#142: Amazon FBA 2021 Exit Trends

Norman Ferrar  0:02  

Hey everyone, this is Norman Farrar, aka the beard guy here and welcome to another lunch with norm, the Amazon FBA and e-commerce podcast.

Norman Ferrar  0:23  

Okay, so today we have a first time guest Michal Oran, and she is going to talk about Amazon exits in 2021. And we’re going to be talking about the do’s and the don’ts and everything in between why you should be using a broker or consultant, what you need to know. So if you have anybody that’s in Amazon, or any commerce that’s looking at exiting later on, or you’re not quite sure what to do, this is the episode to listen to. So we’ve talked about this in the past episodes, but it’s always great to get new information and Michal’s  the right person for that. So before we get on any further, where is my sidekick?

Kelsey  1:11  

Yeah, hi, solo. Call me Robin over here. Alright, so how are you doing? How was your weekend?

Norman Ferrar  1:23  

I had a good weekend. Two weeks or two days of sunshine, my god, I can’t believe it. 

Kelsey  1:31   

Beautiful here in Toronto, Canada. Bear nation, where are you watching us from today? We’d love to know put them in the comment section. Also, if you’re watching now you can smash those like buttons. And we’d really appreciate it. We also got some two great prizes today. One from Macau. And when one promise so stick around for that. And I think you’ll really enjoy that as well. All of our highlights and daily episodes are up. Our highlights and full episodes are up on our YouTube channel. That’s the Norman Farrar YouTube channel. But the links in the description for everyone, as well welcome Dr. Cars. We’ve got from Los Angeles still smiling. Okay, rad Simon. Welcome Tony. And Andrew. Right. And,

Norman Ferrar 2:19  

and Simon’s already taken advantage of the wheel of Kelsey. Okay. We love Kelsey. All right. Um, today’s Monday, well live, where it’s Monday. And if you’d like to go over to our lunch with norm site or norm for our site, we do have the newsletter that doesn’t suck. It’s a really great newsletter that provides all sorts of comment or content, not only from the podcast, past guests, but also from around the internet’s a bunch of curated content that is really relevant for online sellers, not just Amazon, but online sellers. The other thing I just wanted to touch on, we don’t talk a lot about this, but I’ve had people ask me in the group and around I’ve got two messages today about one on one consulting, I try to keep away from one on one. We do have an Amazon managed services company, I don’t talk about it a lot. But I do you have with Tim Jordan, the cinterion League, and that is a if you wanted to go one step further in your Amazon or ecom journey. That is something take a look at Tim and I have joined forces about I don’t know it’s. probably been four or five months. And anyways, everything’s kind of coming together. We’ve got the group together, you can go over to private label legion.com slash mastermind, I think if you want to check that out, and we meet eight times a week and about two hours each time and we’ve got a really great engaged audience over there as well. So anyways, let’s get on with the show Kells. Alright, so sit back, relax, grab that cup of coffee, and enjoy the show.

Norman Ferrar  4:08  

Hello, Michal. Hi, norm. How are you? I’m fine. How are you? I’m doing okay so far. To take in fires in a family gathering in the normal.

Norman Ferrar  4:23  

Yeah, it’s great to have you and for those of us that don’t know you, can you just give us a little bit who you are and what

 Michal Oran 4:32  

you do? Sure. So my name is Mikhail Oran. I’m the CEO and co founder of fortunate. Fortunate is an investment bank banking firm that is a boutique that specializes on e commerce and Amazon businesses mainly. We are focused on representing the sales side so so business owners amazon seller Those who are looking to sell their businesses, we are representing them. In the process, we are a team of more than 20 people. That includes m&a, and mergers and acquisition experts, financial people, legal team, and Amazon experts. And with that we are wrapping the Amazon seller with all the needs when they are looking to sell their business. So that’s 15 shorted both me and maybe if you personally so my personal background, I’m a lawyer for I used to be a lawyer for 25 years before, before fortunate was established, I dealt a lot in mergers and acquisition, I ran with big business to development of a large international company, to get a lot in those kinds of deals around the world. And that’s, that’s it. Perfect.

Norman Ferrar  5:59  

You know, before we get into everything, I really can’t express or recommend enough that if you do have friends or family that are involved with Amazon, to either tag them or get them over to the podcast and listen to this, I think we’re gonna have some really great info for people, you don’t know where it’s gonna end up some people, you know, they start Amazon to get us a bit of spare cash. And, and I know two guys that did this, they got together and they started just, you know, selling pillows. And now this pillow company has exploded into this huge, multi eight figure business. And, you know, they never planned on having an exit strategy. So this is what’s going to be interesting about today’s conversation, we’re gonna talk about the do’s the don’ts, everything in between, you know, why hire, and don’t go direct? Oh, my gosh, don’t go direct. We’ve talked about this on this podcast before, but it’s the greatest way to lose money. Alright, so where do we even start? I think, you know, probably the best thing. Let’s talk about selling your business. When should people start thinking about that?

