SHOW NOTES & TRANSCRIPT:
Intro/Outro: 00:00 Welcome to the winning with Shopify podcast, the podcast that will teach you to take your Shopify store and turn it into an automated sales machine with the latest marketing, email, sales and social media advice, strategies and tips from experts without the fluff, your host, Caroline Balinska, the founder of justaskparker.com the only small marketing tasks agency for Shopify owners with over 10 years experience in marketing, manufacturing, design, and e-commerce. She shares her knowledge and interviews with experts to help you in your journey to success. Now here’s your host, Caroline Balinska
Caroline: 00:35 Hi everyone. Welcome back to the podcast and today I have a guest talking about setting up for an exit strategy. This is a fantastic topic because everyone that listens to me knows that it’s area close to my heart. Personally, I myself have been in a situation a few times where I’ve sold businesses, I’ve bought other existing businesses, I’ve grown businesses and main moving to Europe originally was all about me wanting to get out of Australia, but I didn’t have a good exit strategy because of the way my business had been set up. That particular business didn’t really have many options, but I want to make sure that everyone listening has got the option to sell. If that might end up being a situation you want to get yourself into. Now everyone’s different. So listen on in because I’m sure you’re going to learn so many great pieces of advice.
Caroline: 01:28 I’ve had a chat to Brad already just before we actually got on this call and found out that he’s definitely the man that knows everything that you need to know about exiting a business, selling your business and what’s involved. So this is going to be a fantastic interview with lots of inflammation. So please listen and then grab a pen and paper because I’m sure you’ll want to take notes. We’re going to be discussing what you need to do to understand before you actually want to sell the things that you need to have in place to be able to sell for the best price possible. So Brad Wayland is actually an entrepreneur who he himself has owned other businesses himself, has been in the situation of building up multiple large figure businesses and he has gone on to now sell businesses on other people’s account and he’s working with quiet lot brokerage now.
Caroline: 02:20 I’ll let him tell you more about that. But he’s got a very interesting story about his own custom t-shirt business that he had back in the day before social media, which I know that space very, very well. So if this is a, if it’s something that you want to do, sell a business, then Brad is definitely the person who understands e-commerce very, very well. So that’s why I’m very excited to have him here today. So let’s welcome Brad. Say hello and Brad can tell us more about himself all on his own. So hi Brad, how are you today? Great, thanks for having me on. I really appreciate it. Wonderful. Look, this is fantastic. And when you actually reached out to me in the beginning, I straight away thought this is fantastic to be speaking about selling a business. While some people are actually listening. And I know my clients at Just Ask Parker, some of them are really passionate about running their business.
Caroline: 03:10 So they want to be in this business and they see it as a long term business plan. But there’s other people who do this purely to be able to get out. And I think in both situations, no matter which situation you’re in, being able to set up your business correctly in the first place means that you have that situation of choosing when you, when the time comes up, whether you stay or whether you go, but your business is set up the proper way. So that’s why I thought it was fantastic to get you on today, to tell us more about how to make sure you know that you’re setting up your business to be able to sell in the future. So this is fantastic. Thanks Fred for being here. So tell us a little bit about yourself, your background. I sort of mentioned you teach a business, but tell us a little bit more about what you’ve been doing when it comes to online business.
Brad: 04:00 Sure. So formerly I have a finance degree and started kind of my entrance into the workforce in the early two thousands and got a job in corporate America doing sales and use tax accounting and maybe wanting to get into some financial analyst type work. I kinda quickly learned that the kind of nine to five was not a good fit for me personally. Kind of when I would go to my cube, I kind of thought that I was like checking into a jail cell and I would kind of like InVision these bars in front of the, where my chair sat and I would think I was like unlocking the door to the, to the jail cell for the day. And then when I left, I would think I was getting out of my jail cell for the day. And I actually, that was like a literal thing that I thought about when I, when I went, it just, it kind of sucked all the life and creativity out of me and in a hurry.
Brad: 04:51 So I started looking for other opportunities, thought I would get into financial planning, but ended up having a couple of friends that had started a T shirt operation and they were mainly just using like local sales reps to get orders from colleges and things like that for group orders of tee shirts. And I came on and we started looking at going online. They had launched a website and it started getting a few orders through Google paid ads, four group orders of tee shirts. And so I came in and started working on that. I really started kind of fumbling around with Google organic, trying to rank in search engines. And this is, this is a long time ago, this is in 2004. So the Google search algorithm was very different back then. And I got caught up into a lot of tactics and manipulation tools that don’t really work or create long term success.
