at the end. I’m giving you a heads up is the sales tax question it’s a big issue. Probably no big surprise what his answer is but I think it’s important. Let’s get into the podcast.
Stephen: [00:05:40] Welcome back to the e-commerce podcast. Excited about today’s guest. And I think a lot of people are going to be excited to hear what he has to say about possibly selling one of your e-commerce businesses and your web site. Is there value is there a way to sell it or have you been working for nothing and he’s going to explain it to us Mark Doust. Welcome Mark. Hey thanks so much for having me. It’s great to have you here. But I say it the right way and you have a company called Quiet Light brokerage quitely brokerage dot com is the Web site and you specialize you and your team specialize in selling e-commerce or content sites on the Internet. Correct.
Mark: [00:06:25] Yes we do anything that’s online as well as an online business sace content Amazon you so you’ll even sell software. OK. OK. We’ve done some of that. And and even some services but really the bulk of what we do if you breaking down into like a pie chart the most of what we do is going to be e-commerce followed by SAS followed by content that’s going to make up 85 percent of what we do.
Stephen: [00:06:48] Well I’m going to jump to the last part where you mentioned that you actually helped sell some services. What kind of service type of business have you helped sell. Because I assume it’s related to e-commerce or you know online somehow. Yes.
Speaker 7: [00:06:59] I mean it’s got to be online. So we’ve done we’ve worked with people that have the agencies or web design firms. We sold one business that the custom business card printing which was kind of that blend. It was the service but also e-commerce as well.
Stephen: [00:07:16] Right. And who knows if they printed it sells right. I mean I guess you would know that but I mean generally you don’t have to anymore. There are so many brokers out there that broker deals in the old days it was in the print business that was one of the things they did get away from it. Now it seems to have come back where you know lots of stuff is done by third parties. I have a friend who sells labels for example food labels for him because he bought dressing and they don’t even print him anymore. They outsource that. And so for all those years they did they now are just a broker and so they mark it up make a little bit of a vague on it and that’s the way it is. And so I’m assuming there’s quite a few of those kind of businesses out there that outsource a lot of their resources. Correct.
Mark: [00:07:59] Absolutely. I think that’s very much the style of most internet based business. There are some people out there that are only in the process from beginning to end. But one of the appeals of the Internet world is the ability to outsource and to be able to personally within your own circle within your own business keep a fairly light infrastructure as to what you actually have and be able to pull in different parts and you can really get away with that in the airline world and it makes sense to do that in the online world.
Stephen: [00:08:29] Well is two questions. One are you seeing more of that where you know companies are you know especially ones that you sell have fewer and fewer true employees and more contractors. And two does that weaken the position of the company or enhance it. So
Mark: [00:08:43] I’m actually split. If anything I’m actually seeing light nudged not a not a huge push but a slight nudge towards bringing in your own employees and own resources and I think it’s sort of the maturation of the industry. But five six years ago dropship was a big thing. At that now. But most businesses are dropship and then if you dealt with a company that had its own inventory that was kind of a rarity. And now you’re seeing this push towards owning a warehouse space or owning the manufacturing process all the way through because there are certain advantages in that especially from an exiting standpoint and protect against competition not that you can’t do that in other places as well or other business styles as well. But I see no point as to whether or not it weakens this position there is there there’s a double edged sword right.
Mark: [00:09:39] From an exit standpoint if you own the employees of own people but if you have your own employees as opposed to contractors if you have a physical warehouse space these things help make your business more defensible from competition. But at the same time it makes it more difficult to transfer. And so you have to find a buyer who’s willing to take on the actual labor there. So depending on the size that the businesses I would tend to say it strengthens the business a little bit but it comes with something of a cost as well.
Stephen: [00:10:09] It’s not location independent then right if somebody has to shut down a plant or a warehouse and then move it to another state that complicates things especially depending on the size. Right so you’ve got and in my state they had the warning. If you have X number of employees that you’re going to you know terminate in and it just also doesn’t make it very popular when you sell it. Right. Nobody likes to see a company get shut down or all the people let go. Right. And that stuff now a days would be put out into the social media world when the old days. I don’t think anybody ever noticed. So. So let’s go back to why you’re in the e-commerce mostly and the online selling world. You were in college when you started your first web site. What were you doing. Boy I think it was 1998 the first web site that oh my god. 1998 was no Internet then. Al Gore didn’t invent it yet.
Mark: [00:11:05] I don’t know who lodged in court on that. So what is this thing. The first business that I started is outside of college. I got a job with an Internet firm and they provided really well what were you what was your major. My major was business and it’s just unusual though.
Stephen: [00:11:24] You got a job with an Internet firm unless you lived in California. That’s unusual.
Mark: [00:11:28] It really was and I lived in a real college I went to was a small school called Franciscan University of Steubenville Steubenville is this all. Oh yeah sure deal town is famous for one thing. Dean Martin used to live there. He was born in. Is that right. Anyone that you talked about didn’t believe they know what they’re like. Oh Di Martin was raised there. Yeah. That’s where he was in a small Internet firm set up shop there. They had offices in Baltimore Maryland and they set up a shop in Steubenville Ohio. Why. I don’t really know but they were the first C-PAP. Everybody knows the panel. If you’ve ever had a hosting account you’ve probably encountered panel to manage your hosting environment. Well they were on the panel before the panel was spat on. In fact the company that started that modeled off of what we were doing.
Mark: [00:12:15] So I got my first job out of college working for them I was an account manager and dealt with all sorts of different clients. And after two years of working with them I got let go from that position and started what I called being professionally unemployed. I was pretty dejected and thought you know if I can just get like all like that why should I work for another company. Let
Stephen: [00:12:37] me stop you there a second because I want to understand when an account manager does. What skills did you learn from that it was relationship based.
Mark: [00:12:46] OK. So the account manager in my position there I was there to act as the friendly face for the company to the customers or pain ongoing like a liaison and then that way they didn’t have to deal with the coders. Exactly. And I would also be there to remind them when they needed to buy more services and upgrade various things. And so it was a sales position. Got a salary got commission on top of that but it was very much relationship based sales so and was the Internet taking off at that point yet or now. So that was the first dotcom bubble and that was my rude introduction into the world of the Internet.
Stephen: [00:13:26] So that’s why you were let go so that it is not performance based or you know whichever it was clearly you were a you know just a cog in the wheel that just got broken because the car stopped moving.
Mark: [00:13:39] Actually no it was. I got let go after that. So what the way it happened was I moved or got that position and I had just a handful of clients was like three or four clients at the time and we had about a 30 person staff managers and salespeople and we walked in one Monday morning and something was happening and next thing you know of the 30 people that were employed they kept four of us and I was one of the four because I was new and I was cheap. Now my client list went from three or four to 220 clients. Did
Stephen: [00:14:12] they run out of money. I mean was it you know was it OK. So it was funded in the funding ran out.
Speaker 8: [00:14:17] Happens like so many companies that by the time the valuations were you know VCs were just throwing money at these companies but they didn’t have a real revenue plan at all. And so they quickly were running out of money realized we need to cut staff after medically. We’re going to the cheapest guys which are these guys we just hired and oh by the way you just went from three or four clients up to 220. You need to call every one of them and tell all your clients that were doubling their rates their monthly rates and that’s popular. So you’re the popular guy. Yeah. Those are some very interesting phone calls.
Stephen: [00:14:49] How many of them stuck. I mean so out of 220 clients how many of them stayed.