Michal Oran  7:14  

So that’s a that’s a great question. I mean, one of the toughest one, I think, first of all, it’s very much personality, which relates to everyone’s their own aspirations in life where one sees himself in the next few years, how, how does he feel about his prospects to keep on growing the business and, and other consideration, which are mainly personal, I can share what we’ve seen, in many cases, what we hear from different Amazon sellers, with considering selling their business, once they feel that they’re close to hitting a kind of a glass ceiling, glass ceiling, that they will not be able to penetrate fair there. Some of them didn’t create a sufficient broad organization around the business that can help grow it endlessly. Others feel that they are they see a lot of money in turning turning around in the business, but they are unable to actually take money or significant amount of money back home. So selling the businesses is a very, very nice way to meet the value that you’ve created. So, so, this is in general when to sell the businesses Great question, but they can tell you that when someone decides that he does want to sell the business okay for because for whatever reason, it will be then it is crucial to consider what is exactly the right time to do that. And here, I think that in each business, it is you should balance between your business or under your current business prospects to keep on growing under your current performance or your current management against the risk that you are facing and all of that in all of that you should also calculate your energy and personnel wish to keep on dealing with the business on a day to day basis. So, usually, it is important to sell the business when it is still growing you cannot you should not sell a business which does not grow because then it will be much less successful sale. And other than that it’s all about considering the specific circumstances of your business. So what are buyers looking for in growth rate in growth rates, so usually buyers looking to see if business grows between, I don’t know, at least 20% per year. And the more the merrier. Of course, it doesn’t mean that buyers cannot recognize the growth potential in businesses which, which don’t, which do not grow as, as well. Or the buyers may be skeptical about the ability to keep on growing a business that has shown a large growth before. So it doesn’t mean that wherever was, the growth rate would continue to be to be into the future. But usually buyers are looking for a business that can grow. Hopefully a lot. This industry is not yet in a stage of a cash cow. So there are not. So no one is looking to just buy a business and keep on managing meters is

Norman Ferrar  10:56  

I’ve been getting emails on different brands and or for different brands. So we have a three PL and we also have it where people can forward their mail over. Anyways, we have seen this surge of sight unseen offers. So Oh, hey, you know, we’ve already taken a look at your brand will offer 100,000 bucks or 150,000 bucks. What do you think about those? The first thing I see like if I present that over to my client, they’ll get all excited for $100,000 that the brand is selling way more than that it’s got huge potential. But it’s the first oh my gosh, this brand is actually worth something. What do you think about you know, jumping on those types of deals right off the bat?

Michal Oran  11:48  

Yeah, I think that this is a, it’s a, it’s a dangerous situation for a seller, okay, for and we’re meeting many like those. So first of all, it’s very flattering to just one day out of the window. Such a flattering offer is coming your way. Betty, everyone should be very cautious about it. Because the danger here is that not at all man how much money we’re about to get with how much money you’re about to lose. A business has value and, and, and the business owner has only one time to sell his business. So when if you sell your business below its value, it means that you’re losing money, it means that you gave away for free part of the value that you created with your heart, heart and heart and good work for many years. And maybe, maybe to elaborate a bit more about it. I will I will start with one example. And then I’ll explain why it is so important not to just sell the business this way. So maybe just one example which is quite recent. This is a nice client who approached us when she had already an offer from from a buyer which he actually considered to take and eventually we double the price doubled the price trice and we’re talking here about a deal in a million worth okay. So, this is about to be a deal of around $8 million instead of $4 million, which is a huge difference. Now, why this can happen, why something like this even can happen. So, first of all, I think that many Amazon sellers do not know exactly what is their SDE, they ask the seller discretionary earning, this is the profit that the business generates the profit for the purpose of calculating the valuation. This profit should be very carefully calculated by the seller himself or for all by someone and on the seller behalf. In no way a seller should let the buyer calculate these profits for him because the way you calculate this is the start of your negotiation of over the price of the business. So what is this SD? This is the revenue minus all expenses related to Amazon and to other platforms if you sell on Shopify minus the cost of goods sold, which is the the money that you pay to your suppliers and the delivery and shipping costs and warehouse costs if you use a third party, warehouse and then some other costs and there are there are costs that can be adjusted so can be added back. means this means that these are costs that you do have on it for your business but will not To be taken into account once the SD is being calculated. So this is the first thing, which is very important. First of all, you must know what is your SD, and then you must have some kind of sophisticated this the depth that that shows or demonstrate the highest profit that you can reasonably claim for your business. This is one thing. Bless you. Thank you. I hope I had it on mute. Yeah, it was nice, I hope that that we’ll be able to do the same.

Michal Oran  15:35  

See that it will be quick enough. The next thing is, is that you must be familiar with with recent market multiples, because the value of the business is, is being decided based upon multiplying the SDE by a certain number. And this number, this multiple is something which is changing very dynamically these days. And you cannot rely upon anything that you’ve heard about. So, because of the market dynamic. So this is the second thing. The third thing, which is very important is to create some competition over your business. It’s not that all buyers will offer you the same price for your your business, there will always be one buyer that will be willing to pay the most for a certain business because of these buyers specific interests and needs. So one is more interested in business in the beauty and beauty category. And another one is really have a need to buy a business with a police profit of $5 million dollars that year, and so on. And one just lost the deal in our case. And now it is really important for them to prove that this time, they can close the deal very quickly or different, different considerations that apply to the buyers that you cannot anticipate. And the only way to know in a specific moment how much how much is the maximum price that you can get off your business, the only way to do to know that is to conduct. First of all a diligent process that includes all potential buyers for your business, and a competition between them. Because once they compete one against the other, you get to the best to the best price. And there is another another aspect to it. And this is the deal structure. So it’s not only about the multiple, but also how the deal is structured. So for example, we had a case where a guy came to us and told us that he got incorrect offer the rest offer from some buyer, offering him to buy the business for six times DSD. So we told him, that sounds really good, what are the payment terms, and it turned out that the payment is were upfront payment of two times the SD, and the rest of the payment is subject to so many conditions and enter that who knows if I you know, ever, this will happen. So this is also very important to structure the bill of rights for all these reasons. It is just a dangerous situation to just sell your business direct to a buyer. And maybe one last thing that I want to say about that is that sometimes there are sellers that are being approached by more than one buyer. So there are being approached by 1234 buyers, if you are being approached, approached by four buyers, that means that potentially you’re able to get 40 offer for your business. And not only four but 14. And obviously, when you can compare isn’t as many as offers that you can compare, you can get to the best results.