Brad: 05:38 But I just was trying to kind of understand what to do. And it took me a couple of years to really get my mind around what Google was looking for and what they’re not looking for. So we rebuilt the site a few times and in 2007 we launched, it’s called blue cotton. It’s a custom t-shirt provider even today. And we did a create your own so people would create their own shirts for group church a fraternity or sorority, something like that. And we would allow them to order it. Well, we had done some things with flash that were kind of cutting edge at the time. And so when we launched the site, we didn’t really have great plans for how to get the word out that we had launched this really nice new site. But luckily, in our sakes, about 12 hours after launch, Gizmodo featured us on their homepage with an article that said something like blue cotton creates amazing Photoshop like environment for creating custom tee shirts.
Brad: 06:32 And our site crashed. And so, you know, we couldn’t track all the visitors coming in. We had something like 20,000 that had hit our analytics, but it was way more than that. The site was down for most of the day and that started a really crazy growth curve for blue cotton. We went through a nine year period of 50% annualized growth per year. We went from 10 people to 125 people. We went from a 12,000 square foot facility to 110,000 square foot facility. And if you fast forward to like 2010 we had started getting heavily involved with looking at doing production for other eCommerce players because we kind of accidentally become experts at producing these custom t-shirt orders. Screen printers don’t want to run 50 piece orders, they want to run like 200 or 2000 so in the United States it’s hard to find people that can do small runs at an efficient kind of price point.
Brad: 07:30 So we started getting heavily into the B2B space and around that time I started losing interest in kind of the online marketing piece. We were kind of shifting our focus to B2B and less about B C and so I started looking at other opportunities and after being in the tee shirt space where it was so hard to make a dollar because every shirt had the touch 22 hands before it left. The building. I started looking at content, which I know is not what your listeners are focused on, but after being in that really high touchy commerce space, content looked awesome to me because I was like, wow, you just have information out there and then you sell ads on top of it and there’s all these automated systems that will manage those ads. This is amazing. So I ended up buying buying one for $50,000 in 2010 and I made my money back in 10 months.
Brad: 08:16 That was the start of a 26 business kind of acquisition spree for me. From 2010 to 2015 I bought 26 online-based businesses. They ranged from $500,000 to $50,000 as I. The further I went, the larger the transactions got. I never got into doing like seven figure content size, but I did have a fairly large portfolio of these different businesses and ended up exiting out of that to private equity in 2015 about 15 of the 26 online businesses I bought were all in the same industry. And so there was a strategic acquisition opportunity presented to me that I took in 15 and in the aftermath of that I ended up becoming closer with Mark Douse, the founder of quiet light brokerage. And you know, Mark and I had seen each other from my buying and selling days. Of course I had been out buying online based businesses so we kind of would email back and forth and talk on the phone about different kinds of things from time to time.
Brad: 09:16 And he came and told me, Hey, I’m trying to add to my team and we only bring on entrepreneurs, people with their really battled tested in terms of what they’ve done. And so I didn’t think it was something I would be that interested in, but over time he kind of loaded me into it. And so now for the last few years I have been doing exit planning and basically brokering deals between buyers and sellers and I work specifically with the sellers to get their business ready and then at the, when the time is right we listed for sale and help them exit, move onto their next thing that they’re kind of working on. So that’s some background on me. Did you, do you have any questions about that?
Caroline: 09:55 No, that’s fantastic. It’s really interesting and I think that shows a lot that you know, just how much you can actually offer from that perspective of being the actual seller, but also being the buyer as well. So that’s amazing. It’s fantastic. And tell us a little bit more about quite like brokerage and what you actually do there for a, let’s say a Shopify store merchant.
Brad: 10:18 Sure. Yeah. So quiet light. I would consider a boutique firm. We are kind of, we have listings on our website. It might look like a marketplace to you. If you go to quietlightbrokerage.com, You’ll see it. It might look like a marketplace. It’s got some things for sale, but we’re more of a curated list. So we have a lot of people reaching out to us. We, we have our own podcast, we go on other podcasts, we have all kinds of tools that are driving a lot of traffic to our website. And so what we get is we get a lot of sellers saying, Hey, I need to know if I can sell my business. We have a ton of Shopify sellers that are coming to us and asking for advice about how to sell. But what a lot of times what we’re doing. I think I told you on the phone that I probably have a, I attract my data pretty closely and I’ll have a hundred phone calls with potential sellers to sell five businesses.