Speaker 8: [00:14:53] Almost every one of them because it was a very very sticky product so our company provided the back end of structure for web hosting companies. So if I wanted to start a web hosting company I could either set up a bunch of servers and have a full technical staff and everything else or I could go with this other company and they managed all that for you. They had those servers they have a technical staff they have the software the buildings after everything else so it made it really easy talking about outsourcing made it really easy to just set up a Web site they were a web hosting company and you’re basically reselling web hosting services. Well it was really hard for these people to move off the service because they would have to set up the infrastructure move all the clients and it was not something that people could do very easily. So we lost very very few clients. Do
Stephen: [00:15:37] you think looking back at that because I think it’s a it’s an interesting point. It’s almost like a bait and switch right basically hey bring them in at a low cost and then once they’re hooked like the heroine they can’t get off then you can raise your prices. If they had raised their prices right from day one if they just charge the if if if the new cost was the right cost if they would have charged the right cost from day one. Do you think the company would have lasted.
Mark: [00:16:04] That’s a good question. I don’t know. I don’t know. The company later on got bought out. And a lot of those clients you know I save that we kept all those clients. But a lot of those clients started putting their new customers with different.
Stephen: [00:16:18] Right they started to be planted there like nobody else. Just like you know nobody else is going to hold me hostage ever. Right.
Mark: [00:16:23] I mean that’s what they’re thinking. It was a lesson it was a lesson for everyone. Wouldn’t be dependent on this one vendor because they can absolutely take us to the cleaners. And so yeah we did lose clients in that way and then eventually when a lot of them outgrew our services they moved up to you know two or three years. So it did hurt the business in the long run.
Stephen: [00:16:44] You know when you sit and think about that that’s so relevant today you know in a lot of listeners to the show here are going to be mostly Amazon right because that’s the hot place to be right. Easiest to. I mean it’s not easy to manage but it’s the easiest to get listings done and all the rest just right. However there are lots of listeners who have been suspended right their whole business has been shut down because they only have that one and lots of people have gone out of business because they put all their eggs in a basket bar the money bought a bunch of crap didn’t sell or then get shut down and boom they’re out of business so there’s a lesson that’s very well established today.
Mark: [00:17:19] I’ve been saying this for a little bit now about Amazon businesses because we see a lot of them come through people that are sign that hamazon businesses and I’ve had some buyers come up to me and tell me that they wouldn’t touch an Amazon business because they’re worried about them. I think there’s tons of opportunity there. I think that you can create a sustainable Amazon business that is protected from that. But I would always recommend and diversify and outside of Amazon once we’re able to do so I wouldn’t I wouldn’t even look at a business if it was Amazon only.
Stephen: [00:17:50] And in the end I think I think every vendor is saying the same thing because today correct me if I’m wrong it’s simple to diversify off of Amazon now whether it will sell anything will sell that’s another issue. But to get to another channel is very simple correct and automated it. Yeah absolutely. Absolutely. OK. And so. So your advice is that. So I have an Amazon business and I come to you for advice. Is that one of the first things you look at to say is this an Amazon only business or is it start a lot deeper than that.
Mark: [00:18:24] I mean it’s going to be one of many things that we look at. So
Speaker 7: [00:18:27] if somebody wants to sell an Amazon business they might come to us to figure out how much is this worth right now. So we’re going to do an entire valuation. We’re going to look at things like our private labeling or are you reselling. Are you picking and listing all these things really affect how much your business could potentially put all of them can be sold.
Stephen: [00:18:47] Correct.
Speaker 8: [00:18:48] Most of them can be sold. Those that can’t be the people that are picking and listing so people or garage sale shopping looking for deals and then release them on Amazon.
Stephen: [00:18:58] That that’s not something that really transfers over. Even if even if I just want to make sure I’m clear on this because somebody just mentioned this to me. They there’s somebody out there and of course and they sell a million dollars of used merchandise on Amazon so they buy Actually I think that the way the model works is they buy Amazon returns you know truckloads from Amazon and then they sell it back on Amazon However they don’t misrepresent it they sell what is used like new or whatever that whatever they’re allowed to do that model and they’re selling a million dollars or. So they have a stent. They have a pretty good source right. I don’t think Amazon is going to run out of stuff to well right and they’re there it sounds sustainable it sounds like it’s scalable because to be able to do a million you’re clearly at scale with that so yeah that could sell.
Mark: [00:19:44] So that’s the exception. One key that you have to keep in mind would be the transferability Can somebody else do this. And when I say that the picking and selling what I’m talking about are I run into Amazon sellers are doing some good amounts of money but they’re going around to lot garage sales and finding old records and throwing them out putting them up on Amazon. Right and so they buy them for a buck and they saw him for 10 15 bucks and that sort of thing is much more difficult to sell because it’s not as transferable skill and what you’re personally doing and being able to identify that inventory is not very scalable either but what you’re talking about is something different. There’s a system there and that system can be relegated to standard processes. That’s something that can transfer over. So what we’re looking for would be defensibility from competition.
Mark: [00:20:33] How defensible is it. And also was it transferable to somebody else can somebody else do what you’re doing and do it as effectively as you can. If those two things are there and there is money being made then yeah that’s probably going to be solvable.
Stephen: [00:20:46] Okay. And so the multiples then or you know a million other factors but those those two things are technically three things. Like you said is there money being made those make it possibly worth someone else somebody else would be interested. Does the length of age of your account and the categories that you’re approved in affect the number means you’re going to blink. Of course Steve but just want to make sure I’m clear on that. Yeah it does.
Speaker 7: [00:21:16] And the older that the account is the better buyers and people that are going to write a check for six or seven figures for here your Amazon business want to see enough history so that they can understand the sustainability of the business. The more history you have the better the categories do impact especially if you’re in a protected category because obviously that’s difficult to get into. And there’s some defensibility from competition. So the categories can influence positively.
Stephen: [00:21:45] Okay. And and in fact if you had daily payouts from way back those kind of things would impact too. Absolutely. Okay. All right. So I mean that’s common sense stuff and I apologize for that but I just want to make sure people hear that when they start thinking about these things. So the criteria again to go back to you know if there’s a business and it doesn’t have to be names on it could be an e-Bay business correct or Etsy business or Shopify site right. All of those are people led by non-city. Oh that’s interesting. So and yet you can’t transfer it at the store even though I show you how to make the most unbelievable wool socks that I knit personally in my living room. Can you mention it. And I teach you how Misty stitch it’s patented. I mean it’s amazing stitch. And I teach you that skill set and then you then take it over they will not allow it to sell.
Speaker 7: [00:22:37] Now they don’t have the strictest of the lot. And we’ve run into some issues with the only way that you can sell an account that we’re aware of would be having the buyers set up their own account and then directing all of your sales over to them. But you’re going to take an absolute hit on what what you’re getting for the business because of that. So it’s possible I guess I would say it’s possible and maybe those things would change. But right now we actually just had a deal recently that would have been well in the six figures close to seven figures where it got dismantled because the terms are pretty ironclad and ETSI themselves has proven to be pretty aggressive in enforcing this. You have to own the process yourself. You must be manufacturing the materials yourself. They’re pretty aggressive in enforcing that.
Stephen: [00:23:30] So that’s and did a deal for you. So what. What if I want to continue going forward. I then just have to start a brand new store. Correct and proved to ETSI that I’m making it now in my. Steve stitches. Now Mark stetch right I guess is what you would say.
Speaker 8: [00:23:48] And then you would have to prove that that’s being made and then meet their requirements but basically start from the beginning which is a challenge if you’re starting from the beginning but maybe with like a little bit of a pushiness is the only range that I can see working with ETSI would be the seller agreeing I’m going to keep my store open and when I get orders I’m going to contact people and say I’m not making this anymore go over to this place or make him on the exact same way I did before. So you could do that. You could set up an arrangement like that. But instead of getting you know a two and a half or three time multiple on your earnings you’re going to take a much lower multiple. I don’t know what that number is just yet because we haven’t seen that done yet.
Speaker 8: [00:24:25] But yes is that just kind of a thorn in my side. There are big market players who can make lots of money on the you can do a lot of really cool things with that. But you know with all these platforms keep in mind most of these companies they own the information they own the store their customers there.