Norman Ferrer  19:01  

And sometimes the best offers are not the best ones to take. You know the if you read the fine print and like you were talking about where there’s a either consultation, or if there’s all these milestones that a business has to meet. And some of those milestones are made to fail. You know, there’s some really terrible deals that have been put together. But there’s also some awesome deals. And I don’t know if you would agree with this, but probably most of the deals that are on the market would probably have some sort of either performance clause or a buyout after a year or two years or three years. They would have a final payment but it wouldn’t be like it would be a smaller portion of 10% or 20% or something like that. Is that what you’re seeing?

Michal Oran  19:51  

So yes, generally we do see that some part of the deal is subject to future payments, different kinds of payments, like Can we can elaborate a second bit about that. There are in rare occasions, we were able to have 100 100% cash up front to be nice when it is really important to the seller and the business is really good, and to find the right buyer. So this is something that you can, you can aspire to get if this is really important for you. But in many other cases, it’s okay to accept the notion that some of the payments will be payable over time, but here the idea is to structure is to structure those payments in a manner that increase the chances that you will actually get them. So, for example, I can give few examples. So, there is some some kind of future payment, which is called civilization payment, the payment which is made, if the business shows stability in the in the 12 months, compared to the 12 months prior to the closing of the deal. And then the question, what is this stability and and we were able here to negotiate different kinds of stability of what would deem to be stability of the business. So, one thing can be a 100% heat of the exact same SD that you had before. So here, for example, it is a problem because the buyer controls the expenses. So you must limit the amount of expenses that the buyer can, can expand over the business in those net, at least for the purpose of calculating the process. And then I’m sorry, the profits. But what happens if there is a nice by $1 you missed, it is all stable, but just one $1 less doesn’t mean that you get it all or nothing you didn’t hit the exactly businesses is the exact figure of profit and then you are not entitled to any any of it. So, usually, we will try to negotiate and have a buffer. So, if the business seats 90% of the previous for example profit or maybe you should measure the stability over the revenue and not the profit. So here it depends on each business must make his own calculation on what is more certain for in his case. And and if we’re talking about stability payment, this is how it should be calculated, then there are different performance based payments. So, for example, it is quite common to see offers that suggests a profit share above a Thresh a certain threshold. So you take the profit that the business had before the sell, this is like the baseline whatever comes whatever profit comes above this baseline is being splitted somehow some and some parade pro rata between between the buyer and the seller. So here again, sometimes you can, you can negotiate and have and have a profit share which which start lower. So if if you had let’s say a profit of $1 million before the sale, you can start and split the profit which comes above $700,000 for example. So this way, at least part of the profit is is more certain. Or, for example, we had a few deals by now that we were able to actually create a kind of

Michal Oran  23:42  

let’s say shadow retention of equity. So that means that if the buyer would want 15% of the price to be paid in the future, okay, just pay 85% of the of the purchase price upfront. So, we were able to agree with different buyers that 15% will be considered as if the business 15% of the business is being retained by the seller. So it is not actually being retained it is just economically considered to be to be the case. And the in in such case after one year and then two years, it depends on the exact structure, the buyer would pay is an agreed upon multiple over the future as the So for example, if the business had $2 million, the before the sale, and then after the sale, and then and then there let’s say that the multiple is five, okay. And then a year after the sale, the profit is lower. It’s not 2 million just 1.5 which is a disaster of course because no one is looking at to see the situation but let’s say that this happens then seller in such case would get five times double five double 1.5 and then 15 15% out of it. So that means that the seller would not end up with getting nothing for the 15% it just depends how much you will get, we will get any payment. So there are different data structures out there that each seller should, should look for in order to make those different payments more certain.

Norman Ferrar  25:31  

Okay, now, before we get to the next question, just wanted to remind people, oh, I have to remind people to for we’ll have Kelsey, but we have to know what the giveaway is today. So mackell what is giveaway today?

Michal Oran  25:46  

So, so thank you for, for offering us to do that, and we’re happy to collaborate with you on that. So for for it is Kelsey will, right? We’ll have Kelsey. Okay, so the winner will be get a consultation from us about the right time to sell the business. This is an initial consultation, which we will base on our analysis of the base of the specific business. And then we will be able to gather with the seller to consider what is the right time to sell this business.

Norman Ferrar  26:24  

Alright, very good. And to enter that it’s hashtag we’ll have Kelsey, if you’d like to get a second entry. Just tag two people and Kelsey will enter a second time. Plus today. We’ve got our mugs that have just arrived. We just got a bunch of mugs that came in so we’re going to be sending out one lucky winner a mug. So just if you want a mug that’ll be the second prize.

