We are welcoming back returning guest of the show, Co-Founder of Quiet Light Brokerage, Joe Valley! In this episode, Joe discusses what kind of multiples you can expect when you sell, should you have an exit plan, and is there an Amazon FBA gold rush happening as we speak!? Joe Valley is the Co-Owner of Quiet Light Brokerage, a business advisory firm helping online entrepreneurs achieve incredible exits. He’s been an entrepreneur since 1997 and has built, bought, and sold his own eCommerce businesses. He joined the Quiet Light team after they sold his last eCommerce business, and he has now sold nearly 100 million in total transactions.
Joe Valley is the Co-Owner of Quiet Light Brokerage, a business advisory firm helping online entrepreneurs achieve incredible exits. He’s been an entrepreneur since 1997 and has built, bought and sold his own eCommerce businesses. He joined the Quiet Light team after they sold his last eCommerce business, and he has now sold nearly 100 million in total transactions. He is also a featured speaker and frequent podcast guest.
Joe’s first book “The ExitPreneur’s Playbook” will be published in the Spring of 2021 and will be part education, part inspiration. The subject will be geared toward online entrepreneurs and helping them maximize an eventual exit of their business.
Episode: 89
Title: Norman Farrar introduces Joe Valley, an eCommerce Expert and Co-Founder of Quiet Light Brokerage.
Subtitle: Know How to Sell and When to Sell your Business
Final Show Link: https://lunchwithnorm.com/episodes/episode-89-how-to-sell-your-business-w-joe-valley/
In this episode of Lunch With Norm…, Norman Farrar introduces Joe Valley, an eCommerce Expert and Co-Founder of Quiet Light Brokerage
Joe has been an entrepreneur since 1997 and has built, bought and sold his own eCommerce businesses. In this episode, Joe discusses how to have an exit plan and the multiples you can expect when selling your business.
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Norman 0:03
Hey everyone, it’s Norman Farrar, a.k.a. The Beard Guy here and welcome to another Lunch With Norm, the rise of the micro brands.
Norman 0:23
Alright. Today, our guest is co-owner of Quiet Light Brokerage Joe Valley and he’s one of the first people I met in the Amazon space, which is kind of cool. He’s going to be talking about how to sell your business, some tips and tricks about or not tricks, but just tips about selling your business if it’s an Amazon business, what to look for. So I’m really looking forward to it every time I talk to Joe, I’ve been on his podcast before. He’s just an awesome guy. But before we get to Joe, just wanted to let you know that we are broadcasting to you live on Facebook, YouTube and LinkedIn and if you’re watching this on a replay, skip it, you can just you can forget all about this stuff, you can just skip ahead and get to the meat. Anyway, for those of you on my personal Facebook page, you can always head over to the Official Norman Farrar a.k.a. The Beard Guy page, where you can get highlights, more content and whole episodes. Now where is my son?
Norman 1:30
Kelsey is so quiet today.
Kelsey 1:33
Oh, Alright. There we go.
Kelsey 1:37
Alright. You can see me? I might have to refresh my page on the side.
Norman 1:42
I can see you perfectly, sir.
Kelsey 1:43
Okay, perfect. Alright. So yes. If you’re watching us, please follow us on social media. We are on Facebook, YouTube, Instagram, Pinterest, TikTok. So you can find us all. You can either search Lunch With Norm or Norman Farrar and we should pop up. Yeah, go ahead and like and share and we have a brand new Facebook group too. So I’m going to put that in the links in the comment section. But feel free to join us there. You just have to answer three questions and it looks like we have a couple of guests already joining us. We have Victor.
Norman 2:17
Hey Victor.
Kelsey 2:18
Simon. We have Dr. Koz back. Alright, so awesome.
Norman 2:23
Alright.
Kelsey 2:24
Yeah. Enjoy the show.
Norman 2:26
Welcome back everybody. Nathan, Simon, Doctor Koz and Victor and GIZ.
Kelsey 2:33
Yeah, that’s Victor.
Norman 2:34
That’s Victor?
Kelsey 2:35
Yep.
Norman 2:36
How did you know that?
Kelsey 2:37
He just told us before.
Norman 2:40
Alright. Okay, so let me see. Kelsey, I just wanted to let you know that your mic is lagging a little bit. I don’t know if it’s Wi Fi or what it is. But at least it seems like it’s coming through a little bit slow.
Kelsey 2:53
Yeah. I think I’m gonna have to refresh the page. But if he leaves me, I’ll be back in a second.
Norman 3:00
Very good. So if we lose Kels, sorry Kels. You’re off the podcast. Alright. So if you have any questions, throw them over into the comment area and we will get to them throughout the podcast. We love engagement. So just let us know. If you do have any questions, I’m blind as a bat. So Kelsey will have to read them out. Or I’ll just make them up. Anyways, sit back, relax, grab a cup of coffee and enjoy the show. Mr. Valley.
Joe 3:33
I knew that was gonna happen the moment we go live, my life locks in over there in the dog’s bark. Hi, everybody. These are my dogs. Goodness grace. It was like literally to the second I’m thinking I see her out front with Dana. She’s gonna Okay, there they go. Sorry about that.
Norman 3:49
Oh, is the other dog called White?
Joe 3:52
Wife?
Norman 3:53
No. Dog Dana White?
Joe 3:57
Dasher. That’s Dasher right there.
Norman 3:59
Oh, that’s cool.
Joe 4:00
Like a little reindeer. No, no, no, no, the woman is called Dana. Not to the dog.
Norman 4:05
Oh, I am so sorry. I thought you were talking about
Joe 4:10
Cush, Cush. Yeah.
Norman 4:14
Oh my god. I’m sorry, Dana.
Joe 4:16
Happy Belated birthday, by the way, party.
Norman 4:18
Pardon me?
Joe 4:20
Happy belated birthday, by the way.
Norman 4:21
Thank you, sir. I gotta tell you, you’re one of the nicest guys I know. We had the pleasure of meeting, I think the first time was done in Cancun at the Illuminati Mastermind. Yep. With Manny Coats and Kevin King and Ghee and we had a chance to talk a little bit. I think Elena Saris was the one that connected us, wasn’t it?
Joe 4:43
I think so. Yeah.
Norman 4:44
Yeah. So it’s been years.