Stephen: [00:24:44] So that’s right. It is their customer not your customer. And that’s really important. Well let me ask you this. All right. So I think about that so now I have a Shopify site because I’ve added it right. So and this is probably going to be another dusty. Of course you have an Amazon store right. You’re merging some listings over on eBay doing you know a Joe Lister Casey whatever whatever you’re doing and you’re bringing him over to a bonanza new NG any of the other you know 20 sites out there. Things are going well. However again I sit back and I don’t own a customer now I go and start a Shopify site and you know Shopify integrates with Amazon and shortly it’s going to integrate with ebay and I start driving traffic you know by Facebook or Instagram or whatever it is.
Stephen: [00:25:29] How valuable is that Shopify site now that I have a customer base and I have some kind of you know customer service software managing that. How much more valuable asset a company because of that. In my opinion it adds fairly significant value and it’s got to be the most. I mean is it the way to enhance it. You’re doing millions on Amazon. Is it the biggest factor you can do to multiply some more value out of that existing Amazon business.
Mark: [00:26:02] The biggest. Probably not. Probably not. But keep in mind that that there are so many factors that influence value for any individual business maybe. So for your business maybe that’s the number one thing and this is something that we do for people all the time right. They’ll reach out to us to find the value of the business now and we’ll help them identify. You need to do X Y and Z.
Stephen: [00:26:25] These are the things that are going to make your business more valuable and if you do these things your business is valued at you know 3x right now. However we’ve seen other businesses now go to 4 X because of these things. Is that kind of the way the advice goes. And
Mark: [00:26:40] then you can to do the math. Exactly I mean those multiples might be a little bit high for what we are getting for e-commerce businesses but the concept is right. Right so we might come in and say right now your business is worth$1.2 billion. If you do two to three or four things it’s going to increase up to maybe 1 point or 1.5 million. One of the most dramatic examples we’ve seen was a business that over the course of a month and a half change has valuation from I believe was around$350000 over$700000. Whoa. So they doubled their value and how many months in about a month and a half. And I’ll tell you what all involved it was the way they were keeping their accounting books. And that was it.
Speaker 7: [00:27:23] It was just a matter of accounting and doing the accounting properly. So the thing that I always say is most in your control would be your documentation getting the accounting right getting clean getting it really really well organized I mean super organized you can add a lot of value to your business just by doing that. The fact that most influential on value would be the trend of your business. So if it’s growing or staying the same or shrinking that’s going to lead to the trend of the category or the trend of the business period trend of the business period specifically talking about the revenue and the earnings of the business. Right. Your top line and bottom line numbers. How are those going. Because if you’re if you’re starting to lose money or maybe the revenues starting to dip these are kind of warning signals that they’re going to really kind of deflate the value pretty quickly. But if you’re growing at a steady pace let’s say that you have three years of 10 to 15 percent growth and that’s phenomenal. That’s good.
Stephen: [00:28:15] That’s going to be something that’s going to add a lot of value to the business and the fact that it’s an Amazon and eBay not NFC won’t say them. That data is in theory more trustworthy. Right it’s kind of audited by an independent you know third party Amazon or eBay right as long as the reports you know aren’t doctored or what have you. That really helps helps show that those those aren’t just made up numbers and wishing numbers right where we would have done 10 percent. But you know you know there’s a story this is real. All right and it’s trackable and it’s easy. And again it’s third party.
Speaker 8: [00:28:52] And that certainly helps. But don’t stop with that. I mean you definitely want to have good numbers on everything else in your business. Your inventories specifically. Right. This is one of the things that’s really hard to track. But it needs to be tracked well. So yes having those those marketplaces helps because you do have that third part of reporting when you’re selling your business and going through that. It all comes down to that third party documentation. Do you have it you need it. And does that properly reflect all the things in your business. All the elements of your business so you know we recommend people to start collecting that obviously from day one but at least 12 months before you decide to sell your business. If possible have that stuff collected recorded and stored and tax returns filed that tied everything right. I
Stephen: [00:29:39] mean that’s a pretty big important one too.
Mark: [00:29:42] Yeah absolutely and people get worried about that because they say well you know I don’t want to pay a lot of taxes so my accountant reduces the income by using things like amortization depreciation you know various accounting things which are totally legitimate and that’s fine. You know people people need to understand that there’s actually a process we go through that accounts for that. It’s almost as if there’s two sets of books but what we show people when we’re doing evaluation is we want to get in on how much does business actually generate over the course of a year where an owner can spend that money at their discretion. Right. So we don’t count things like the owners salary or personal benefits we don’t count amortization or depreciation. I don’t want to get too accounting geeky on you here but I know that just so people know you know what’s on your income on your tax return. That’s not necessarily the number that we go off of but that’s a good start. We’re going to start working.
Stephen: [00:30:39] So they’re going to exclude a whole bunch of things because they figure you know structurally they’re going to they’re going to pick and choose what they want to do right. And so that that takes all those other things away. So if I take a huge salary just to minimize my my debt which probably isn’t smart. But however it might just just take a big salary that won’t affect the value of my business because that’s going to get excluded out. And then it’s going to be based on that number prior. Well that’s a question. So when I see that you’re selling at a multiple of three or three point four six or what have you. Is it revenue only or is it or I don’t see it. Is it some type of profit it’s some type of profit. So
Mark: [00:31:19] it’s called seller’s discretionary earnings. That’s the technical name for it. And what we do is we take a look at the expenses and the revenues and we backhaul amortization depreciation. We start with the bidder. So earnings before interest taxes depreciation and amortization. So we start with that number but then we also go through and we add back those things that fall into this kind of easy discretionary area. Right. You know taking out my Mercedes Aria will take out your discretionary time. Most internet businesses have that are a lot of expenses somewhere in there and you’re not really need.
Stephen: [00:31:58] My income isn’t me and I look good in it. Let’s keep it cool.
Speaker 8: [00:32:04] Are you going to add value to the business. We’re going to take out the owner salary because there’s so many ways an honor can pay themselves right off the distributions and through salary so we’re going to remove that. And how much you pay yourself is up to you. We’re going to remove things like true one time expenses. You built an app for your business. That’s something that’s going to happen once.
Speaker 9: [00:32:23] So we’re going to back off like that even making capital out. How so.
Stephen: [00:32:28] Well I bought a forklift this past year and I was able to deduct it as a one time expense without having to depreciate it because it met the requirements.
Mark: [00:32:40] Possibly it depends. We would probably back that out for the valuation purposes and actually never had that scenario so I’d have to look back to see what we do specifically. But my instinct would say initially Yeah we would back that out and then we would have to talk about whether or not that’s transferring over to the new owner. So those are the type of items that would get.
Stephen: [00:33:00] So the balance sheet doesn’t other than debt affect the valuation or it does usually it does not it should probably well inventory obviously what I mean that that’s a given right that would be a given. Right. But but fixed as well. I mean if I own a building obviously that’s going to affect it right and I guess those are extremes. So
Speaker 7: [00:33:22] what we’re actually going to do for the valuation is we’re going to look first at the earnings portion and we’re going to value the business based on the earnings. Now if there are other assets that are going to go along with the business such as inventory those get value separately and added on top so we might value your business as three times on the earnings. Right. And so if you’re making a million dollars per year discretionary earnings your business might be worth$3 billion and then we have to account for what the wholesale value of your inventory and we’ll throw that up on top. Are there other assets that are being transferred over such as a forklift or boxes. Right this is a typical thing. Boxes and shipment materials that we’re going to add those on top of that top of that as well. So those get valued separately and added up on top of the value of the business itself.