Kelsey  26:51  

Yes. And to enter into the mug contest you so there a couple stipulations just you have to have a US or Canada address. Oh yeah, I’m just first to ship. And the hashtag will be hashtag mug. Just nice and simple. Hashtag mug for the for the mug. And we’ll have Kelsey for the consultation. Okay. All right. That’s

Norman Ferrar  27:10  

it for me.

Norman Ferrar  27:11  

Oh, and don’t forget, gotta stick this in here somewhere. Smash those likes, subscribe, do all the stuff that my son always says but he hasn’t said yet today. But ring a bell do those things. And we really appreciate it. Okay, now, what is the mind is? Well, one of the things that I like to talk about is the prep earlier, like we’ve been contacted by well, by aggregators, and we’ve been contacted by m&a companies to help out just make an analysis on Okay, look at this company could get to here, right, so we’ll take a look or, you know, whoever will take a look and just say, Look, you’ve got horrible images, you’ve got horrible, this, you’ve got horrible this, if you do this, you can improve. And then over a period of a year that that it might go from $100,000 in sales to $250,000 in sales. You know, we could also it just, and I’m not just saying me, but anybody who’s what I would say, an optimization person, it’s probably worth just getting them in there to take a look, a lot of the times of the m&a company will have somebody take a look at your account. But there’s a lot of what I call them steals on the market where people don’t know what they have. All they know is they’re a failing amazon seller. And they’re just trying to get out. I bought a brand this way a little while ago were phenomenal brand. But the guy just didn’t have the capital. He didn’t it was a he was having sales. But he didn’t know what he had. And I tried to tell him, but he just didn’t listen. But anyway, if you have us remember how hard it is to get a really successful listing up and going and just doing a little, the few little tweaks really get the sales to start to move the the momentum going. That’s the same thing when you’re trying to sell your company, if you do the small things, right. If you eliminate those expenses that you don’t need, if you make it tight, if you get the slps in place, if you get you’re counting it simple accounting probably go to a company that knows e commerce accounting or Amazon accounting. These are the things that don’t necessarily make your multiples go up, but the ease of transition is there. And I think that’s important, and I think you’re more coffee. But these are the things that I think are very important when anybody’s looking at trying to sell the business or even if you don’t if you’re not thinking about trying to sell the business, get these employees Because at one day you don’t know where you’re going to go. If you’re not thinking that your brand is going to go anywhere, that’s fine. But anybody who wants to move or, or, or get a multiple or get the maximum, or optimum multiple, should probably talk to an expert first. And we’re going to talk about that in a second. But an expert first, who will give pretty much free advice, because they want you to succeed. So they’ll succeed later on. And it’s it this free advice goes so far, we’re not talking about like you just said, a 2 million to 4 million or 4 million to 8 million, there’s a huge difference of what you can do. So I guess that being said, I’m long winded. But why should companies other than what I just said, Go to a consultant or to you know, a broker rather than trying to cut a deal directly?

Michal Oran  30:57  

Yeah. So actually, first of all, I I agree that it is very important to look at the business with open eyes and understand what is the potential is there and to make sure that you don’t leave too much money on the table, when you hand over the business to the buyer. We, for example, we had two examples of businesses that we we have a company for a year, one of them started with a profit of $1 million. And we when we sold the business, it had a profit of 5 million million dollars a year later. So five times it grew by five times. And the other business had a profit of $2.5 million. In the end the profit group, also the $5 million, and both of these businesses were sold in the last quarters. Of course, the difference between is huge. Okay, so these became the deals of about $20 million, instead of the few million dollars of course, the differences is obvious any, any dollar that you add to your profits, no matter how either by the growth of the business or by saving costs, or by preparing your financials in the right men, right away, may equal eventually, to $5 or $6 $7 depends on the multiple that you get. So each $1 in the profit during the sale is this dollar multiplied by the multiple of your business which can get to a lot of money. And we have many examples like that. We like a lot those businesses who come to work with us for example, way before they actually want to sell the business so we we accompany them for half a year for six months for 12 months before the sale of the business. This way we can share good practices. It starts with preparing the financials, as I mentioned, many it appears that many Amazon businesses although they have the US seller board and seller Legion and those different software, which are all very good QuickBooks, they don’t calculate the profit as as, as profit should be calculated for the purpose of the sale of the business. So, it is very helpful to do this in advance and to understand exactly how your operation is being translated into a profit, which will then be taken into account in order to evaluate your business. So, we start with that just to reflect the seller what is business represent as as profits today and from there we take it further we analyze the key keywords and PPC and pricing and and the different products and variations and sometimes we take a look over IP we make sure that sellers are consulting with that tax advisors and being prepared on the on the tax aspects before the sale which is of course also very important. So all of these to be taken care of prior to the sale by a professional who used to do it and that has experiencing in doing that and in making sure that those processes will actually be applied as required. This is highly important. So this is one reason why one should should take an advisor okay that should lead him before the before the sale. And then the next thing is to consider when really it is the right time to sell. So so we usually we would prepare some kind of projection to understand what is expected for the business. Going forward and then with the balance of how we can still the business can still show growth on one hand but on the other hand, not to hire for Growth would be left to the buyer without the seller enjoying and benefiting the fruits that I actually created.

Michal Oran  35:10  

With balancing those two, those two things, we can decide together with the seller on the right timing to sell the business which is also very important and then the next thing is the process itself. And here again, I will reiterate it very shortly but preparing a smart p&l Smart smart financial report that calculates the SD in an intelligent manner, but which makes it as highest as possible. This is very important again, because if you’re sad, but we had a case a case where we were able to have $250,000 to DSD just by adjusting and adding adding back several expenses. So $250,000 doubled by more than four times make the calculation This is more than one $1 million just by preparing your p&l in the right manner, this is crucial for Shall we can get into more details if you like and discuss what kind of adjustments can be made to DSD?

