Selling Your Online Business: EXITpreneur's Playbook

[00:00:00][Music] so joe thank you very much for joining us for the show i appreciate you taking the time and just for our audience if you wouldn't mind giving a brief introduction about you what you've been doing and what you're up to thanks for having me i appreciate it um self-employed since 1997 bill bought and sold over a half dozen companies of my own uh the last company that i uh sold was done through a company now where i'm a partner with the original founder i sold it back in 2010 and now i focus 100 in the online space which is what my last company was and since i joined the company 2012 and i since then sold about 100 million in total transactions myself and through our team here at quiet light touched about a half billion in total transactions in that time so i've learned a thing or two over the years about selling an online business and how to do it right and how to totally screw it up uh so i decided uh i can't talk to enough people because i'm human i'm one guy i've had maybe eight thousand conversations with one-on-one entrepreneurs over the last decade but i can't talk to you know enough i can't keep up that pace so i decided to write a book it's called the entrepreneur's playbook we launched last june and it's trying to help a lot of people you told me why you wrote this book why is it particularly relevant now do you think the biggest thing that i see people do wrong is that they don't understand the value of what they have right they're running a business if they're like me and most people just kind of bootstrap their business and wanted to be an entrepreneur got it going um love it but at the same time they're running on a hamster wheel where they're just grinding it out every day hopefully they've set some goals and are marching towards that but i find that most people don't unfortunately and if they read the book i think what they're going to understand more than anything else is that they have something valuable and they need to pay attention to it they need to get trained on how to prepare it for sale so that when they do decide to sell the business whenever that time is right for them they'll be in great shape and the business will be in great shape as well and that way they'll get maximum value if they don't do any of that and they say i'll get to it someday i promise you that they're going to wake up and someday is going to be here and it's going to be too late to get maximum value for the business so it's not necessarily for somebody who's thinking about selling you would say everybody who has an online business should buy the book so that they know what value they have and how to prepare is that fair absolutely without question everybody that owns an online business is going to exit the business at some point in their life everybody that owns a business period is going to exit a business in their life death divorce business just dying in the vines passing it on to your children things of that nature so you want to just prepare for all of that because if you're not prepared if you don't understand the value if you don't get things in order life's just going to hit you upside of the head and you are going to lose an awful lot of money i've seen it happen over and over and over again and i don't like to be the grim reaper but i am often the grim reaper when somebody says look i'm done i'm toast i got to move on i was told it was worth this much what do you think and i'm i'm like you're dead wrong that person was dead wrong there's these eight different things wrong with it and your financials are completely wrong so you thought it was worth 10 million but it's actually worth 6 million and i know that's a big number for most people but for that person that needed that 10 million dollars and they're emotionally toast and they need that to never work again they're not going to hit it and it's very frustrating and emotionally shattering and i i have to be honest with them in that situation uh and and i'd rather not do it then right i'd rather i'd rather they back up their life 24 months and and get trained on this exit right if they're going to people train for a marathon right or triathlon actually i'm doing a 5k in october right i'm out of shape right now i'm doing a 5k in october i'm going to train for it i just downloaded hal higdon's you know training manual for running a 5k if i didn't do that if i didn't prepare for it it would be a miserable experience it would hurt my time wouldn't be well and the time to recover after would be longer it's the same thing with your business except it's much much more important because it's so much more valuable it's your life it's probably your greatest asset yet people don't get trained for it they just run their business and they think all right well i'll i'll sell it someday and sometimes they do it on their own or sometimes they hire an advisor but they don't they don't get trained for it and it's it's a big mistake can you tell me a little bit about how you would prepare your business for sale i know we can't cover everything in the book but maybe there is a high level overview the first thing to do is just understand what brings or plummets value you got to understand the basic formula of how online businesses are valued in the say the 25 000 to 25 million range it's a basic formula but the details to get to uh the bulk of it is is pretty complicated there's a lot of nuances that go into what's called an add-back schedule that prepare the prepare the bottom line number correctly if you don't if you don't do that properly you're losing tens of thousands if not hundreds of thousands of dollars in the list price your business and it's really easy to miss it so can you can give me the formula and then we unpack it a little bit maybe sure net income right we run a profit loss statement from quickbooks or zero not from your napkin or not from your excel spreadsheet but quickbooks is zero you export it