Brad: 11:08 And that’s, that’s actually my number on it because we reject a lot of what comes to us. And it’s not really a rejection, it’s more of a planning session of like, Hey, you’re not ready today, but here are the things that you need to do. So Shopify has really become popular for the kind of acquisition, entrepreneurship kind of community because a lot of us grew up in a time, like if I go back to blue cotton, we had a fully custom website, which has a lot of advantages, but maintaining it is really difficult and when a business gets large like ours did, it becomes really hard to replace that technology and it becomes a very daunting task when you’ve got some old really large legacy site and you’re like, Hey, I need to replace this site, can I just get it replaced? And someone says, well good night.
Brad: 11:51 You’ve had 60, 70, 80, a hundred people working on this site everyday for 10 years. There’s a lot of information here. This is not going to be an easy thing to do. So you know, in the aftermath of custom people started going to these like online shopping carts and other things, things like, Oh, is commerce things like WordPress with woo commerce, all these different types of plays and those work well, but again, you still have to maintain your site. It can be hacked. It can be, it can get malware injections, it can get dated. You can forget to update your my sequel or something else that your server companies is requiring and ends up becoming a huge risk for the business and it becomes a headache for the entrepreneur. Shopify came on the scene, you know, years ago, Wix, Shopify, Volusion, all these kind of managed hosting platforms for eCommerce.
Brad: 12:40 And at first I thought, well who would want one of these companies to host their website? These aren’t even flexible. I can’t, I can’t even do what I want on Shopify. But over time I was proven so wrong about that initial thought. Shopify, Shopify has become an absolute monster in the space and you know, they are taking the headache out of it. You give them your money each month and you don’t ever have to think about the security, the malware, you don’t have to think about the upgrades. They’re giving you options for upgrades. If you need someone to produce custom tee shirts for your shirt idea, you can go grab a rep or vendor right out of there. You know, kind of add on store and just have someone start fulfilling it immediately or any other time. There’s so many other things that you can do right out of the box if your SEO is not, you don’t have enough capabilities in your Shopify, you just like in WordPress you go at a plugin and the next thing you know you’ve got all the control that you need. So there are scalability issues at a certain size. With Shopify, we’ve seen that certain database sizes can get too large for Shopify, but for a massive amount of the potential entrepreneurs out there, Shopify is an amazing solution. Google likes it if from a search standpoint, and I think it’s doing quite well, and I know your listeners are mainly Shopify folks and so, you know, I would just say, you know, kudos to all of you because you picked the right platform to work on. It’s a really great platform for scaling a business in today’s times.
Caroline: 14:08 That’s fantastic that you say that from a seller’s perspective and a bias perspective. So that’s, I love that. I think that’s fantastic. So I think a lot of people are going to be sitting here now thinking, ah, this sounds interesting. I hadn’t really thought this through properly, but let’s just talk for a minute about how much a business would actually sell for. You said that you speak to about a hundred different businesses a day and only actually work about five of them. What are the actual potential for, what’s the potential for selling it and what do buyers, what are buyers looking for when it comes to pricing?
Brad: 14:45 Sure. Now I actually don’t speak to a hundred a day. I was just elevating those calls. Those calls about an hour. And those calls are about an hour long. So I usually talk to a hundred entrepreneurs before I’ll sell five. I have about a five, you know, 5% of who I’ve talked to. But I just wanted you to know I’m not taking a hundred phone calls a day. I’ve got a family and I have other things going on too. Yeah. So you said how much they sell for? Yes. Yeah. Yeah. So I will say on the outset, because you mentioned it in the intro, you know you were saying that you didn’t have a plan whenever you exited your business and that ended up being an issue for you when you were trying to move to Europe. And I do want to kind of just mention, and this is where I’ll kind of, you know, I said we’re entrepreneurs that have been turned into kind of business brokers.
Brad: 15:32 We’re not on into the hard sell. So think of us as business advisors. In fact, when I, when we get off this podcast, any of your listeners that want to email me, Brad at quiet light brokerage, they can just email me and we just advise and we advise for free. Now, if we ever sell your business, we’ll take a fee, but we advise for free. But I want to just tell you that one of the things that I tell people almost every single day is that if you enjoy running your business, if you think your prospects for maintaining your sales or growing your sales are good. If you don’t think there’s any like huge inherent risk coming down the road that you don’t, you know, sound like a risk of getting shut down or risk of someone completely squashing you. If you feel good about your prospects of moving forward, then the most lucrative thing for you to do in most cases is to just keep your business and run it.