Norman Ferrar  36:22  

That would be interesting, even events, a lot of us go to a lot of events, can that be added back

Michal Oran  36:28  

course this this will be added back? This is I would say that this is maybe an easy one, okay, the tougher ones will would be air shipment. So, can you can you adjust the SD and actually eliminate the air shipments? So, this will be a question dependent on how and under what circumstances you actually use their shipment is instead of see see delivery. So, this is one example. Another example is a case where Cost of Goods actually declined in the past two months, how should you treat it, should you apply the higher cost to 10 months and then the lower costs to two months or create kind of a pro forma calculation of your profit? How would your profit local look like if the declining cost had occurred at the beginning of the year, okay. So, we would take the lower costs and apply them to all of the year and then employees of course, the seller own up on salary which should not be taken into account, but other employees. So, we will do an analysis of the exact occupation of each and each and every employee to determine whether all of their work is related actually to the management of the business because it happens in some cases, you can find their personal assistants, which take care of your personal staff or people that actually are building your next brand and not this guaranteed brand or or people that are engaged with developing new products which are not longer no longer relevant. So we will, we may be able to claim that part of the employees cost should not be taken care of and actually should be disregarded. So there are different different examples like that, which makes a huge difference. Okay, let’s for another maybe another example. Short inventory shortage, loss of sales as of as a result of inventory shortage. So in some occasions, we were able to calculate exactly how much sales were lost as a result of, of the of the inventory. shortage. And we were able to add it to the calculation of the profits. Or some ad there was a case quite extreme I think of of a guy who lost one almost $1 million in one day as a result of some campaign which was not which which an accident with some technical problem and actually caused him a loss. So he sold, he sold the product for loss, he lost money on each product that he sold. So we were able to show that this was the result of a mistake and we just ignore that and instead of the $1 million loss, we actually calculated how much money should have earned during this day out of the sales of those products. So each business with his specific as your consensus those things to be carefully looked at. And after we took the SD, maybe it’s also very important. And this is another reason why why I consulted to be in place is the storytelling. So each business actually has its own story.

Michal Oran  40:21  

What is the story? The story is water, the business pillars that make the business sustainable and built for long term growth? If If this is the case, and if this is not the case, so what are the pitfalls, that that can be easily improved? And these are great opportunities to grow the business by just fixing those matters? Oh, what what can be done better? What are the what are the the activities that can be taken as part of the business development, for example, entering additional marketplaces, or launching new variation of the certain product? All of these should be part of the storytelling of the business. No one else would, would tell your story the way you can, and you will be able to do it better with a consultant who has the experience to do that for you. The importance of it is when you are approaching a buyer, or hopefully buyers and not one buyer, the importance of bait allies into with two aspects. One is to really point out to the buyer, what are the business strengths is and why this business is built for growth and why it’s worth more more money. Sometimes it is an eye opener for the buyers themselves. Another reason why it is so important is just for the negotiation dynamics, because if the buyer understand that, you know what your business is really worse, he will not play with you games. Okay? If if the buyer recognizes that the seller doesn’t really understand what is the real value that lies in this business, then the negotiation starts from, from not as good point for the for the seller. So this is also very important. So we invest a lot in, in preparing those the business stories, right?

Norman Ferrar  42:43  

Yeah, it’s so important. This is your it’s your brand story. To me, it’s everything about the business. Yeah. So let’s talk about how the market has changed over the last six to eight months. What have you seen?

Michal Oran  42:56  

Yeah, so we’re seeing got more and more buyers coming into the play. I think that there is now just among the aggregators, more than $4 billion. With that, which which, with with the one purpose to buy Amazon businesses with this amount of money, so this is one thing and as a result, of course, the multiples are going up and the market is very dynamic, the level of competition between the buyers is really high. And actually this, it under these market conditions, it is crucial for seller when when you sell the business to conduct a kind of an auction between those different buyers. So you should recognize for the relevant buyers for you. And you must make an auction between all of them. And in order for them to be and to submit their offer and maybe then to improve their offer and to submit another offer and another offer and we sell virus and meeting five offers just for one business. Each offer beats the previous one when they really want to business and this and this can be achieved only by an auction. This is part of the recent mass market dynamic, I would say. We see also other buyers not just the aggregators, so there are strategic investors. They are Amazon sellers, larger Amazon sellers that decide to expand their businesses not only by an organic development of the business, but also through acquisitions. So these are also potential acquires for businesses. And they are also private equities and venture capitals that are looking to buy those businesses. So the amount of buyers out there is greater than ever, and the multiples are growing dynamically. intensively, I think that this is this is the main thing that we see in the market today with that, we see also that the market becomes more a bit more mature. So, we can see that more traditional, I would say emerging and acquisition structures, these structures are being implemented more tendency from bought from the buyers to offers some guarantees some shorty for future payments, so the market becomes a bit more normal. And, and, and in create better terms for the sellers. This, and of course, each I can say that this is something that we feel in the past year, but also in the last six years, six months, I’m sorry, what we feel is that each month equals few months or a year that the pace of changes in the market is enormous, it’s hard to imagine even so each week, we feel something a bit different than when each month when we look back at the previous month, we see that the market is not exactly where it was before. That means for the seller that they must do a diligent work before they sell the business, whatever was was the case one month two months ago may not be relevant today. And that means that one may lose a lot of money. If this extensive and diligent work is not being done.