Joe 4:48
A lot’s changed.
Norman 4:49
A lot. Can you imagine like, how much has changed in Amazon since we first met?
Joe 4:56
Well, I remember I went to an event in 2016 Norm, I think we met at 15. I think, I can’t remember. I went to an event in 2016 and it’s an annual event for this large e-commerce group and we were sponsoring it and I was so proud of myself, I wrote a little book called 10 steps to sell on your Amazon Business and I always just, it was printed, it was up on the desk, and anybody could take it, they want it to, and the host of the event gets up and quickly goes through the stats of their thousand people and like, only 20% of them were even selling on Amazon. So he was boasting, how proud they all were to not be Amazon people and my ego went like through the floor, because I was so proud of that book, and then none of them were selling. Fast forward to the last time I went to that event. They’re all on Amazon. It’s like, it’s completely flipped, 20% of them are doing most of their brand on their own websites, but most of it’s through third party platforms like Amazon these days. It’s hard.
Norman 6:05
Yeah, it’s funny that you just said that, everybody’s selling on Amazon and today, I had an email that came through and somebody was asking me a couple of questions and they’re talking about listing their, putting their products on, putting their brand on, they sell retail and then in the email, he says, Yeah, so I went to Fiverr and I got them to put a listing up for me, I’m sitting there going, your brand, your retail brand. Like you’re an established brand, why are you going to Fiverr? Why? If they only knew that, pay the buck, if you can’t do it, or if you don’t want to do it yourself, pay the buck for an expert. Now, there could probably be some good Fiverr people out there. It’s like going onto Fiverr and saying, Hey, I’m gonna find a broker to sell my business for five bucks.
Joe 6:58
Good luck. Good luck. Yeah, I’m sure you’ll do it. I’m sure you say that broker fee, but you’re not going to get the value for your business. That’s for sure.
Norman 7:05
Absolutely and that’s the same with the listing. So Hey, Joe, can you tell us a little bit about yourself?
Joe 7:11
Sure. Yeah, obviously, as was mentioned, I’m a partner at Quiet Light Brokerage. I sold my own e-commerce business, or my last e-commerce business, I should say, in November of 2010and then I joined the Quiet Light team in 2012. I think in my entrepreneurial life, which I’ve been self employed since 1997, I’ve bought two companies, invested in three and sold two and my only asset now in terms of entrepreneurial ventures is Quiet Light Brokerage. It’s all I do at this point, but I built a bot. I’ve sold my own online businesses and I joined the team in 2012. At the time, it was just myself and Mark, Jason and Amanda and we’ve grown up since then I think our average transaction value was somewhere around 150-$200,000 and our largest transaction may have been five or 600,000. Now our largest transaction for the end of this year will be close to 25 million and our average transaction size, probably in 1.3-1.4 million before the end of this year, some of those larger amounts are pulling it up. It’s surprising for us Norm, as an entrepreneur, which we all are, and I want people to look at us that way. We all struggle with promoting ourselves to our own level of incompetence, if you will, right? Are you an expert at Facebook? Or do you have to be going to figure out yourself or, ranking. So you can hire somebody from Fiverr to do your photographs or something like that and we keep getting pulled in the direction of the larger transactions, even though we often find it and we’re still trying to figure out if we want to continue to go in that area in that direction. I just had a call with with somebody this morning and as we’re talking, I’m gonna pull up something on my other screen just so I can talk specifics, but at a call somebody this morning that, his business is doing probably about 3 million in discretionary earnings this year and he’s doing a lot of pre planning and wants to have 100 million dollar exit and it’s not what we do right now, right? But a few years ago, I would have said, Yeah, we’re not doing anything more than 10 million and then we did one for 10. Okay, no more than 15 Okay, we don’t want 15, no more than 20. Now, we’re gonna close one for 25. So in three or four years, we might be in a position where we’re in the middle of 100 million dollar transactions, I don’t know for sure. But I don’t want that kind of stat to turn people away from who we are and what we do because first and foremost, we’re entrepreneurs. Everybody on the team has built, bought or sold their own online business. The latest person that we just brought on is a guy named Pat Yates. He owns a company called Happy Feet, he cut a deal with Robert on Shark Tank back in 2014. Brad rolled up 30 content sites, sold the private equity firm. Amanda was on the cover of Time magazine for her importing business, for pearls back in the day, but our largest listing, if it closes, will be 25 million this year. But strangely enough, our smallest will be $16,399. So we’re kind of all over. I don’t want to scare too many people away. Usually, those smaller ones are our pocket listings, where it’s somebody that has a larger business, that’s half a million, 1 million, 2 million, 5 million, not sure. But they also have this other smaller business, and they want to sell that separately and we just, we don’t list those, we just find them a buyer from the buyer pool that we have. That wasn’t really about myself, was it? I’m not sure if I answered that question or not?
Norman 10:55
Well, yeah, I know you and you don’t like just talking about yourself. You don’t have these 12 page bios that some people do. So that’s what I like about you. Oh, what’s funny is when actually when we first met, you probably don’t remember. But it was, I thought, I just remember this. It was a Prosper show. I went up and asked you a couple of questions and then we met at Cancun, but Mark, Mark Doust kind of just throw it in there. It has the same last name as my mother. But in Canada, it’s called Doust.
Norman 11:35
No kidding.
Norman 11:36
Yeah. So Mark, like when I saw Mark’s name out there, I said, Nobody. I mean, this is the first person I’ve ever seen with that last name and I went up to him and I asked him about that and I said, Yeah, how do you pronounce it? He goes, Doust and I said, oh, oh, and candidates down.
Joe 11:54
Yeah, I would imagine if you pop that name in a LinkedIn profile and into LinkedIn, there’s not gonna be that many names that come up.
Norman 11:59
I don’t think so. Well, let’s move on to some e-commerce now. So you’ve sold an e-commerce business? What’s the difference between an econ business, online sales, Shopify, selling that and selling an Amazon business? Or is there a difference?