Brad: 16:25 I think that we have a lot of people that get focused on the idea of selling because it makes them feel like, you know, if that’s a successful like note feather in their cap kind of thing. You know like, Hey, it’s, I, we have people that they grow like crazy and then the growth kind of slows down and so they just sell just because, and then later they come back and they say, I wish I hadn’t sold. I guess I just kinda got, I didn’t really know what to do next, so I felt like it was just the next step. But I just want to say from the outset if you like what you’re doing, I do agree with what you said. We should always build it first to sell. It should always be built to sell in case we need to, but if you enjoy what you’re doing, you should never sell unless you have goals that are outside of, you know, maximizing your return on investment.
Brad: 17:12 Sometimes people say, you know what, I just want to do something different. I get bored of looking at the same thing. We see that from entrepreneurs all the time. We also see people that say, Hey, I want to travel. Or Hey, I’ve got this new idea and I want to take the money and I want to invest in the new idea. So I just want to say that as on the outset your, your question was how much can we sell it for? Well, if we have a well documented business with enough track record and track record, it has to do with the number of years it’s been in business. So we really can’t sell things that are younger than two years old. On occasion we sell something that’s only 18 months old but rare. Most of the time we need 24 months. Here’s the reason why we need at least 24 months.
Brad: 17:53 We put together all these fancy, you know, financials and charts and things for people to look at. If you don’t have 24 months, you can’t have a full year of comparable data. So like if you want to look at January of 2019 if you don’t have 24 months of data, then when you go back to January of 2018 you might have a gap there because it’s not there. And so when we get to 24 months now we have year over year comparables for every single month and that looks nice on a chart that can show growth or show something shrinking. And when the buyers look at it, that gives them enough assurance of the history. So age is really important when it comes to like Shopify as just an example. We’re seeing ranges for smaller Shopify stores. We’re seeing ranges from, it depends on the trends. You know, if we got healthy trends, we’re probably looking at something in the 2.8 to 3.2 times earnings.
Brad: 18:52 So I want to break that down just a little bit. So if your revenue is 100,000 a year and after you pay your cost of goods sold and your gross profit is 80,000 a year, and then after you pay all your expenses, your profit is 30,000 a year, then 30,000 is your earnings. But we also talk about at quiet light, we talk about what’s called seller discretionary earnings. So that is your net income, but it adds back things that the seller might be doing to benefit them from a tax standpoint or something personal. Like, Hey, I, I expense my personal cell phone out of the business and it costs $50 a month. That’s $600 a year. So that might come out of your expenses when you get down to that 30,000 number that I was just saying. But then we do what’s called an add back schedule and we say, okay, here’s Caroline’s cell phone and here’s her Car lease and those are just personal things.
Brad: 19:46 And one was 501 was $50 a month and one was $250 a month. And we add those back because they’re discretionary. You’re just doing it because you can because the law allows you to, that kind of thing. So we base the multiples off of seller discretionary earnings. So it’s basically just a fancy term for saying net income or EBITDA plus one time add backs. Another add back, that’s important because a lot of your sellers might be kind of solo entrepreneurs is if you’re paying yourself a salary. So let’s say that you have a business that’s in that same scenario I just gave of 100,000 in revenue, 20,000 in cost of goods sold, and then a 50,000 and expenses, you’re down to $30,000 profit. But let’s say you were paying yourself $20,000 a year and that was above the net income line. Well, if it’s a seller that is operating in the business, there’s an allowable add back that’s accepted by almost all buyers.
Brad: 20:42 And so all the brokerages use it. It’s, it’s a seller salary add back and you can do it. One is for one person up to 40 hours a week, their salary, you can’t do it for someone you hired to operate your business. But if you, as the owner work in the business, we do an add back for your salary. So whereas it might get expensed on your profit and loss statement, we’re now adding that back. And so that $30,000 might turn into $50,000 cause we added your salary back because you work, let’s say 20 hours a week on it and you pay yourself a salary. And that salary is pretty arbitrary. We want to get to that seller discretionary earnings number. So whenever we get to start discretionary earnings number, then we take that number times the multiplier. So I said that Shopify businesses, you know, they’re selling routinely for 2.8 to 3.2 times multiples. So if you had $50,000 in earnings and you had a three times multiple, your businesses worth $150,000 and then you maybe you have inventory in these smaller deals, anything that’s in the kind of 5 million in less sized deal, most of the time that inventory is in addition. So if you say, Hey, well I’ve got $30,000 in inventory that I’ve already paid for in that scenario I just gave, that’d be a 150,000 plus 30,000 at closing, you’d end up getting $180,000 to pay for the multiple for your business, plus your inventory.