Michal Oran  46:44  

For the seller,

Norman Ferrar  46:46  

I like to add, especially if the seller hasn’t prepared properly, and something slips through the cracks during due diligence, that could mess things up too. So all of a sudden, the buyer realizes that he didn’t get what he paid for or what he’s offering. I’ve seen deals change on a dime when when the homework hasn’t been done properly by the seller.

Michal Oran  47:13  

I agree, I think that this is also so being very well prepared in advance is very important that the buyer legitimate interest is to conduct a thorough due diligence over the business, no question about it. So stellar must be cooperative and allow the buyer to get any information needed about the business. But what the seller doesn’t want to happen is that the buyer would find new things that will surprise also the seller, right? be surprised about your business by the buyer, you should make the homework before you should know before, what are your soft parts? What are the soft parts of the business? What is not as glamorous and successful as other things and you should have the right answer to those to those difficulties or challenges in advance. It’s not not only 100% amazing businesses with 100% successful part of the business can be sold. Also businesses with some difficulties, some challenges can be solved. But the best way is to be to be prepared to that. So for it I you know, I can give you maybe one of the most extreme examples that that we we met around that and this is a business that by the time we prepare them for sale. This is a business that had few Amazon accounts, actually the set different brands, under the same category in different Amazon accounts and all the Amazon accounts had a significant part of the business. So no, no one of them was just marginal. And one of the account was shut down by Amazon, by the time to the account itself, not the listing. The Count was shut down because of some some some claim about about review, manipulation. And the account was shut down for one and a half month during the time that we prefer the business for sale. So we continue to prepare the business we continue to calculate each and every part of you know profitability by product by market, whatever needed, and we just waited until and we also analyze what is the reason enough for for this account to be shut shut down. And when there’s so that it will be reinstated. We didn’t know exactly how long it will take but it was sure that this will happen. And actually we understood it by the time that it was reinstated that actually it was a kind of a clearance obtained by Amazon, that those suspected reviews, this is manipulated. were okay. Because after Amazon had reviewed the case, it decided to reinstate the account. So this is the way we presented the business to the buyer, you have this trial, you have an account, it was shut down. That’s an that’s an issue. But what is the advantage of it, that you kind of have clearance over the performance of this account around those matters? So it is very important to learn everything in advance not to be surprised. Um, yeah,

Norman Ferrar  50:43  

I was gonna say do you have a checklist or anything that you could provide? where people can just take a look at it? And you know, if either is SDE or if it’s anything to help sell a business? Do you have any information that you might be able to provide?

Michal Oran  51:01  

So, I can share now of course, we can we can do more than that, but I can share now in general, what are the main points? Okay, yes. Oh, first as I mentioned there is that p&l, okay, the p&l and DSD calculation, no question about that. Then there is the IP or a seller must understand if there are any IP issues with the business on one end and on the other and to make sure that before talking about the private label business that the trademark is registered, and then you have a Brand Registry and there are no issues with that. This is very important. No breach of a design pattern, no warning letter that you have received. And if you have, you should get advice. What should you do about it not, don’t just ignore it and think that since nothing happened, and you keep on managing your business, this is no, this is no importance at all, because it is important. He said it’s a risk. So this is another thing. The next thing, maybe the account health. So if we’re trying to understand with the seller, if if if the if there aren’t that there are no black hat tactics applied to the account. It doesn’t mean that the seller must be synched not only saints can sell their accounts, but our businesses. But if the if really black hat tactics have been in place, it means that this business is it’s high risk business at high risk worth less. So this is something that we must understand. Okay, so one would actually review his his tactics and what he does and doesn’t, okay, and usually you should aspire to meet the terms of sales. And if there are a parmesan and if there are any major gaps, you should consult how you can close those gaps. So this about that. Another thing is tax tax considerations, this is a crucial matter. A seller must consult with his tax advisor, before selling the business, this should be part of the process. Sometimes it impacts the timing of the sales, sometimes it impacts the structure, these are things that should be known in in advance. And then just optimizations so many sellers, there is a typical question, what can I do to improve my business really quickly, before I sell it, our usual advice would be don’t do anything that you didn’t, that you didn’t do so far, don’t just change your overall operation, then now this is not the right time, if you’re going to sell your business in the short term, if you have a time, if you have a one year maybe you can change thing but if, for example, this is a seller that doesn’t launch products, on an ongoing basis, this is not the time to start launching new product. If you didn’t sell on Amazon, UK and you think that this is a good idea but you want to sell the business now don’t start to sell on Amazon UK just now leave it to the buyer to do that. These are you know in general, these are the main things that you would look at and of course, an analysis is the business which includes PPC optimization and comparison to competitors. Pricing optimization, inventory should be managed very well. This is also very important. There are different factors, okay, but when you look at the different factors that actually impact values the business, but you cannot really change the fundamentals of the of your business in one day. So just to to understand what what you have in your hand, this is, these are the main things. Oh, you caught me mid calf. tea with lemon instead of I think

Norman Ferrar  55:19  

so I think that’s what I have tea with norm, that’ll be the new part. Okay, so just before we get into the questions, you are providing a consultation. And it’s to take advantage of this consultation is incredible because what you can do is you can siphon out what you need to improve your listing to make it optimal for sale. And you got to take advantage of this. And so if you’re interested in this really generous offer, from the mcal how hashtag lunch with hashtag, we’ll have Kelsey tag two people and you’ll be entered twice. Okay. And if you would like one of the mugs that we just got in it’s just a hashtag mug, I think or something like that. But please, if you have any questions, throw them into the comment section. We’re going to be getting to them right now. Okay, so Kelsey.