Stephen: [00:34:11] Nice. So consumables. And so I’m thinking about this right. I’m thinking of the guy who’s listening to this who saying I have a private label product. Have a patent on it and do it pretty well with it then moving it around on different platforms. Got a pretty good sales history with it for the last few years. Unfortunately like most private label products there is a shelf life to them and I’m thinking about do I want to get it out and sell it. Is it worth me getting a second Amazon store and moving that product over into that store. So when I do sell it I don’t lose all the rest of the Murcia all the rest of my business because I don’t want to go out of business. I mean what’s the logic there.
Mark: [00:34:56] So if I’m understanding the question correctly and correct me if I’m wrong but that would probably be problematic because when you sign a business a buyer is going to expect you to sign and non-compete.
Speaker 9: [00:35:08] Now there’s no I’m not going to make it again. So let’s say we’re selling water glasses because these things are really you know nobody’s ever seen these before. So I’m selling the water glasses and I’m selling guitar strings because that’s what I like. Right. So the business is going great. However the water glass business I want to sell that. So is it. Got it. You know that’s what I’m scenario so I’m going to get rid of the water glass I’m out of the water glass business I’m going to go play guitar and you know whatever. That’s the scenario I’m talking about and that will be fine Absolutely. OK. So that makes sense to do it that way. Or what makes sense. I think it absolutely makes sense to do it that way. Okay. Okay. And you’ve seen that. Okay. So let’s talk about. So you have started a business and sold a business so this is not something new to you. You’ve
Stephen: [00:35:50] been through the cool part the romance the you know I guess you’re probably looking back you wouldn’t call it that now but you put your heart and soul into creating a business and then you let it go.
Mark: [00:36:04] Right. Yeah. Yeah. In fact anyone at quietly brokerage that works as an advisor we’ve all been through that process. No kidding. Starting a business buying a business side a business and not just a small you know five$10000. So yeah. Been through that although you know you talk about the romance of it. I think it was part of it as well. Was that a feather in the cap. Yeah. That’s business. Yeah.
Stephen: [00:36:31] There’s no doubt that it’s like oh yeah you know what do you do. Well you know I’m kind of just doing that much. When I sold my internet business and then everybody’s like whoa you know we’re all thinking you know you’re Mark Cuban right now who sold billions for his company right. Although I doubt many of them go. What’s the average selling price that you guys have for your clients right. I think your stats show that you’ve helped sell 600 plus businesses 100 plus million dollars in Web sites sold. I can’t do that math.
Speaker 7: [00:37:04] In every bad numbers they go off of some estimation and there I didn’t keep the greatest records when we started up. Over the past couple of years our average deal size is about$750000 really.
Stephen: [00:37:15] So seven or fifty thousand. What kind of revenue is a typical company that sell them for 750. You
Speaker 8: [00:37:21] know for e-commerce it actually approximates to about 1 times revenues so usually around that that market.
Stephen: [00:37:29] OK. And so. And what makes that not as valuable as a content site.
Mark: [00:37:38] It wouldn’t necessarily not be as valuable as the content site where the difference would be would be that the costs associated with an e-commerce business are going to be significantly higher than what the content site or software. Right. Once
Stephen: [00:37:50] you develop it that’s the hardest part right now maintaining it separate. But sunk costs are some all right exactly.
Mark: [00:37:57] And e-commerce business if you if you’re doing let’s make the numbers easier if you’re doing a million dollars of revenue. Your bottom line earnings are going to be 250 to 350 in most business. Well right that I mean that’s a well-run e-commerce. Well exactly well run if you have a SAS company doing a million dollars of revenue. Your bottom line earnings are probably going to be between 500 and$700000 significantly higher and there’s fewer expenses associated with software.
Stephen: [00:38:21] Everybody says that’s where the money is go to the software go to the software. There are definitely popular especially you know and I think about it you know for Amazon I had somebody on who’s out in California and he’s like oh yeah we’re all working for Amazon right now. You know just on Amazon businesses because that’s the market right now. And he said man that changes in its you know ring or whatever it’s going to be next we’ll all go there because that’s where the developers go. That’s kind of neat you know and interesting. OK so you started business you sold a business more than once. What have you learned. I mean what would you go back and do different from that first one. To
Mark: [00:38:59] what you know now I would do a lot different with this one. So I tell the story conferences sometimes I’ve stopped it because I fear that some people probably heard it a few times but the story of Solomon first business you know I started it and there was only a few months that I started I thought well maybe I should try selling it and making some money and I wanted to do something different. And so I contacted the broker and he told me he said you know if you sold this now you might get 25$30000 for it. So why don’t you wait a year. You’ve got a good thing going WAY TO YOUR then contact us again. And I did. And we ended up selling it for one hundred and sixty five thousand dollars. Little good advice. Very good advice right and the only thing I did was really wait. And more importantly I put history on the books. History makes such a big difference. You
Stephen: [00:39:46] didn’t go back though and adjust and do. He didn’t give you a kind of a checklist. These are the things kind of like you were describing what you would do to someone else you didn’t have any of that.
Mark: [00:39:55] No no no no no. No. And frankly it would have been really really helpful because the person that I sold to ended up getting an offer for the business without growing it at all. By the way I end up getting an offer for the same business for over$350000 to take it. I’m sorry that had to hurt. I mean I was like well OK I probably should have done something different. What he did as he focused in on the things that we now preach all the time right. You have to make a business transferable which I didn’t really do with.
Stephen: [00:40:28] Well let’s break this down because this now you’re given power knowledge here so let’s do this. Make a business transferable.
Mark: [00:40:34] Tell us what that means what that means is you shouldn’t be the business now and in that first business I was the sales person I talked to advertisers I secure their sponsorships. I actually wrote the code for the Web site and did most of the designs. And I wrote the articles for that. So it was you. Period. It was me went 100 percent top to bottom. If I were to change that business around before I sold it I would have hired a writer and started to have that writer published.
Stephen: [00:41:01] And let’s pause for a second. So however that would have affected the profitability of the business Mark. Right so. So you were making an X amount of money. Now you’re going to hire a writer. Right. But that’s going to make me less profitable. But I’m selling as a multiple of profits so you’re kind of talking out of both sides here.
Mark: [00:41:18] But what people need to keep in mind is the growth associated with that. Right. If you can if you outsource some tasks with their business you can usually grow the business as well. I know it’s easier to say no I get it.
Stephen: [00:41:33] I get what you’re saying but that then means that you’ve got to start planning sooner. Right so your advice is. I mean could you even do that in a year. I mean is a year a reasonable amount of time.
Mark: [00:41:44] Yes I think it’s 12 to 18 months is what I would recommend. Now I’m going to speak out of both sides of my mouth again and here and say that as you’re preparing to sell you might have some of those those expenses on your books that you might want to take off. For example I worked with a client who wanted to solve a dating service a dating site and one of the things he did about 14 months before he sold is he stopped using the customer service people he was using and started doing customer service himself. He was living a lifestyle business before where he didn’t really have to work that much. And then he decided well I’ll put in a three or four hours per day and save that money and add to the value of my business for what I was doing with my particular business. The
Speaker 7: [00:42:33] reason that I would have hired staff or a writers is because it would have made the business not about me. And that would have made it more transferable more buyers would have been interested in it. So it would reduce the profitability. There may have been some growth there that would have occurred but even if there wasn’t growth I would have had a substantially higher multiple on the business because it was more transferable.
Stephen: [00:42:54] And so that’s important so no one who’s going to buy it is going to be able to do all those things but they might be able to do the coding or they might be able to do the customer service but they’re not going be able to do that encode and sell and this right nobody’s other than you who put the life into this business are jack of all trades right. Buyers
Mark: [00:43:12] generally right and I think the other point to make here is most buyers don’t want to buy a job. So it is for you if you don’t mind creating one because it was your baby right. Right. Yeah absolutely. You know I was small business at that point. It was a job. It was a job that I enjoyed at the time and I was able to find somebody who was willing to take a hit on his own personal return and turn it into a lifestyle business. But yeah that would be the number one thing that I would have done.