to excel in a monthly view so you've got net income then you've got to do what is called an add back schedule right so below that net income line you're going to pull expenses down below that are one-time expenses that don't carry forward to the new owner of the business or owner benefits like your salary like your mobile phone that you write off through the business your car these expenses are owner benefits and then there's the normal charitable contributions to interest depreciation amortization and things of that nature i i write about what's called the three levels of add-backs in chapter 11 of the book and below each level there's six different layers to it and it's the level three that gets really complicated and dig deep one example in that area is most people when they use a cash back credit card in their business they just use that cash back money personally where they use the reward points personally that is an owner benefit and needs to be put in the ad back schedule even if it's not on your p l you create a tab for that and pull it in there i see that change people's value business value by tens of thousands and sometimes you know hundreds of thousands of dollars because if you get twenty five thousand dollars in add back money every year or cash back money every year and you're selling your business at a four-time multiple that's a hundred thousand dollars added on to the list price of your business it's math it's logic the new owner of the business will use the cash back card as well and get that owner benefit as well so it therefore is absolutely an add-back but most people miss it so i get to the uh adjusted net income that will be available to the new owner then what factors into determining what's the multiple for the valuation of the business that's a great and very deep complicated question right so you know i talked about the fact that calculating sellers discretionary earnings is about 10 right that's the that's the easy part if you've done it hundreds of times if you know the formulas if you know the avex things of that nature the valuation part is is 90 of the deal and it's it's really complicated because you're going to look at you know the growth of the business the age of the business the risk the dependencies of the business the transferability of the business are you the named face of the business and if you are well that's a risk right so the higher the risk the lower the value or it gets a little a little complicated and i'm going to require you to stick around for a while after closing during a longer training transition period so we can sort of every other month drop in somebody else is the spokesperson for the business all those little nuances come into play the risk growth transferability and of course the documentation sometimes people don't do a really good job at documenting their business because they're entrepreneurs they're not bookkeepers they're not cpas but it doesn't cost that much to hire any commerce bookkeeper a few hundred dollars a month right or if you get a really expensive one or if your business is really large it's going to be less than you know the cost of an expensive car lease still right it's not very expensive but it's all of those things that that you got to take into account when determining the value range of a business and then it's size right so something that's doing discretionary earnings less than 100 000 a year is going to have a lower value than something that's doing a million dollars in discretionary because that business that's doing a million dollars in discretionary it's probably older right more well-established it doesn't have a single skew right a hero skew that's very risky that brings down the value it's got multiple channels of revenue might have some recurring revenue all of these things add value and stability and builds trust in the buyer and confidence in the buyer to spend more money on your business and so the the the higher their confidence is the lower the risk the higher the multiple so it could sway anywhere from you know an awful one-time multiple if your business is really really in trouble up to 10 times depending upon the size of the business and together 10 times i guess you have to de-risk the business in terms of you not being the face having multiple skus having documentation all that stuff so how long does it take to prepare for that to get a 10-time multiple you'd have to be huge to be honest with you you've got to have you know we're looking at you know i don't know if you're familiar with the aggregators now what they're doing is buying up amazon businesses at two to four times and now they've got you know 100 200 fba brands in one portfolio and it's becoming worth eight to ten times but they're doing you know three four hundred million dollars in revenue so you got to be quite large at that point you know typically what we're seeing is anywhere again in that sub 25 million dollar range so if you're doing maybe a million dollars in revenue you're going to be worth somewhere in that four to six time multiple but you're going to sway up and down depending upon you know recurring revenue growth trends how many skus did you launch in the last 12 months how much growth is left are you selling just on your shopify store have you gone to amazon yet where are you selling just on amazon and have you gone to shopify are you just selling in the us have you gone worldwide all of those different things play into the value range whether it goes up and down and uh when somebody buys the exit printers playbook they will see all the different factors that would affect your values that uh is that what the playbook is about yeah the playbook is is a blueprint for anybody that's ever thinking about selling their online business it goes from the very beginning stages of understanding sellers discretionary earnings and how to calculate it and walks them through what it's like to list a business for sale what letters of intent look like