Caroline: 22:04 Okay, fantastic. So there’s definitely money to be made, but I think I love the fact that you say, if it’s something you like to do, then stick with it because you have got the, in that situation, let’s say it’s three times, you’re only going to be making three years of income.
Brad: 22:23 That’s right. And let me, let me kind of clarify a couple of other things just to kind of be clear. So that’s on smaller sales and that’s on kind of good trends. We have exceptions to all of these things, so don’t just assume if you’re listening to the podcast, it’s like, Hey, I really want to sell, but I’m looking for somebody that’s going to tell me I can sell for a higher multiple than Brad said, well, it’s not an exact science, especially when you just have high level data. So just as an example, you know I have a large deal under contract right now for $19 million. Now that’s a large deal that’s going to be handled quite a bit differently, but that will be at a five times multiple. So it just depends on how a, there’s lots of different factors that kind of play in as we see the net income grow, the actual dollar amount of net income, those multiple start to expand.
Brad: 23:14 For some reason when businesses get up to around $750,000 in net income or seller discretionary income, the multiples start to go way up. Even on like Amazon, Amazon’s one of our lower multiples flat Amazon store sells for about 2.5 times. And then if it’s growing, it gets up to around three. But if you’ve got one that’s earning $1 million in EBITDA or seller discretionary earnings, it’s getting up into the three to four times range. So you kind of need to know what’s going on. Maybe some of your sellers have, you know, subscription type revenue coming in. Not sure if they do or not, but subscription changes the game too. So I’m just talking about picking products off the shelf and buying them. You know, Hey, I sell these little blue widgets and this is what they are. But if it’s a blue widget that someone needs every month, well now the multiples have changed because we’ve got re-occurring revenue coming on and those multiples can climb quite a bit.
Caroline: 24:08 Oh, I love it. I love it when you talk money. This is fantastic. So there’s a few platforms out there including the exchange Shopify exchange where you can buy and sell your own Shopify store there. So can you just give us an idea, what is the difference between using a company like yours rather than using Shopify exchange for example?
Brad: 24:29 Yeah, so Shopify exchange is, it’s a marketplace for Shopify sellers. It gives them kind of a click of a button, you know, ability to kind of list their business for sale. I’m not super familiar with the fee structure, but what we’ve seen is the fee structure for the marketplaces is not better than our fee structure. So I just want to say on the outset you might say, well Brad would be more expensive. Well there are ways that I could be more expensive. We have minimum fees and things like that, that’s possible. But I have found that the marketplace is generally take a pretty hefty cut of what they’re selling. A lot of times they are looking for 15% of the transaction plus other fees. But the difference is a marketplace is going to let just about anyone list anything and that’s great. There’s going to be lots of traffic that goes to those market places and you can kind of try to filter through.
Brad: 25:20 But we have found that a lot of the buyers don’t want to deal with all the noise. So when I said quiet light is kind of a curated list, that kind of goes back to the part where I said I talked to a hundred people to sell five businesses because a portion of those are things that would never be sellable. Someone that comes to me and says, Hey, I make these knockoff products, we’re, we’re building it on Nike’s brand. We have that kind of stuff come across all the time and you can go find that stuff for sale in these market places sometimes. But you would never find that on quite late. Cause we’d say, Oh my goodness, the risk factor is through the roof. Like you can’t, this is illegal. You know, they’re infringing on someone’s trademark and they’re going to get in trouble. And so we don’t sell stuff like that.
Brad: 26:03 So we go through and kind of curated a list. And you know what’s interesting is, you know the, the entrepreneurs at quiet light, they are given tons of flexibility to kind of run their business the way that they choose. So I don’t go take anything on unless I think I’m going to be able to sell it. So I give business advice out all day for free. But when it comes to actually selling something, I only want to go put all that work in if it’s actually going to create income for myself. And so we’re picky about what we take on. We only want to take on stuff that looks good that we think we can sell. That’s not the case with the marketplaces. They’re taking a very broad approach there. They’re driving lots of traffic. They’re kind of fun to look at. I love to look at the market place as myself.