Stephen: [00:43:41] So 12 to 18 months Tell-Tale 18 months you know start getting it transferable. Love it. OK what’s next.
Speaker 7: [00:43:49] The documentation and I already touched on this once before but in the broker that I worked with didn’t really require much in the way of documentation. I can look back now 10 years of quite a brokerage. The biggest improvement we made with quite brokerage early on came as a result of buyer approached me and saying how do you expect me to make a good decision with the information you’re giving me.
Mark: [00:44:12] And I thought that’s actually a pretty valid objection. So yeah right. Yeah. Well yeah you should probably have people provide more information documentation now and again Ray touched on this but if you have 100 percent control over it and it adds value to your business let’s just go deeper on that. So
Stephen: [00:44:30] it’s a balance sheet and income statement in sales reports right. Those are pretty pretty all of those things are pretty important.
Mark: [00:44:37] Yeah and let’s go a little bit deeper and say standard operating procedures works with your business a little to what’s the organization structure. I’ll tell you a story about somebody that I worked with actually close on her business last year around this time and we did a private shopping for her where we only approached about I think it was 10 or 11 buyers with her business. She got offers from 30 percent of the people that we approached within a few days. Wow.
Speaker 8: [00:45:07] And the reason she was so well organized and so well documented that a business that was good but you know I’d say it was slightly above average as far as the business itself was concerned was so well buttoned up that it was super easy for buyers to determine whether or not they wanted to move forward with it. And it removes the question people forget about the soft side of this. You know there’s a lot of hard data analytics and everything else. There’s a soft side as well where a buyer saying I’m going to be risking six or seven figures maybe I’m taking out a loan. This is business as well. I’m going to be responsible for that loan. There’s that element of fear. Being organized helps reduce that element of fear significantly. And it also allows people to really the buyers to really address. Can I make a return on my investment with this.
Stephen: [00:45:57] So the standard operating procedures so powerful vendors suppliers all that kind of information. Again is it presented in a binder. Mean you know I’m dating myself. Same binder people probably don’t you know what a binder is anymore. But you know is it presented in some e-commerce world I guess it has to be electronic now in some kind of you know slide show type of presentation. Is it really that formal of a presentation now.
Mark: [00:46:24] No not upfront so upfront at least the way that our process works we don’t get into that level of detail upfront upfront. Everything is representative. In other words the person selling the business is going to say here’s what my numbers are. We’ll present the numbers will present you know the profit and loss statements and balance sheet if that’s applicable and then in that case an inventory numbers and other reports like that but the proof you know the statements and everything else that happens after you find a buyer and you’re locked up with just one buyer you don’t want your tax returns fluttering around.
Stephen: [00:46:53] Well and I’m worried about somebody copying my model. You know Mark and I built this business. I don’t want to sell all my secret sauce until they’re ready to really buy it. You know I don’t want somebody coming in copying it and then going out and say no let’s just go start this business is a great business.
Speaker 7: [00:47:07] Yep and that’s why we wait until there’s an actual offer on the table and you’re working with one person at that. That really sets up a much more intimate situation and provides much heavier consequences for anyone to use that process. And at that point you know there’s usually an exchange of information that happens over the Google Drive or box dot com or one of these file sharing services and then that’s organized in folders and some people go about it different ways but then you’re protected by NDA I assume at that point yeah you’re protected by NDA is upfront. So any buyer that works with us has an NDA on file with us but then there’s additional confidentiality clause is in place when somebody commits an offer and then for that supersensitive information that secret sauce. You know there are ways to protect against that as well where we might say hey Mr. Buyer we’ll give you all of the tax returns and bank statements for you to now verify that what we said was true and that we didn’t leave anything out.
Speaker 7: [00:48:03] But I’m not going to give you my vendor names until very very last minute or or on some occasions we’ll even do a binding purchase agreement that has just a conditional clause that says the vendor has to transfer over under the same terms. Right and so we’re really wrapping things up in a pretty nice tight bow to protect that information.
Stephen: [00:48:23] And many many people were just kicking the tires. I mean obviously you know people are like you I’m looking at e-commerce business 10 hour weekly workload. All right. You already got me at hello there launch in 2014 95 percent Amazon jewelry fitness brand Mike. Wow
Stephen: [00:48:39] . They’re growing. 340 percent in the last 12 months. Woo Shopify site 270 grand. That’s how much they’re asking right now for 412 thousand in revenue supposedly has 127 thousand dollars of income and that does not include you know we understand that that does not include the manager’s salary and stuff. How many people are just kicking the tires saying it. Tell me more about this Mark.
Mark: [00:49:04] Buyers are going to look at a lot of deals before they buy.
Speaker 7: [00:49:07] I would say on average if somebody is actively looking to invest they’re going to look at anywhere between 30 to 50 businesses for sale before they actually pull the trigger on one because they have a list of criteria. So to find the difference between somebody just kicking the tires because they’re interested in this versus somebody who’s interested in buying can be a difficult determination to make. There are some people out there that that don’t have the most honest intentions those people get they get exposed when they get exposed they get kicked out and they get blacklisted. Clarence
Stephen: [00:49:38] you vet them as best as you can. You know you said something before we go on to the next thing we can do to prepare. You mentioned something about investors and maybe think about how many people who are buying you know in your experience are operators versus investors far more investors are cropping up now. No kidding. And that’s I was going to say it’s more new for what reason would you say that more people are investing in it just because of how prominent online sales are becoming.
Mark: [00:50:07] Well you know it’s probably a mixture of a change in the industry but also my perspective.
Speaker 7: [00:50:12] So you know when you’re when you sign a save for$150000 you probably signed to somebody who’s going to be an operator not an investor. Right. We know that our average deal size has crept up over the years. You do find a different type of buyer. But I also think there’s a change in the industry where people understand more what makes an online business profitable and profitable for the long term. And they really understand more of what makes a good investment. You know 10 years ago there was a lot of questions about this and we unfortunately learned a lot through that there’s some pretty hard lessons and people losing money. So I think people have a better idea of where to invest their money and see it as a more viable investment Avenue.
Stephen: [00:50:58] You mentioned something there things that people see to make it to know that it’s that it’s more profitable. What are some of those things other then or are these the things that we’re just talking about or are they basically the same thing. Because I’m thinking about what would an investor do with that right. Do they have. I think here’s where my mind goes right. I think of the big restaurant tours in New York City sometimes I’ve heard that some of them own 20 different restaurants and they’re not connected. I mean they’re just literally an Italian restaurant in a Japanese restaurant right. The only thing they have in common is they have food and have waiters and waitresses and chefs. But the process is that they have the management systems they have in place allow them to be able to put an operator in or you know whatever manager and run it from an investor point of view what are they doing with them. So
Mark: [00:51:49] you see the same thing in the online world right you’ll you’ll see one firm that might have a certain type of specialty and they’re looking for a business that meets the criteria. For example you might have an investment company that has a handful of e-commerce businesses handful of Amazon stores and there are really really solid logistics maybe they have their own ERP software which is nobody else has and they know that they have a certain built in advantages with that if that’s the case that they’re going to look for a company that that has a deficit in that area and that they can plug it into their system and grow it. We’ve seen that. I mean that’s nothing new it’s just a little bit more prominent people are specialized in certain areas. They’re finding companies for sale that are weak in those areas as a very easy quick growth avenue of growth for these investors and they see an immediate return right. They
Stephen: [00:52:43] can they can take that. So then I guess in that scenario you’re describing having real estate and employees that would probably be a detriment to that deal for that type of buyer not necessarily actually.
Speaker 8: [00:52:56] I mean some of the buyers that we see there are advantages that they have employees and have space. So one of the scenarios that I saw was actually a company here local to me. They had a full fulfillment operation and they had about a quarter of the warehouse that wasn’t being used. And so they were looking actively for an e-commerce business where they could fill that space. So it didn’t represent that much of an additional cost. They may have to hire one or two extra people but they already have everything else in place for that.