Joe 12:17
In terms of the process and transaction, there’s not a ton of difference, really. The value is probably higher on an e-commerce business and let’s just call it strictly FBA business, even though you might be doing the fulfillment yourself. Because there’s less risk in the FBA. I’m sorry, in the e-commerce business, when you’ve got multiple channels of revenue, there’s less risk, lower risk increases a higher value, and you as the owner of that business will get a higher value for the business. Now with that said, the Amazon space is maturing, and more and more buyers are stepping into the space, they’re getting much more comfortable right back in 2016 with my proud, literally, it was probably 30 pages or 10 steps to sell on Amazon. I laugh at it now. But, no one was comfortable. They all thought they had the Chicken Little attitude with the skies falling with Amazon, it’s too much risk and all this other stuff. It’s totally changed. Amazon is fully committed to third party sellers. There’s, it’s a huge part of their profit and what they focus on. They’re running ads on it now on TV is primarily around Prime Day, but it’s coming up in value, it’s probably still not going to equate to a business that’s doing 50% of its revenue on Shopify and 50% on Amazon, if we had two identical revenue and profit based businesses, and one was 95% Amazon which is an Amazon business, and the other was 50-50. The other one, let’s just call it for round numbers. Let’s say that the mogul hundred thousand right small numbers, hundred thousand in profit or or discretionary earnings, as it’s called the Amazon business might be at three times plus or minus. It’s three times that discretionary earnings times three would be through the 300,000 and then it’s plus inventory, inventory is separate. The e-commerce business, the balanced one would more than likely be 20 to 30%, higher and total value, maybe even more. So it would be 3.3, 3.4 times, so you’re gonna earn money with a diversified business than you are with a strictly Amazon business. But the buyer pool was strong in either and a lot of holding companies have started to form to buy FBA businesses and roll them up. That’s a plus. But it’s also a minus because they pay terribly. They’re looking for businesses at an incredibly low multiple. The upside for those FBA business owners if you’re in a high risk niche on FBA and you’ve got a hero skew, meaning you’re doing 70% of your revenue. The holding company will buy those because they don’t mind buying something with one or two hero skews versus your average buyers going to look for something that’s more balanced, because they’re a little bit more risk averse.
Norman 15:19
Right. So one of the things I’m wondering about, I get asked this all the time. Is it still a problem to transfer your business on Amazon?
Joe 15:30
No. Why the hell does anybody think that’s a problem?
Norman 15:33
I know.
Joe 15:36
People. Look, Thrasio was doing it, they just got a billion dollar valuation. Do you think they were raising huge venture cap money and they can’t transfer control of a seller account? Right? Go literally 10, I said it so many times 10 steps to selling millions on this. I had an Amazon business. I got written permission from Amazon to transfer my account. I just asked them how to do it enough times, they finally just said, here’s how you do it and they put it in writing. They sent me an email, it’s in the book. No, it’s perfectly fine to transfer control of a seller account. In the US, US to US one is not hard at all. It gets hard when you’re a US business owner trying to transfer a Germany, UK account or something like that, because their money laundering laws are much more stringent than ours and it’s the government that’s making it harder, not Amazon. But in the US. If you’re buying a US Amazon account, it’s not hard at all. Norm, I tell you what, why don’t we pull up your screen and you transfer control of one of your Amazon accounts over to me right now and so we can show people, I’ll just put in my banking information. I’ll just, I’ll pay you $1. How’s that? I bought your business for $1. You give me full control? We’ll do it live right now.
Norman 16:54
Sure, let’s do that. You’re sure?
Joe 16:58
It could be done that quickly is my point. Literally, we’ve been talking for 17 minutes now and in the next 10, I could take control of your Amazon account. It’s not hard.
Norman 17:08
But you do have to just notify Amazon, right, both parties have to notify Amazon that this is gonna take place.
Joe 17:16
Have to is advised, suggested is advised. But lots of people do it without, we definitely recommend that our business owners reach out to Amazon via the chat, whatever it might be email and say, hey, look, I’m selling my business and one of the assets of my business is my Amazon seller account. How do I change control of that? The first eight times you ask that question, they’re gonna say, Oh, no, you can’t do that, sir. At nighttime, they’re gonna say, Oh, yeah, no problem. This is how you do it, log into the seller account, update the banking information, update the EIN number and that kind of stuff. It’s not hard. The one thing to know is that the humans at Amazon don’t communicate with the bots at Amazon. So if we were to log in, if I were to take over control of somebody’s Amazon account right now, and they live in Boise, Idaho, and they’ve been logging in from their local URL, their local IP address in Boise, Idaho, every day for the last three years, and they have a personal email address inside their Amazon account that they’re going to keep. When I log in, and I update the banking information and the EIN number, and then the email address, the bots are going to go crazy and they’re going to pause the account. They’re going to prevent anybody from withdrawing any money from the account, odds are the account is still going to be live and used to be able to process orders and be shipped to customers. But because you changed all three at the same time, the account may get suspended. Now, keep in mind that we do this. We’re involved in these transactions every day and I think in the last 24 months, there have been maybe two that this happened to. So my advice now, do it now, don’t wait, stop using a personal email address in your account, use an email address, it’s going to transfer with control of the account. So you’re not updating the banking information, the EIN number and the email address. It’s when you update that email address all at the same time, the bots can go a little wacky and pause the account. But it’s easy to be easy, easy to do. Some transactions where people are super paranoid and maybe have attorneys that are heavily involved with it will update one piece of that every few days. So they’ll update the banking information. They’ll wait three to five days to update the banking information. They’ll wait three to five days until they update the email address. But you can avoid all of that by updating the email address to one that’s going to transfer with control of the Amazon account now versus the day that you sell.
Norman 20:03
That’s a great point. I’ve got, I’ve had some experience with this where we were changing banks and saying does everything like you just said, and the account got suspended, it was probably suspended for a week plus, then, because of this, the next time we went to do this, we notified Amazon, and just told them what we were doing that we were changing the bank account, changing this, changing that and it was suspended again. But we were suspended for an hour, rather than four week. So like, what we’re doing now is anytime there’s any changes to the account, that we change the week, just call Amazon and open up a case and try to talk to them directly about it. But you could just open up a case.