Kelsey  56:19  

Alright, so we have a couple questions here. All right, we can jump right into it. First one is from Simon, would you advise outsourcing to the best service providers for PPC, PR, photography, SEO etc to achieve best growth rate as the services cost can be add backs.

Michal Oran  56:39  

So these services cost would not necessarily be a be added back. If if the normal operation of the business include using a third party advisor or that conducts PTC for you, then this is the kind of it’s a replacement for a cost of an employee that could do this thing. So these costs can be taken into account. If if there are excessive costs we had then we had the case where the seller paid so much money to a third party who actually managed the PPC that it was equal to extraction of profit out of the business. So we were able to to eliminate this expense, but but I wouldn’t, I believe that those costs will be taken into account generally speaking, of course, I can be measured on a case by case basis, but generally these weren’t taken into account. That’s good point.

Kelsey  57:45  

Okay, next question is for Michelle doesn’t matter how many products are in the business? Is there a target number of products that you should have?

Michal Oran  57:55  

Yes, this is this is a very good question you would obviously it’s obvious that if you have multiple SKUs your business may be complicated. So complication on one hand, it creates some barrier because not everyone can handle the handle of business which is complicated. So you have a kind of an advantage over some some entrance barrier to competitors. But on the other hand, this may frighten some of the buyers usually buyers would prefer business which is more focused around some tell theme of around the brand with with a decent amount of SKU but not too but not too high. So I would say around 20 3040 SKU is in our or at least not that each SKU will have sufficient profits. So So business with many leaders, many SK use each that sells very little and this will not be considered as valuable as the business which is more focused. On the other hand, if you have just one product one SKU this may be deemed as a as a high risk of a business as well. Yeah, it might be worth getting rid of some of those loser products. You are right actually losing product by the way, this is something that when we adjust the profit calculation so we will take out losing product just eliminate them altogether. One more thing that we will do we will eliminate launching cost of new products as we see them such cost as an investment that was made by by the seller in favor of the buyer actually so you make this investment and Then you just started to earn money over those products. But the real winner here would be the buyer, not the seller. So at least we don’t, we would not accrue those costs unless this is the business, the launch new product or the time. So we’re launching new product, it’s part of your ongoing business, then these costs may be taken into account. But you are right, that you can eliminate losing, losing SKUs. And you may always also eliminate SKUs, that that are minor contributor. So we had a case where we had a business with 250 sk use and we’ve decided to just disregard major part of them and and leave leave, maintain the 20% that actually created 80% of the business profit. And with that, we were able to get a much higher value to the same business just so so less was more in this case, right. Okay.

Norman Ferrar  1:01:06  

Questions I saw Victor on he’s got to ask some questions.

Kelsey  1:01:12  

Let’s see, the next question is, with an exit strategy, should we use cash or accrual accounting.

Michal Oran  1:01:18  

So you should use an accrual accounting, that means that you have cost of goods sold or being accrued according to the unit sold. So cash. Cash accounting would mean that let’s say that in January, you paid your supplier for an inventory, which is sufficient for three months, you paid a certain amount on a cash accounting, you would accrue this amount paid to your supplier in January accrual accounting, which means that once you sell one unit, you will accrued the related Cost of Goods Sold of this one unit, all the rest is not an expense, the inventory costs, the inventory relies on your warehouse and Amazon warehouse, this is not an expense, this is an asset that you have, and the buyer should pay for it. In addition to the business value, the buyer should buy from you the inventory.

Norman Ferrar  1:02:16  

I don’t think there’s any case where you should have at least with private label selling where you’d have cash accounting, it should always be a cute girl, correct? I think so. Yeah, I agree.

Kelsey  1:02:32  

Okay, next question. From red. What is the average commission we pay for consultants like your company?

Michal Oran  1:02:38  

Oh, that’s a that’s a great question. Ah, so by the way, I think that there is a kind of market standard, but still there are differences. Huge. So usually the the percentage of the commission is going down as the deal size going up. We are fortunate are dealing with the deals of $1 million. And the barbecue that our median deal size in the past six months was about 10 to $12 million. And, and then, and then the percentage of our commission was, is lower for larger, larger deals. I do want to say that how much you pay for your consultant, of course, is important. On one hand, on the other end, it is more important, what is the value that you get out of those services? This should be this, this should be the main focus when when you talk with your consultant.

Michal Oran  1:03:41  

So is there a sliding scale? Like does it go from 10 to 15? Or no, it goes from from 10 to five. And that that is you know, I’m sorry,

Norman Ferrar  1:03:55  

that’s bang on that. I mean, that’s the average rate 10% down, depending on the size of the company,

Michal Oran  1:04:01  

it depends on the size. So we found with a large deal, it can go down to 5% smaller deal 10%. And the rest is in between.

Norman Ferrar  1:04:10  

And I can tell you from past experience, that paying 10% or paying 5% I would do that all day long. Every day. If it like hire a consultant, they can get you so much. And there’s I can see in the chat. There are experienced companies that are people here that have had exits. And I don’t know if they’ve done it with a consultant or not, or a broker, but it’s so important. I mean, you could really add an extra zero on to your exit. You know, it’s it’s that important. I agree. So modify the formula. Yes. Your answer, generally speaking, yes. Who said that? Oh, that’s it. Kind of a mouse it’s a cat.