Stephen: [00:53:27] There’s some smart people out there too. I mean there really is. So you know I mean I think I think it’s very cool though because I hope people hear that right. 12 to 18 months start thinking about what would it take if I’m interested in selling. You know go out one two years OK. I have to have this in place well. You know Chris Wallace is is the theory. Did you guys do you have a blog. I mean is this where you’re putting this kind of information trying to help guide people.
Speaker 7: [00:53:52] Yes well we’re putting on our blog and I think probably next week or the week after we’re starting wars we’ve started but we’ll publish our own podcast and also video podcast as well which will go up on YouTube to get more of this information out there. So
Stephen: [00:54:07] the blog and everything will be on our site now links to what’s the name of the podcast going to be the quietly podcast pretty quiet like podcast with T.H. in front of it right. That’s correct. OK. I want to get that out there because I’m a podcast kind of at and late is l i g h t l i g h d k cast. And you say it’s launching next week so you’ll be launching next week. OK. So about the time this comes out. Awesome awesome awesome. OK. So that’s what people want to do. They don’t start listing. They want to start thinking about getting the business ready so we’re going to make sure we have enhanced the business for transferability we are going to get the financial and we’re going to clean financial statements Mark. I mean it’s going to be good.
Stephen: [00:54:53] I mean I’m telling you. OK. So what’s the next step here. Hey you know what I mean think about it. I mean your example how silly it sounds that here business was worth twenty five thousand dollars and within a very few years it could have sold for$300000. Mitt’s real money too. I mean that’s real money you know 10 x. I left a lot on the table. No but it’s just it’s fascinating to think that that’s really even possible and feasible. So have you seen those same type of scenarios come across your desk even today with all the information that’s out there. Is it still happening.
Mark: [00:55:29] Oh yeah absolutely. Absolutely. We had one case a few years ago I didn’t work on this directly but simply because of documentation and there’s two other things we should talk about. Now I want to get there. It’s just fascinating the book with documentation the Soller the person who wanted to sell his business wasn’t keeping his books in the right way and we encouraged him to take a month and spend the money to recast his books under the right system and the value of his business. I’m going to get the numbers wrong and get approximate here one from around 350000 to over$700000 in a month and a half just by getting the data right just for that. And so that’s again so important but that data portion that really has a big impact. And it wasn’t that his value of his business actually increased is that he was recording the data in the wrong way before. So he was falsely deflating the value of his business before.
Stephen: [00:56:25] Which is why we recommended change in the light bulb went on as like angels. OK so. So we’re going to get good clean financial state. We’re going to have that right. What’s next.
Speaker 7: [00:56:36] So the two big things that I tell people to focus on and their religion their categories and there’s lots of things that are going to fall under these better be risk and growth. And I’m going to oversimplify this to the point of almost being silly buyers buy for one main reason they want a return on investment. No one buys a business to lose money. Right. There has been a business because they want to get a return on that. And so you have to speak to that which means you have to speak first to risk what’s going to kill this business or hurt it significantly and then speak to the opportunity. These are the two conflicting forces that every buyer has when they come to the acquisitions table opportunity you know how much am I going to benefit from this and B how much is this going to kill me.
Speaker 7: [00:57:21] Those two things speak to those two things. Some practical tips under risk. Take a look at areas that I would call single points of failure. Right. Are you relying on one vendor. Are you on Amazon already. We discussed this a little bit before.
Stephen: [00:57:35] So. So they’re both a vendor. Right. So having only one vendor because you know think of Nepal I was having something made in Nepal and it’s a great example. And they had an earthquake and my factory was shut down instantly. I mean literally out of business. So what’s your plan go try to find another one go try to find them go through the whole process that takes time. That’s a cost. So something simple even if you’re not using them all the time having that backup is worth it. Correct
Speaker 8: [00:58:00] . Yeah. I’ll tell you a story on that we actually had a scenario where it was an e-commerce business on Amazon. This is just last year and we got through the due diligence process we’re getting ready to transfer the business. The buyer reaches out to the vendor and the vendor says Yeah I’m not going to open up an account for you. In fact Mr. Soller because I’m not happy about this. I’m I’m going to shut down your account with the next 48 hours. Whew. And this time in 10 years I’ve seen people hear this. Don’t panic. The guy was mental I don’t know what was going on with him. Really bad business practice there. It doesn’t happen a lot but fortunately the seller had a backup vendor. He was not using him before. They weren’t using the vendor before but he was able to reach out to the vendor and say I need your product and I need it now.
Speaker 8: [00:58:47] And they got set up within 24 hours delayed closing by a couple of weeks. We still closed the business and the business is actually healthier because of it.
Stephen: [00:58:55] So. And so the new buyer is using the new vendor no issues. And the old guy is going that’s a question. So if I wanted to do that you know what’s the conversation that I have with the vendor hey you know my name’s Steve. I already buy these wizzy wigs at this other company. I’m looking for another supplier. Interested to see if you’d be interested in it right. Okay great. Looks like the products great. I don’t plan on buying from you. That’s the that’s the uncomfortable I can get the first part I am pretty good at writing some really good until I say well you know I’m just not ready to buy from you.
Speaker 8: [00:59:33] That I mean it depends on the industry you’re in. And I have not personally had those conversations all that often. I’ve only on one e-commerce business over the past 10 years and I got rid of it pretty quickly because I didn’t like working with vendors. But I mean it essentially be you know can I get your price list. Can I get in depending on how you’re doing things of course if you’re manufacturing the product that’s going to be something different but and get your priceless Can you get your terms and conditions going to take a look at this. This all looks good. It might be something that we’re going to consider adding to our product line in the future.
Stephen: [01:00:06] OK. OK. So by saying it that way you are deferring it because let’s face it we are looking at divesting this business right. We’re saying 12 to 18 months and this is something to prepare for. OK. Exactly. All right that’s fair. OK. So from a vendor point of it I’d love that. OK. Go ahead on because I’m going to go look in other places for single points of failure.
Speaker 8: [01:00:24] Do you have an assistant in your business that knows every last bit of your business and runs it for you basically. That’s fine. Nothing wrong with that. But make sure that the processes that he or she are using are documented. If they get sick if they were to you know God forbid die. What’s your backup plan for that. Because you need to have it anyways. Now somebody in the business is definitely going to want to see that backup plan as well in case they don’t get along with that person or they want to bring in their own person or whatever the case may be that that backup plan in place that comes down to documentation.
Stephen: [01:00:59] Standard Operating Procedure standard operating procedures. That sounds like it’s one of them like the mainstays. I mean it almost sounds as important as financial statements the way you’re describing it.
Speaker 7: [01:01:07] It’s definitely up there. I wouldn’t put it up there with it but it is. Number two and it’s right behind the financial system.
Stephen: [01:01:15] How hard is that to pull together. I mean you know I mean you’ve seen I’m sure the back of a napkin and then you’ve seen probably some of the most detailed things in the world. But as a seller selling a million or two million dollars worth of merchandise probably working with a team of themselves and a few outsource people it’s a big undertaking.
Speaker 7: [01:01:33] You know it doesn’t have to be just just to screencast. And then you can hire somebody to write it out for you if you want a formal written documentation so you don’t have to put a ton of time into it. I would recommend you know maybe start with a pen and paper or write it down if that’s difficult or if it’s an online process just do a screencast and record yourself. Store it. You can go to work and find people that are professional centered operating procedure writers and they can write out the procedure for you if you want to do good at this.
Stephen: [01:02:01] OK. All right one more. You said there’s one more thing we really want to consider.