Joe 20:51
Yeah, so many people are afraid of Amazon, that it’s big brother, that you try to make any changes that appear though they’re against terms of services, your accounts are gonna be shut down, that that’s not what they’re about. They’re about profit and making money, servicing the Amazon customer, and they want to help you succeed. They’re not here to shut you down. Now. Look, everybody’s heard stories, horror stories of accounts being shut down for no reason. Behind the Amazon headquarters are humans and humans do make mistakes and I’ve heard plenty of situations where they screwed up. I was talking to somebody, maybe a month ago that sells pesticides, or something along those lines and if at a glance, it looks like it’s something that is not allowed to be sold yet, when you look at the full ingredients, it is. Well they shut down his account, they actually destroyed the product. But Amazon was wrong and he hired somebody to help him and Amazon reimburse them 100% for all of the product at the full list price, not at the cost of goods sold, at the full cost as if he would have sold it all. So I think the fact that you open up a case and speak to somebody, there is the right thing to do. They’re human, they want to help.
Norman 22:11
I’m just interested in your opinion, a lot of these companies create multiple brands, they put them under the same company. What’s your opinion? Should you have a separate company for a brand?
Joe 22:27
Yeah, it’s called commingling and the problem with commingling is that, if you’ve got five brands under one umbrella, and they’re all using the same staff, they’re all using the same bank account the same bookkeeper, and you want to sell one of the brands, you’re going to be limited in terms of your buyers, because you cannot pull off a completely separate and accurate Profit and Loss Statement. So your buyers are going to have to be very comfortable with looking at the Amazon reports, and ballparking. The bottom line is discretionary earnings, one of the key things that buyers want sometime we call them pillars, but it’s what buyers want is documentation. They want clean and accurate documentation and that primarily is focused on books, your financial records and so the best situation is when you have one bank account, one EIN number for that one brand, and you can run a separate Profit & Loss Statement for them. Now, what happens if you have multiple brands and a bunch of VAs that work on those different brands, you just have to allocate their time towards each brand and there’s software out there to do that. It’s more work. But you get paid for it at the end of the day. You’re going to get a higher value for your business when you eventually exit. If you’ve got clean books and clean financials and separate payroll and all those different things than if it’s all commingled. In addition, you’re going to be able to open up the buyer pool to SBA buyers. So if you’re a US based company with US tax returns and you commingle everything and you just want to sell off one of the brands, you’re not getting SBA pre approved. If you have everything separate, you are going to get SBA pre approved, most likely if the cash flow works in terms of the list price of the business, by way of example, I launched one on Friday. I hate launching on Fridays because I don’t like working Friday afternoons, but we launched Friday last week. So selfishly, I didn’t want to launch one on Friday. Just it was SBA eligible, million 50. Email blew up. We’ve had seven calls booked already with qualified buyers. Because it’s SBA pre qualified. It doesn’t mean that it’ll be an SBA buyer, but it will certainly get the cash buyers off the fence quicker because there’s more competition. So I think it’s absolutely in your best interest as a business owner to keep separate books and don’t commingle. It’s a challenge sometimes I understand and it seems like work but you have to accept or take my word, if you will, I don’t know who you are right now. It’s worth it. Because I’ve sold 100 million in transactions of these, and each and every single time, those that have clean financials get a much higher value, you commingle and you’re not going to get the same value, it’s going to hurt you along the way.
Norman 25:19
Along those lines, when you’re talking about selling your business, you’re talking for the most part selling the assets of the business.
Joe 25:27
Yeah, yeah.
Norman 25:30
I just, yeah, want to make that clear. Anybody that’s new to Amazon, or what you’re trying to sell a business, is that you’re not actually buying the entire business, you’re buying the assets of the business. So you can limit risk.
Joe 25:45
Yep, yep. Hey Norm, we’ve got a whole bunch of comments as well, on the right. Do you want me to as we go through?
Norman 25:49
So this is Kelsey’s job. This is what I pay.
Joe 25:52
I know. But as you said, Oh he’s back. It’s working.
Kelsey 25:55
I’m back.
Joe 25:58
Yeah, let me just touch on the asset sale versus stock sale, Kelsey. These are asset sales, which means you keep the empty shell of your business and all of your assets of the business move over to me, I take control of it or your buyer, of course. So it’s the brand, it’s your relationships, it’s your email, all those different things, if it’s a business. But you keep the money in the bank, any accounts payable and accounts receivable are yours. On any revenue from the day of closing forward is mine, any revenue from the day before closing is yours, the risk associated with those transactions are yours and you end up with an empty shell. It’s just it’s a cleaner, safer transaction. The stock sale means that I would take on all of your liability and it means that we’d have to figure out accounts payable, accounts receivable, there’s money in your bank account, we don’t want you to drain it, we want working capital and most buyers at this level are looking for asset sales and when I say this level, call it sub 10 million. They’re looking for asset sales, not stocks. Okay. Alright. Go ahead Kelsey.
Kelsey 26:59
Okay, so first off, we have Victor. Now that’s become visible that a high percentage of page one listings in my categories are from eBay sellers. Do you think that will impact sale prospects and valuations for US based sellers?
Joe 27:13
I haven’t seen it yet. Right? Everybody talks about before it was Amazon shutting them down. Now it’s Chinese competitors and I haven’t seen it, I don’t see it as much as Norm. So you can speak to this in terms of the high quality Amazon sellers competing against high quality US Amazon sellers. I’ve seen a situation recently where somebody was selling neck gaiters at $40 a pop, it was really a company that sold rashguard and they were doing incredibly well. It’s a company that’s 10 years old and then their revenue blew up because of the neck gaiters on timing right with the pandemic. But those Chinese sellers came in and drove the price down so his COVID bump is gone in that situation. But we haven’t seen a ton of direct evidence that’s going to hurt the sale value in terms of, well, you’ve got Chinese competitors, so therefore we’re going to put you at a lower multiple, the way it’s going to be automatically translated is if your Chinese competitors are hurting your revenue and your profits, it’s going to show up in the profit loss statement and that’s where we’re going to interpret it that your revenue is trending down or your revenue flat, but your profit is down and we’re gonna ask the question why then you want to address the Chinese competition and it’s going to hurt your value if that’s the case. But that would be the case even if it wasn’t Chinese competitors. If it was any competitors, or you’re just taking your eye off the ball and revenue dropping, your value for your business is going to get lower because of the risk associated with a decreasing multiple or decreasing profits.
Kelsey 28:52
Okay, great. Alright. Our next one is from Simon, does the interest change either positively or negatively if the business also has wholesale customers?