Kelsey  1:05:05  

I think it’s a Furby or whatever the, the gizmo. You know what it is? Alright, from Simon, is there an optimal split of on and off Amazon? Are buyers referring businesses with more sales in certain regions IE us, eu, UK, Japan, Australia.

Michal Oran  1:05:25  

Yeah, so this depends on the on the buyers themselves. Here, each buyers come with his own investment criteria. By the way, it is also very important to share your business only with buyers that are looking to buy business, it’s me the business that like yours. So don’t share your business with buyers that are not interested with such kind of businesses, because then you just expose yourself for no reason. You there are buyers that are out there looking to buy businesses with most of the sales on in the US in Europe, or whatever. So this is different. The aggregators, most of them are looking to buy businesses with them with most of the sales on Amazon. And they’re happy to have part of the Cisco. So how does Amazon but there are also other kinds of buyers. So there is, you know, there is the right match for everyone.

Kelsey  1:06:27  

Okay, and our last question is from Michelle, what would you consider a losing product? If I have some products that do? Well, seasonally, there’s profit only during that season does that count.

Michal Oran  1:06:38  

So this, this doesn’t sound like a losing product, it sound like a seasonal product, the fall altogether, a product shows a profit during the year. If you look at the last 12 months, and all together this product generated profit and not lost, this will not be a losing product, I would look at the product. If you take 12 measure its performance over the last 12 months. It must be profitable all together. Otherwise, you’re just losing money. So either you can improve something and make it successful product or give it give it up for your own benefit, by the way, not just for the purpose of selling the business.

Norman Ferrar  1:07:24  

Okay, I think that is it. Is that right close? Yep, that’s it. I think I got all the questions. Perfect. Well, before we get to the will of Kelsey, how do people get ahold of you? MCO.

Michal Oran  1:07:36  

Um, so we have a website, which is www dot fortunate fo RTU and itI dotnet. And we’ll be very happy to be contacted by by any one of the audience today. Okay, fantastic. Okay, I think it’s that time.

Kelsey  1:08:00  

Okay, so it’s time for the we’ll have Kelsey. For the mugs. There’s still lots of time for the mugs. So hashtag mug that’s for Amazon, or anyone in the US and Canada can enter in that. So saying nobody wants my mug. Well, we got three. We got three entries, right. Yeah, I think we have a lot of international viewers. Oh, yeah, sure. Now you’re making me feel better. Alright, so it’s time for the we’ll have Kelsey, here we go. Okay, that is our mug competition, or the mug one? Who’s in there. So we got red, Michelle, and

Kelsey  1:08:54  

you’re all right. So give them all a mug. All right, we got three mics going. Okay, I’ll just close this one out then. Right. And let’s see, you’re lucky you didn’t have my portrait on it, but.

Kelsey  1:09:12  

Okay, and we’ll have Kelsey, where did it go? Okay, here we go. All right. There we are. That consultation will shuffle these names up in my Kalsu one. Jason, Jason. Very good. Hey, so, Jason, if you can email me at K at lunch with Darren calm or just messaged me on facebook through messenger, that’s all you need to do. And I’ll connect you with NyQuil and get you your prize your consultation so let’s

Norman Ferrar  1:09:53  

enjoy that. Jason. Okay. mackell Well, thank you for spending time with us today. I’d love to have you back. There was a lot of information here. So yeah, I mean, I was I was impressed. So thank you so much for coming on and sharing your time today. Thank you. I really enjoyed it. Thank you very much. You’re very welcome. Okay, so before we get into just closing off, Kelsey, you’re going to be uploading our, our Patreon page fairly soon, which is happening in June. So just wanted to let everybody know that that is coming. It’s going to be pretty cool. I think we’ve got three or four different levels of packages, is that correct?

Kelsey  1:10:37  

That’s right. So our Patreon is basically a paid paid content that is like a monthly subscription service. So there’s 344 different tiers that you can do. It’s not up yet. It’s we’re still updating it. So you can start in June, but you can just start checking it out now. But we just wanted to get the conversation going that we’re going to be offering some really great things like ask me anything’s normally, locations. Yeah, additional trainings from basically it’s going to be a tight group. And basically, like small, small team training, and it’s going to be

Norman Ferrar  1:11:14  

a variety of different things. It’ll be it’ll be pretty deals. Yeah, at the end of the day, you know, lunch with norms, lunch with norms happening Monday, Wednesday and Fridays. If you wanted to do this, you know, I just tried to pay Kelsey something. I want to get him like he’s working for free for the last six months. Eight months. Yeah, but no, you get a little bit all the can drink. That’s right. Okay. All right, everybody. So thank you for joining today. We’re closing in on the 1000 1000 member mark on YouTube. And we got about 1200 people in our membership group. So yeah, please, if you’re new to this, if you like what you heard today, you know, please feel, you know, just join the bloody thing. Alright, that’s it. You have anything to say? No, that’s it. Thank you can leave on that note. So Monday, Wednesday and Friday at noon, Eastern Standard Time, and thank you for being part of the community. Thank you. Hey, it’s really great to see our regular members on here. But please, if they’re if you’re new, feel free. Join us. It’s It’s because of you we can do this. So thanks a lot and have a great day. mantra

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