Speaker 7: [01:02:05] Yes a risk is one you’ve got to eliminate the risk. The other one would be growth and the recent trends of your business if you can show good growth or the ability to growth prospects for growth. You’re going to add value to your business now. I’m going to say there’s a bad word in the world of buying and selling in businesses and you should never ever ever use his word don’t call me and tell me that your business has lots of potential.
Mark: [01:02:28] No one wants to hear that word. OK. But my mother said I had a lot of potential for see what happened there. Exactly. Potential is like wishing that something good is going to happen. It’s fun. It is what I say it. The difference is this potential is usually not concrete. It usually starts with this business has lots of potential if only if only.
Speaker 8: [01:02:51] And then there’s a whole bunch of things that have to fall into place in order for stuff to happen. I say look at growth prospects and there’s a reason I like prospects better as it makes me think of like mining for oil or something like that where you can do studies before and see you know what. Yep there’s oil down there. We just have to dig and get into it. But we know how much is there that’s going to be the difference right. So growth prospects would be hey we’ve been growing the last 10 to 15 years. It’s not stopping at all. That right there is an indication of reasonable growth prospects and other growth prospect would be. We have 300 excuse that we can add and we know that when we add Skewes in the past it adds as much to revenue growth prospect right there and we just haven’t gotten around to writing the descriptions and putting it up on his site or adding it to Amazon. Those are growth prospects. So
Stephen: [01:03:39] when I say my business is you know that’s grown by 10 percent the last three years now is going to grow by 300 percent. And I would like you to base the multiple on that that doesn’t go very far. No
Mark: [01:03:50] . And you know for most people that have established businesses we don’t have to worry too much about the potential thing that it’s often with people that have businesses that they tried to launch and didn’t it didn’t take off and they say can I get my money back. I think the idea still has lots of potential. You tried you failed and somebody else is going to have to take that risk. But yeah right. You don’t want to sell on potential. You
Stephen: [01:04:12] want to grow so on the growth prospects I’ve seen it on Shark Tank I’ve seen it of course. Right.
Speaker 8: [01:04:18] Be prepared when you’re talking about the growth avenues that somebody can take with their business. Be prepared to answer the question why haven’t you. That’s exactly right. Right. So what if that’s really there why haven’t you done this.
Stephen: [01:04:29] And there’s often really good reasons but yeah well you said something you know I failed. I brought a product to market it didn’t work but I executed it poorly. Does that mean there’s no value in that or is there still potential value in that business. You’re going to have a hard time getting value out of it even if they got all the same and I got all these three toed socks in my warehouse. You mean there’s not going to be a lot of value there.
Speaker 7: [01:04:55] Now it’s going to be pretty hard to get the value out of that. So with a failed execution plan where you’re going to put all of the onus on whoever is buying the business what they’re going to say is I’ll give you a little bit of money and then if I’m successful I’ll give you a little bit more money. So they’re going to do like this are out sort of deal.
Stephen: [01:05:12] OK. But that that means that there’s still potential. I mean that that’s better than what I thought you would say because you know it’s funny I think about some of the dealer auctions I go to and I see failed private label businesses. I mean I see it you know and we’ve been doing Amazon for so long you could tell by the way they’re they’re packaged and all that jazz. And I think to myself. Ooh that was a good thought. I’m sure they went into it thinking oh my god this three toed sock is going to be the best thing in the world. And then they didn’t. Or you know the tomato slice or the Vegemite. The what am I seeing a million of the barbecued claws all the same stuff right. And spinners. You know I’m going to make millions and spinners right.
Stephen: [01:05:53] I’m going to sell them now. Probably not a good business model but so I’ve seen those private label things but they’re going for pennies upon pennies on the dollar. I mean that’s it really nothing but what you’re saying is that there could be some value as long as hey I’ll take the chance you’re not getting a dime now. But let me help sell it. And as it sells I’ll give you a small percentage or something like that. That’s optimistic.
Mark: [01:06:15] Yeah I mean and you have to show why the execution was bad and not the idea. Right. I mean that’s kind of crucial. Right. Where are you a. Yeah you know what we tried. This is where we’ve failed. It’s correctable but we don’t have the funds to do it anymore or I’m burnt out. Totally legit reason to say that you want to get out but you have to be able to show why it was the execution and not the idea.
Stephen: [01:06:38] And you guys are not a business that sells products right. So I have. Oh man I invented this great iPhone case. Unbelievable. I’m looking to find someone to bring it to market and do all the rest. That’s not your model. Correct.
Mark: [01:06:53] Right that that’s not our model or Nor would we really be out there finding the people for those complex earn outs. It’s just it’s a different different type of sale.
Stephen: [01:07:02] OK. OK. All right. So I mean clearly I hope people are getting that Mark knows what he’s talking about.
Stephen: [01:07:08] The Web site is fascinating just to go out there and look quite like brokerage dotcom and you sit there and you look at what is there. So here’s an Amazon FBA business selling women’s apparel explosive 400 percent year over year growth revenue 1.8 million asking price 1.4. I forget what you called it but it’s not even if it’s some kind of earnings foreigner nineteen thousand dollars. And then on the other extreme is a women’s apparel store on an Amazon almost entirely so I assume everything doing$7 billion in revenue. They’re only looking for$4 million and I’m assuming this has something to do with the Amazons getting into the apparel business themselves and there’s probably no Apparels hot and cold you know depending on the year. But there are there are many different extremes so you have different love. And then I saw one that was only selling for a hundred and some odd thousand now asking 189 thousand vaporizers.
Stephen: [01:08:04] So you really do kind of cover the gamut. So let’s just talk about this from the buyers perspective so I think we I think you’ve done an amazing job of talking about how to prepare your business to get ready and I’m assuming we’ll have contact here so somebody is thinking about this you’re open to talking to them correct.
Speaker 7: [01:08:21] Yeah. And we’ve said that 12 to 18 month window and I really really encourage people to talk to a broker or talk to somebody knowledgeable in a 12 to 18 month window before because we can show you what you’re looking at right now reasonably for your business. But more importantly what that might look like in 12 18 months. And if there’s any significant obstacles that’s going to deflate the value of the business hopefully be able to identify those early on. People need to keep in mind is the value of your business is often tied towards what over the last 12 months of discretionary earnings are. And so if you have like a really bad month or if you have a problem that happened last month you’re usually best served by waiting 12 months to avoid that fall off. Outside of that period. And so that’s why we say 12 to 18 months contact us then.
Speaker 7: [01:09:14] That way you can make the changes be able to put it on the history and get the best value. Now. There’s exceptions to all these things. This is an incredibly complex process. You brought up a couple different valuations and on our site and I can tell you that there are dozens and dozens of factors which impact evaluation which is why it’s important just to reach out.
Stephen: [01:09:36] Let’s take a look at the business we don’t charge and if it was going to say let’s get let’s get into the money. But you do charge a percentage when it sells right. What percentage do you say the percentage. It averages out to about 10 percent and 10 percent is just reasonable distance. Know that’s always reasonable in a brokerage thing. OK so about 10 percent and then any other fees I guess that would come along with that right. Legal fees all that kind of just right.
Speaker 7: [01:09:58] So we recommend that everyone have their own accountant and their own attorney as well to be able to review the final documents we’re not attorneys we’re not accountants. And within your own local state and we work in all 50 states and we work in multiple countries as well. I can’t know the laws of every jurisdiction down down to the individual law. So you need to have that attorney there to make sure that you’re following the local laws appropriately to you help with the sales agreement though. Yes. We provide boilerplate payments don’t we. That’s where we say OK here’s here’s so you can save legal fees. Send letters to your attorney and just understand your documents have been written and rewritten and rewritten and rewritten again. So your attorney shouldn’t go out and completely throw this out but they should be making changes to modifieds specifically for your deal.