Joe 29:06
Yes, it changes to the positive in the sense that if it’s a wholesale customer, really assuming that you own the brand, and you have a wholesale buyer, they’re buying in larger quantities, and they’re repeat buyers. So they’re buying on a monthly or quarterly or semi annual basis at a larger clip and that’s recurring revenue and recurring revenue decreases risk, right and increases the overall value of the business. You have to take that with a grain of salt because if you have one wholesale customer, that’s representing 60% of your total revenue. That’s too much risk because it’s one customer at 60% of revenue and that’s actually going to decrease the overall value of your business in terms of the multiple because of the risk associated with that one customer.
Kelsey 29:54
Okay, perfect. From Yarrow. He’s asking when does the multiplier start growing from three to four and more. How big should be your revenue profit to have a better multiplier?
Joe 30:06
It’s a good question. It’s what we get often. Revenue wise, ignore it completely, because your business is not going to be valued on revenue, it’s going to be valued on profit or what’s called seller’s discretionary earnings. So that’s net income, plus add backs. What the hell’s an add back, it’s your owner’s salary. It’s your Mastermind groups, it’s your credit card cash back that you slide over to your personal account and don’t report it. There’s no way to properly report it. Anyway, the IRS doesn’t know what to do with it. But most people think they’re tricking the IRS, when in fact, it’s a discount on advertising. So it’s your money anyway, you got to pull that up. But those things can add up to a tremendous amount. So it’s net income plus add backs equals seller’s discretionary earnings. Forget about revenue, that’s not going to be a multiplier revenue for the most part. If you’re doing 35 million in revenue and 40% of it is recurring because you sell dog food, then you’re going to get a multiple of total revenue. But if that’s not you, and odds are it’s not. It’s a multiple of discretionary earnings. Now, where does it climb different, how do you determine when you’re going to be four times versus three times? It’s really, really hard. It all depends upon the diversification of that revenue, the documentation around it, how clean your books are, things are of that nature, how old the business is, do you have IP behind it, have utility or design patent things of that nature. But ballpark wise, let’s just say that your sub 250,000 in discretionary earnings, just call that at two to three times two times two, three times multiple, if you’re if you, you’d be in trouble if you’re at two times these days, but call it two to three, two and a half to three times. If you’re 250 to 500, in discretionary earnings, you might be at that three to three and a half times and then if as the closer you creep to a million, the higher the multiples going to go, you might be at that three and a half to even four and a half times discretionary earnings. Now with us with everybody that is in this industry and in this niche with the exception of website closers. We all list them as a multiple of discretion earnings, plus the landed Cost of Goods Sellable inventory on hand at the time of closing, website closers. They’ll lump that inventory into the purchase price and it has different effects on it. But they’re the only ones that do it. So their multiples at a glance will appear higher. But the reality is that it’s when you adjust out the inventory, it’s all ballpark about the same.
Norman 32:43
Hey Joe, we’ve talked about this before. I love SOPs. I love systems. But having great SOPs and having these great systems in place, it really just makes it a turnkey operation, a nicer operation. It doesn’t add to the multiple does it?
Joe 33:01
Yes, it does. Yes, it does. Absolutely. Look, we talked about the four pillars here acquired, right. It’s age, risk, growth, and documentation. So imagine these are all pillar stones sitting on top of each other, and got four pillars. They don’t do any good at all and I don’t squat bad hurricanes, not gonna knock them over for thinking about Greek pillars, but there’s mortar in between them all and you Norm or the owner of the business that’s creating those SOPs is the mortar that holds these all together. So these pillars can be called the four things that buyers want. But the fifth thing that they want is to buy a business from somebody that they trust, and somebody that’s setting up SOPs and running a business really, really professionally and running it with the next owner in mind, their goal is not to sell the business for maximum value alone. Their goal is to build a great business, so that a great buyer takes it over at a great price someday and that’s when they’re going to get maximum value and that’s where the SOPs come in place. So you build SOPs, it’s going to do two things. It’s going to instill confidence in the potential buyers of your business. But it’s also going to make your life easier after you sell the business, because you’re not going to have to sit there and train somebody every day on how to do certain tasks, because you can point to the SOPs and say, here it is, give it a shot. I’ll run it through with you the first time but second time, give it a shot on your own and if you need me, I’m here. But it’s going to make it easier for you after the sale as well because you’re gonna have to do less work and you’re going to get more value because you’re instilling confidence in buyers and they want to buy from people that they trust because they’re risking their money and they want to risk less so if you do great things in regards to SOPs, you can instill confidence to people, they are going to pay you more, bottom line. This listing that I just launched on Friday again, having calls set up already. I’ve already got one full price offer in, and haven’t submitted it to the owner yet because we haven’t had a conference call with the buyer sell conference call, which we always require. But he’s done that, he talked about SOPs on the call this morning. He’s a likable guy. He’s 66 years old, people trust him. He’s instilling confidence in them. They’re gonna pay more for that business, because of a variety of reasons, but one of them is him because they trust him. Yes, SOPs are important.
Norman 35:27
How long would a person like that have to stick around? Now it probably is different, it’s a different time factor if you have SOPs because of the training. Typically, how long would a company ask the owner to stick around?
Joe 35:42
Great question. Great question. So the average what we put in the asset purchase agreement, we actually put it in the letter of intent and I had this in mine, in my LOI, when I sold my business back in 2010. It hasn’t changed, it’s loving the language is literally up to 40 hours over the first 90 days after closing, and that’s built into the purchase price. Now, if you’ve got an inexperienced buyer, they may get nervous and say, oh, my goodness, that’s not enough time. I’ll tell them it is and that they’ll never use it. Because I’ve rarely seen anybody even use that much time. Will say okay, well, why don’t we do up to 40 hours over the first 90 days after closing and then for the next 90 days, we’ll do up to five hours a month for the following 90 days. But you’re not working for the buyer of your business, you’re helping them run your business, you’re teaching them, you’re training them. You’re not doing the work yourself, and they think they’re smarter than you are. So they’re gonna kick you to the curb pretty quickly is what I find and I do all I can to tell them not to reinvent the wheel, not to fix what’s not broken, and just pay attention and don’t do anything too dramatically new for a few months. But there’s not a ton. There’s not a ton, very rarely do I see really nervous buyers need much more hand holding. I saw one recently. That’s just straight up Amazon business. Third time somebody bought from us. It was listed. This is the exception, not the rule, folks. It was listed under contract and closed in about two and a half weeks and Rachel the owner of the business has not had to help at all because this guy runs three other Amazon businesses. It’s easy for him.