asset purchase agreements due diligence training and transition absolutely everything from beginning to end and the beginning again should not be the day you wake up and decide to sell your business the beginning should be months if not you know 12 to 24 months in advance of selling that way you can make sure you get maximum value for your business and i know that some people just can't take the time to do that but they should they're so stressed out in their business and they're exhausted they're emotionally done and they want to move on time and time again i've seen that when people set goals in their business in terms of dollars and what how much they want to exit for and when and how they want to feel when they exit they can reverse engineer a path to that exit much more smoothly even if they're emotionally toast right because now they've got goals and they can focus on them and they can get over those hurdles a little bit more easily throughout that entrepreneurial life that we all live sometimes we have really bad days and that's just part of the life that we live as entrepreneurs but when they set goals and underst start to understand the real value of what they have and they're marching towards that goal those those tough days get a whole lot easier and what would you say is the biggest fix that somebody can do in the short term because i'm assuming that yes 12 or 24 months is great but somebody will say i want to exit in they're not going to do that you know that's the nature of everybody so if they procrastinate and they only have three months or six months what should they focus on the one thing that will drive the most value know where they are today how much is your business worth today if you don't know that you can't track towards your goal think about opening up your phone and opening up google maps and saying i want to go to boise idaho but google can't figure out where you are right now there's no way to get there right or not a not a direct route to get there it's going to be an awful route to get there even if you're three months out and you're thinking you want to sell in three months you got to figure out the value today you got to get started today if you're thinking three months you got to understand the value of what you have and it doesn't start and end with the book look i i wish that i could write a book or that anybody could write a book to tell you exactly what the value of your business is but life is not that easy business isn't that easy there's no two businesses that are alike so you can't i can't tell you based upon what you tell me about your business exactly what it's worth right in one call i need to look at the p l i need to hear the the nuances of the business and it's going to be several calls anyone that has one call with you and doesn't look at anything and they tell you exactly what your business worth is is is not really telling you the truth that's just the reality of it you got to get started earlier though as soon as you can the sooner the better not not the day you start your business i'm not a big fan of you should think about your business selling your business the day you started if you're a first-time entrepreneur all you got to do initially is just keep the wheels on the bus and start generating revenue and and and building a business once you sell the next time you build a business you really are an expert because you're already thinking about that because you know that that most of the money you're going to make from the business comes on the day that you sell it and so you're already thinking about that next tech set when you start that next business with this show hopefully people will pick up the book so they can start getting prepared for it i'm assuming that even if you pick up the book there is a lot of work to be done afterwards so what somebody who finishes the book what's the next step how do they go and really prepare for the exit when they become very intentional about it the next step is to have a conversation with an experienced advisor and there are some links uh in the book that there's some you know that we refer people to to get them some expert advice there's no fees for it there's no charges for it it's to the company that i own it's called quiet light brokerage um and we have a team of advisors that are all entrepreneurs first and foremost everybody on the team has built bought or sold their own online business and now act as advisors helping people first giving away all of their experience all of their knowledge sharing what they have to make sure that you're on the right track to eventually exit your business for maximum value when you want with whoever you want we don't ask for contracts we don't charge retainer fees we only make money if we're successful when you agree to sell your business through us and we eventually sell it for you that's the only time we get paid it's kind of a weird model we just help and give it away for free and hope that you'll hope that you'll work with us uh but it's a model that seems to be working pretty well no that's great so buy the book then uh get some free advice from quite like brokerage and then if you like them and you you build a trust through these interactions sell through them that's awesome exactly uh you know and what you're going to get from the advisor that's going to help you is firm understanding what your value the value of your business is today so you know how close or how far you are from that goal and then they're going to help with a path towards that goal what the weaknesses are of your business what the strengths are over your business so that you can focus on firming those up and and marching toward your goal it's not just about money it's all those other four pillars that i talked about that risk growth transferability and documentation as well awesome thank you very much for sharing i really appreciate it and it was a pleasure having you on the show thanks for having me [Music] you