Stephen: [01:10:44] OK. And especially statewide that kind of thing. OK. So what I want to close with and I’ll have them contact him for a matter of fact you might as well throw it out there now because because I think it’s important I think people are right now who are thinking about selling their business. I think it’s solid advice. Talk to somebody now. Even if it’s two years out talk to somebody now and say hey here’s what you can do to enhance the value. Here’s a reasonable expectation that you can reasonably expect to get for a business that’s doing this. That’s having the growth that’s having all those things because I think it helped people make a decision. So give us your contact information. Sure
Mark: [01:11:16] . So you just go to quietly brokerage dot com and click on the button that says get a free valuation. Fill out the form there. That’s going to be the best way to get a valuation to reach out me personally right at quietly brokerage stock market we cut out for a secondary market quiet light may r.k quietly brokerage stock. OK. If you just do a google search on my name it’ll probably come up as well.
Stephen: [01:11:40] So far Anderson about us and there’s all the you know the members of the team there. Last last question last point of view I’m coming in and I’m thinking about buying it because I think what you said was a good example. They have capacity. Right. They’re sitting around. The team can handle you know another you know another great product or product line we can just bring it in and we can integrate it with their system we just need we don’t want to go through the development phase ourselves. We want to take something that’s established we want to bring it in. And so I’m looking at these businesses that are for sale. So give us a real short version on what to be looking for if I’m a potential buyer now.
Speaker 8: [01:12:17] Well what you’re looking for I mean you first have to understand what you want and what you need. I’ve had people contact me that say I’m thinking about doing an acquisition of an online business and say Okay great what type of online business. I don’t know. That’s a star right. That’s it. Understand that the difference between an e-commerce business and a SAS business the world apart there are completely different types of business model so I understand that and then get down to a more granular level from there even to understand where I’m looking for an e-commerce business. I want it to be Amazon only so I can take it off. Do I want Shopify. And then what am I. Good as well. So I can take a look at maybe businesses that might be deficient in that area so I can get a better return on investment.
Speaker 8: [01:13:00] So it really starts with sort of what you personally want and a little self-assessment of your skills and then from there what I do recommend people do and we talked about tire kicking and stuff like that. But I do recommend taking a look at some of the the businesses for sale out there right now requesting information and being respectful with that information of course. Everything’s under confidentiality get used to seeing how these businesses are presented and prepared. The really really good businesses for sale often get offers within a few days. Really it’s a you have to be willing to move and move quickly. So getting familiar with that you know understanding what I’m looking for it allows you to be able to move quickly without it without getting in a really big competitive environment.
Stephen: [01:13:50] I love it and I think by by looking at that you’re going to as you said the really good buyers are looking at many deals before they pulled the trigger. And actually I did have two more questions. Do you have a list of potential buyers that you or investors I guess because we said there a lot of investors out there is that one of the benefits of using a brokerage like yours.
Mark: [01:14:11] Absolutely. We have a list of active buyers and what I would say that benefit every broker has buyers and if you want to find buyers you can find buyers on your own.
Speaker 7: [01:14:20] So I’m not going to sit here and say this is the number one benefit of using a broker. The benefit as far as the buyers that we work with however is that we’ve established relationships with a lot of these and you invented them I’m assuming you have read it and make sure that.
Speaker 8: [01:14:32] Exactly. And so we can tell you we can tell you sometimes we have worked work this fire before and now we know OK we need to be looking for maybe certain things or ask them different questions. Other times we can say they bought three businesses from us before we know other like that are topping due diligence but they’re good people. You know those are the sort of feedback from a buyers standpoint that we can really add value.
Stephen: [01:14:55] And my last question my last of the last of the last Right and this came up last week at a retreat I was at in the conversation and I thought I’m going to be talking to a gentleman and I want to ask this question. Sales tax is a huge issue right now out there in the e-commerce world that I’m not asking you for accounting advice. However you know that’s a real issue. So you know good financial statements good standard operating procedures. What about sales tax. I mean what have you seen has that become an issue on your radar. Are buyers concerned about that issue right now. This e-commerce thing. I’m so glad you asked a question. Yes yes yes yes yes yes yes. Anyone
Speaker 7: [01:15:33] listening to this. If you have any question about whether or not you should be paying those sales taxes and identified where you have Nexus do it. If you ever have any idea or thought of selling your business it will become an issue. Your listeners probably know about the sales tax amnesty program that’s going on right now. We’ve got extended to the end of this month. And if you live in one of those states I’m not an expert in this area but take a look at the sales tax amnesty program and take advantage of that. If you have the opportunity I can tell you we’ve seen scenarios where where deals have either fallen apart or sellers have had to take substantially less money to account for the potential of those sales tax liabilities coming up and marrying their ugly heads. I totally get it.
Speaker 7: [01:16:21] You know 2012 2013 no one was talking about this. Most accountants said you don’t have to worry about it. And now people are saying whoops you actually do. And there’s the whole issue of you know what do you do from years prior. It’s something people don’t want to address. But I would really recommend addressing that.
Stephen: [01:16:38] And it’s really irrelevant on Amazon FBA specific That’s what next is right where your inventory stored so. So that’s really relevant. And a lot of listeners are going be talking about so very interesting. That is the answer I expected. But I just wanted to make sure we did address that.
Mark: [01:16:53] And is that one of the things that you now are asking right up front that will last great upfront front and you know sometimes my clients say Do you really have to ask this question. Can I answer is Yep. I got to ask you. Just answer it honestly if you haven’t if you haven’t filed for those taxes and done that and you know I’ve had clients where we’ve been able to sell the business regardless. But at least we’re being upfront about it right. And that buyer knows OK this is a potential issue out there. Now I know about it and they can account for it. The last thing that you want is for somebody to get the prize after because then then you’re in trouble and you’re all that you don’t want to go all the way down there and it’s done.
Stephen: [01:17:32] Man this is awesome so it’s market quiet late brokerage dot.com podcast coming out the quiet light podcast coming out where you’re going to be talking about these things. And again quite like brokerage Dotcom is the Web site. Man oh man. Very informative. Probably ask it back. Maybe in about a year or so to see how you know what’s new going on the visit because it’s definitely changing rapidly. And I’m fascinated when I sit that you’ve got to go look at this site people and just look through some of the listings and say I think I know actually some of these people I think I know who they are because it’s such a small world which is really cool. I mean it’s really cool. And I hope they sell it for as much as they want and it would be awesome and they could take me out to dinner.
Stephen: [01:18:14] So thank you so much. Appreciate it. Thanks for having me. It was a lot of fun. Wish you nothing but success ticker. Hope you like that last last last last question. How silly how I did that. But it is what it is. When you talk with a guy like that all I can do is think of more questions but I think he did a great job explaining the value that they bring. Ten percent might sound like a lot of money. And you know I guess it is. But man there’s a lot of little details and if you could start investing in your business now so think two years out and if there’s a chance you want out start planning now. And he gave some great tips on how to do that. So e-commerce momentum dot.com e-commerce momentum dot.com.
Stephen: [01:18:51] I’m very excited about the upcoming lineup of guests that I have coming up because it’s just these kind of things build on each other these successes right that you start to say hey I’m going to be in Chicago just about by the time this comes out. If you’re not there you know if they still have tickets but you know pop in. I think there’s a$20 off coupon somewhere floating around if you’re going to be in Chicago. Make sure you come and say hi to me. Definitely love to meet you. Looking forward looking forward to talking to other sellers. I love love love it. So e-commerce momentum tecum don’t forget my sponsors. For lamps and get your scope on it’s Q4. Q4 solutions for e-commerce. Karen Locher is on it. Matt something else come through my inbox Boop handled. Love it love it love it. He covers I.M. duck come take care.
Cool guy voice: [01:19:38] Thanks for listening to the e-commerce momentum podcast. All the links mentioned today Jimmy found that combers momentum dot.com under a base episode number. Please remember to subscribe and like us on iTunes.