Norman 37:25
Okay, Kelsey?
Kelsey 37:27
Alright, time for more questions. Okay. Amazon number, when you call Amazon, who do you call? Their main line sucks.
Joe 37:37
That one’s for you, Norm.
Norman 37:39
No for this one, all we did was just notify them. We opened up. I believe it was just a case and letting them know. I think that’s what it was. We just opened up the case and we got confirmation back through the case that we could sell the business.
Kelsey 37:59
Okay. Perfect.
Norman 38:01
Unless it’s any different from you, Joe. If you have a special email or anything, but I think that’s what we did.
Joe 38:07
No, no. Back in the day when I was trying to get them to give me a confirmation writing that I could transfer my my seller account. I just kept hounding them. I just literally think I sent 10 or 11 emails and texts and chats and all this until eventually, I got somebody in the US that helped me and I spoke to them and they understood the language I was speaking and gave me what I wanted. I think you just push and push and push. But no secret here.
Kelsey 38:34
Alright. From Victor, how far in advance have a sales should you break out your brains to different companies in SC accounts?
Joe 38:44
SC being seller centralized, so the value of your business is going to be based on the number of factors, but the multiplier is going to be applied to the trailing 12 months seller’s discretionary earnings. So we need at least 12 months. If I want to do a year over year comparison of your trailing 12 months seller’s discretionary earnings against the previous year. I kind of need another year. We could punt and say Alright, well, I’ll look at top line revenue for that brand and top line revenue for the previous year previous months.
Joe 39:19
So you could do a year at a minimum. It all depends upon when you want to eventually exit but I would say without question a year at a minimum. But the further back you can go the better. Look at the two men on the screen right now. Both of us gray on our chin, take some advice and and to get the shit done now, right? The longer you wait, you’ll hear me say, Norm says here all these other people say these things that you should do and you know what? You’re smart. You’re an entrepreneur, you’ve gotten to where you are and you say yourself, I understand I’ll get to it. I’ll do that someday. You’re going to wake up and Goddamn, I’m tired. Somebody is here and you’re going to want to exit, and you haven’t done it and then you’re going to be emotionally done and want to move on and the business is not ready to be sold, and you’re ready to sell it for less and it’s going to hurt financially. So I say this so politely, sometimes people we just bootstrap, and I’m guilty. Look, I didn’t know how to reconcile QuickBooks when I first started back in 1997. In fact, I was using Quicken and my brother’s best friend was a CPA and he came out sat on the back porch with a laptop and a couple of beers and he reconciled my accounts, and I began to love the numbers and aspects of it, because I actually had more money than I thought I had with my chicken scratch numbers. The more you mature and get serious about the numbers and preparing the business in a way that you would want to be prepared, if you were the buyer risking 100,000, a million dollars, whatever it is, the better off you’re going to do. These things, accounting and stuff that you’re not good at, it may make your eyes bleed. But if you hire somebody to do it for you, or you get better at it, it’s going to bring more value for you and I can’t express it enough. Just get it done. Get Started now. There’s great ecommerce bookkeepers that can do it for you. But the simple answer to your question is at least 12 months.
Norman 41:27
So if Victor has multiple brands right now that are in one company. He wants to get this thing sold, he waits another year till he breaks it out, is there any way that you can explain fairly simply that hey, we’ve been selling for four years, but it was wrapped up in this other company and we realized that we wanted to get serious about this. So we created a new company with the brand. So there’s other data that’s back in that old company, would they take that into consideration? Or are they looking at 12 months?
Joe 42:01
No, no, they’ve got to take it into consideration, because it goes to the overall trends of the business, right? So if I’m looking at just 12 months, the first thing that they’re going to ask is, well, what happened last year? Are you half the size of what you were last year? Because that means your value is less because you could be going down again. So we’ve got to look at previous years, we’d want to look at monthly revenue. So in this situation, if all I had were 12 months of separate broken out books, Victor’s still got access to a seller account, he knows his merchant account, he knows what the total revenue is that was sold for the prior months for each month in the prior years. I say give me top line revenue numbers, give me those and I will take your exported P&L. So you’re using QuickBooks zero, you export it to excel with a monthly view, so that every column represents a month, and I would then add the prior months total revenue, and then I could take your average cost of goods sold and advertising costs and sort of extrapolated out going back in time so that buyers would have some data. I would absolutely note it, make it crystal clear all over the place that those are estimates. Top line revenues accurately are real, but the rest of it estimates, as his discretionary earnings based upon the trailing 12 month actual numbers. We could do it. It’s more detailed and you got to take your time and do it right in order to instill confidence in the buyers but yes, it can be done.
Norman 43:32
So before we go on to any other questions, I’ve got another one. I had a company come and approach us to buy the company. This goes back years ago and it wasn’t an Amazon company, it was partly an e-commerce company. But this is one thing that you think wow, oh, I sold the business. Well, it’s not overnight and what I found out was how much work I had to do to settle this company’s due diligence process. Yeah, I don’t know if you have any tips or tricks on what can you do right now, if somebody’s going to come in and buy your business how to speed that along? Because it was hell, like they wanted every bloody invoice printed out. They wanted it like every report we could possibly give. What do we have to do as an Amazon seller to provide that information?
Joe 44:34
I remember when I sold my business I was complaining to my wife. I was working about 20 hours running my e commerce business and then when I got to due diligence, I was working full time because I was so unorganized. Assume that they’re going to want three years worth of bank statements, third party bank statements, three years worth of monthly seller account reports that are going to show total revenue in deposits and things of that nature. Three years worth of manufacturing, invoices and statements, all of the common expenses that you have that you have third party reports to, they’re going to look at, and want to verify your financials and due diligence. They may not go into a deep dive in year two and three, but they’re certainly going to in year one. So bank statements are easy, right? You just save it from your bank statement. But the trick on all of these is, if you go to your bank, and you download your bank statements, it’s going to say December 2020, January 2020, March 2020 and so when they’re all in one file for the year 2020 bank statements, they’re not going to be sequential. So rename them 1.2020, 2.2020, 3.2020. So that when your buyer jumps into Google Drive into your document folders, they’re gonna see a list of them. One’s gonna say bank statements, they click on that one, there’s going to be three bank statement folders, there one’s going to say bank statements 2020, bank statements 2019, bank statements 2018, when they click on one of those, it’s going to say 1.2020, 2,2020, it’s going to be so organized, that it’s going to impress them and instill confidence in them. They’re gonna like you even more, they’re gonna buy your business with no adjustments and no hassle and no pain. But you gotta you gotta organize that as soon as you can.
Joe 46:34
I think you I think I’m popping up on the screen over here. On our, on the Quiet Light website. I believe we’ve got a document that sort of reviews what files you should have and how to organize them and I’m seeing our search on there’s one by Chuck. Just yeah, go to the Quiet Light Brokerage website and pop in due diligence in the search bar. There’s 24 due diligence tools, there’s a whole bunch of things in there, there’s like seven or eight articles, and some of them at one point, there’s a due diligence prep list. We share a specific PDF with folks, when we start talking to them seriously about selling their business on how to get organized. I don’t think you don’t want to wait until you’re under a letter of intent to start getting organized. But, what I tell folks is once your business is listed for sale, okay, here’s the docs we’re going to need in a short period of time. Now that the frenzy of getting it prepared to sell is over, there’s going to be low. Go ahead and get organized with that. The only challenge is if you change banks within the last 12 to 24 months, you’re gonna have, it may take you a week to get those. But yeah, it’s that’s, it’s not too bad, I don’t think, yeah. A few, a couple of days of focusing, you’re done and you can be well organized and prepared. So it’s not so chaotic and due diligence.
Norman 48:01
One of the things that we even add, we go one step further, my VA hates me for this. But she has to add every receipt so they’ll go in if it’s Bank of Montreal, there’ll be all the statements. But then she has to match every receipt from my inbox to the statements. So it’s one step more, but if somebody’s looking, it’s all there.
Joe 48:27
Yeah, yeah. Hey, I love this question Norm, how it’s presented, it’s such a common question and so I just want to jump into it. Sorry, Kelsey. I don’t mean to take your job over here. I’m going to be the next co-host of Lunch With Norm. So Norman Ho asked, does the amount in owner tax and income adversely affect a multiple or valuation? It’s a really, really good question. So let me tell you the answer to that, by example. So let’s just say that you’re running a great business, Norman, and you’re taking $200,000 in salary. Okay, you’re able to pay yourself $200,000 and when you run a profit loss statement, the net income is zero. Does that mean your business is worth nothing? No, because that’s an owner benefit to you as the owner of the business. Remember, add backs are owner benefits or one time expenses that don’t carry forward like a design, patent utility, patent expenses, things of that nature, but your personal salary as an owner, as long as you’re working 40 hours a week or less is a 100% add back. So you could be paying yourself $10 or 10,000 or $100,000 a month, it doesn’t matter. It’s a 100% add back. The only exception is when you’ve got a husband and wife team and combined you’re working 60 hours a week and you’re both taking equal salary. We have to adjust that a little bit because buyers are not looking to buy a business and work 60 hours a week. So we do a partial add back on that second owner.
Norman 49:50
So you’re capping it at 40.
Joe 49:53
Yeah, capping it at four.
Norman 49:56
Alright, Kelsey, any other questions before Joe grabs it?
Kelsey 49:59
Yeah.
Kelsey 50:01
We have quite a few still, but I know you have to get going by one. So are there any questions that you think that are priority, or?
Joe 50:15
Now he’s putting it all on me as if I read more.
Kelsey 50:17
You want my job now, so.
Joe 50:20
I don’t know Norm, your son, I have the feeling he doesn’t pay very well. So I think I’ll stick to doing what I’m doing now.
Kelsey 50:26
Alright. Let’s see, we got Nathan. Does he currently have any Amazon FBA businesses and still in the 20,000 range?
Joe 50:32
No, we don’t Nathan.
Joe 50:36
Again, those smaller listings are generally pocket deals where we make interest. Actually, yes, there’s one where it’s not for sale, but I’d be happy to make an introduction. It’s in the baby space for nursing mothers and discretion earnings in the trailing 12 months is about $12,000. So we’re really looking at about $36,000. So no, it’s not in the $20,000 range. But if 36,000 is doable for you, send me an email at joe@quietlightbrokerage.com, i’ll send an email intro to the owner of the business and I’ll get out of the way. That’s too small for us to take on and actually list unless it’s a simple one. So you can just buy me and Norm and Kelsey, a beer someday for that introduction, if you buy the business.
Norman 51:23
Oh, hey, John, is my mic level okay, now? I did move it up a bit. So hopefully, John mentioned that the level was really low.
Kelsey 51:34
Sounds okay for us.
Norman 51:35
Okay, perfect.
Kelsey 51:36
Alright, we’ll do maybe one more.
Kelsey 51:40
Okay. Let’s see.
Kelset 51:44
One from Victor, what level of accounting statement rigor is appropriate for this kind of m&a transaction reviewed versus audited?
Joe 51:54
Yeah, don’t worry about the audited, we’re going to do a light quality of earnings process in terms of reviewing your P&L and putting a value on it. If you’re going to be in the 10 million plus range, the buyer may choose to do their own quality of earnings, that’s obviously going to extend the length of time and due diligence. But you don’t need to do that work in advance, you do have to have a good quality bookkeeper, running your books on an accrual basis, so that when you export a profit loss statement, we can get to the true seller’s discretionary earnings. But beyond that, we’re going to do light quality earnings on it, you don’t need to go hire a company doing 20 or $30,000 worth of quality of earnings. I’m going to throw in two more quick answers, everybody, I’ve got a call to start in six minutes. So I’m going to quickly enter a couple things here Norm. Norman Ho, I’m taking over Kelsey’s job again, sorry, I’m gonna talk quick. Norman Ho, the buyers are all over the place, they could be mom and pop people, they could be multiple repeat buyers of Amazon businesses, they could be holding companies that bought 40 of them before. If you want to get the most value for your business, you want the average person off the street that just wants to be an entrepreneur, they’re gonna pay the most value for your business. For sure, it can be they can need more, a little bit more transition and training time. But if they’re gonna pay an extra $100,000, for an extra 20 hours worth of work, I think you should take it. After the exit, sigh see be how non compete clause. So my process is fairly simple. It’s the non compete should equal the multiple. Simple as that. So if you’re selling glass fishing poles on Amazon, and I buy your business for a million dollars, and I pay you a three time multiple, you’ve got $333,000 in discretion earnings, I pay you a million bucks. I want you to sign a non compete, where you’re no longer going to sell glass fishing poles for three years. You can sell anything else you want on Amazon or anywhere else in the world on any platform. I don’t care, as long as it’s not class fishing poles. But you have every right to sell on Amazon and anything on any of the platforms, as long as it’s not competing with the existing product.
Norman 54:05
Interesting. So you base it on compete, on multiple.
Joe 54:10
It’s logical, right? It’s all otherwise there’s no reason behind it. People just pick a number of years. The reality is that once you’re done with a business and you want to move on, you’re gonna move on to another adventure in a different space. The buyer just doesn’t want to pay you a million dollars just to have you turn around and compete with them in 10 days. So you do the multiple and it’s kind of math and logic and just kind of works for everybody.
Norman 54:37
Okay, so you are down to five minutes, four minutes. So let’s call it a day unless there’s any other one last tip that you want to give.
Joe 54:49
Yeah, my last tip would simply be, run your business in a way in which you’re thinking not just of yourself, but the other buyers, the eventual buyer of your business. If you want to get maximum value for your business, and if you want to have the best transaction possible. The reality is for a growing Amazon business where you’re taking most of the profits and cash flow and putting it back in inventory, the reality is that you’re going to make more money the day that you sell your business, than running it, at least 50% of the money. I’ve seen people make 90% of the money or all of the money, for the most part on the day that they sell it. So you’ve got to have good clean books, you’ve got to think about the next buyer of your business, you got to do some shit you don’t like which is accounting and getting good details in there and maturing in that sense. But more than anything else, don’t grow the business to your own level of incompetence, where you start doing things that you don’t like to do, but you got to do them because you own the business and you just think you should be growing even further. Because you’re just kind of screwed up at that point. Because trust me, I say that from experience, you don’t enjoy it, and you stop doing it well and when you stop doing it, well, the customer knows it and the revenues are reflected in it and the value goes down when your trends dip pretty quickly.
Norman 56:10
Okay, sir. Well, thank you so much. I mean, I’ve got a ton of questions still here. So we gotta get you back on another podcast.
Joe 56:17
I’d love to be on anytime.
Norman 56:18
How do we contact you?
Joe 56:20
I think the best thing is to just go to quietlightbrokerage.com and if somebody wants to get a valuation, I really recommend it 12 to 24 months in advance. Just fill out the valuation form. Anybody on our team will help you out. We don’t charge anything for it. We don’t charge anything to the business that eventually sells. So we’re here to help first and foremost, but quietlightbrokerage.com I think is where all the tools and resources are and access to us and the listings and things of that nature.
Norman 56:47
Alright. Well, thanks for being on the podcast today. Joe, I know you got to take off. So we’ll see you later. Thank you.
Joe 56:52
Thank you, Norm. Thanks, Kelsey.
Norman 56:57
Alright, everybody. So if you do have any questions, just throw them in the comments, and we will be answering them later on after the podcast ends. But, let’s see. What do we have Kelsey, come on back.
Kelsey 57:13
Alright. Yeah. So please follow us on social media. We have Facebook, YouTube, Instagram, you can find it all. If you’re looking for the full replay of this, you can just head on over to our YouTube channel. We’ve got some fun, fun new templates. If you haven’t noticed yet.
Norman 57:29
Let us know what you think of the new templates.
Kelsey 57:31
Yeah. Is it confusing? Do you like it? What do you think? Yeah. I’d love to hear your feedback. I really like it personally.
Norman 57:40
I wonder why.
Kelsey 57:43
But yeah, also our Facebook group. As you can see, coming across in this ticker box here. You can search Lunch With Norm, Amazon FBA an e commerce collective, we’ve got everything you can find. We’re going to be talking about questions, anything Amazon and e-commerce related we’ll be diving into. So yeah, we’ll have like stupid question Tuesday. We’ll be talking about post threads from these episodes. So yeah, please join the community.
Norman 58:17
Yeah and a lot of the experts that are on the podcasts are also going to be involved with the community. So that’ll be great. So hopefully, we could talk Joe into joining it. But Alright, so we’ve got a newsletter, and it’s out there today, by the way. The new newsletter is always Mondays, it doesn’t suck. If you want to get some really great information about the industry, sign up. You’re not gonna be targeted by hundreds of different people. All we’re doing is we’re just giving you content. So if you’d like to check it out, and let us know what you think of the newsletter, it’s available. So if you’ll sign up today, you’ll see the newest one that was just released about an hour ago and let’s see, next Wednesday, or this Wednesday, we’re gonna be joined. This is cool. Bill King, I don’t know if you’ve heard of him. I stumbled on a piece of software an app the other day. I don’t know if many people know that I have a content marketing company. We don’t promote it here. But I was looking at this app because it made our job so much simpler. So Bill King’s the head of marketing for a company called Frase.io. Check it out. I got nothing to do with affiliates. Check it out what it can do and if you want if you get some questions before Wednesday, just throw them in. But he is going to be talking about strategies on how to win on Google and content marketing using Frase.io. It is really cool. Don’t miss out and I think that’s probably it. Until next Wednesday, just remember to tune in every Monday, Wednesday, Friday at noon Eastern Standard Time and we’ll see you next time.
Kelsey 1:00:23
It looks like Norm has a question about the newsletter, and it should be if you go to this link that I’m not sure if you’re in the personal profile Lunch With Norm or The Beard Guy one, but if you go to this link, you should be able to subscribe with it. Right. So I’ll put this in the personal profile as well. But yeah.
Norman 1:00:43
I think it’s on Lunch With Norm too. So but either or. Yeah. Okay, so get ready to hit that button for the song. Alright, everybody. We’ll see you next week. I hope you enjoyed the show. See you later.