Brad: 26:44 I think that they’re kind of entertaining, but you’re, here’s what you’re thinking when you’re looking at a marketplace, junk, junk, junk, junk, junk, junk, junk, junk. Oh, there’s something that might be interesting and there’s a lot of competition for the ones that might be interesting. When you go to quiet light, you’re not going to see that. Every business that you look at, you’re gonna be like, wow, that’s impressive. I can’t believe that. Oh wow, they’re making a lot of money. Oh wow, they’re doing this, or they’re doing that. You’re going to see things that look good to you. And if you see something that the trends aren’t good, we’re going to say things like, you know, this is a good business, but it’s in a distress sale because you know, the owner made a huge mistake moving their production out of China because of tariffs and moved it to the U S and their costs went through the roof and now they need to get out because they can’t pay this loan or whatever.
Brad: 27:29 You know, there’s some kind of scenario, but we’re going to be very upfront. We’re going to create, we’re going to put things out there to our list that are opportunities that we think that good operators, people with good heads on their shoulder are gonna want to jump in and buy it and do something with it. And so that’s kind of how we, you know, approach the differences, you know, between. The other thing is, I had actually had a call this past week with the lady that we’re going to be listing her business. She has a really impressive Amazon based business. And on the call she told me she had talked to a marketplace and she said, what do you think of them? And she was looking for me to just rip them to shreds. And I said, Oh, I think they’re great. You know, they, they provide a, a really nice, you know, opportunity for people to, you know, sell their business.
Brad: 28:12 But when we got done with the call, she said, I could never sign with those people. I felt like I was talking to a kid who’s just out of college who didn’t know anything about the business. She said when I talked to you, I feel like I’m talking to somebody who actually understands what I’m trying to do and understands like how to position it for sale, how to walk me through. We have all the documentation that we need. We’ve got, you know, for our buyers who’ve got letters of intent templates, asset purchase agreement templates. We’ve got, we can, we can make recommendations to escrow agents. We can make recommendations to every kind of thing you need. If you need PPC for your Shopify store, email me at Brad at quietlightbrokerage.com. I’ll make recommendations for you. I, I can give you recommendations for all kinds of things because we are, we are kind of tied into lots of operators and we kind of understand what people are using. We see the trends. You’re not going to get that from the marketplace.
Caroline: 29:05 No. That’s fantastic. And one of our clients that came through Just Ask Parker and like I was telling you, and everyone knows, we target Shopify merchants that are earning currently listen 20,000 a month. And I had one guy sign up for our services and he turned, he said that he turns over, he turned over 750,003 quarters of $1 million in the first three months of this year. And I was like, sorry, you’re in the wrong place. Like we are not the company to help you because we work with smaller companies. Just the way with our system, the way it’s set up, it’s just not for a larger business. And he said, no, no, no. I bought it. And the people that sold it to me, it was on one of this Market places. And he said, the people that sold it to me told me that, you know, it’s turned over the all this money, which was true, that had turned over all that money.
Caroline: 29:51 But it was all in the fact that that money was all in ad spend. So really there was no profit left in the business. And so working with a brokerage company like you, because that puts him in a situation, he bought a business. He’s not happy with the people that sold it to him. The, you know, then he can go back to that company. I don’t know what happened with that, but I think the idea of working with a broker, the broker helps you sort of become that middle person to guide you as selling your business. But also if you want to buy a business, working with a broker really understands how to set that out, to not look like it’s a scam in the end.
Brad: 30:29 Yeah, I think that’s true. And the thing is, especially so, you know, I was very sensitive to coming on to be a broker because when I was buying, I actually, I just want to say this on the outset, I actually dealt with a lot of brokers that didn’t like, and you know when Mark called me I said, you know, Mark, I don’t think I would want to be a broker. And he’s like, why? And I was like, I mean, do you want to be a broker? And because I had had some bad experiences with brokers, they seem to be like salesmen. They seem like they didn’t really care about what was going on. And I just want to say like, I can’t really speak for the other brokerages out there and what they’re doing now, but I can tell you that we are told on a daily, weekly, all the time, basis at quiet light that we are a breath of fresh air.
Brad: 31:12 That because we do it, we advise first, where are your friend? And we just try to help you along the way. And they’re like, Oh, we have people that say just all the time, well I need to pay you for this advice. And I said, no you don’t. Because when you sell some day, I already know that you’re going to want to come to me and let me see if I can help you sell it. And you know, honestly I think our fees are hefty enough that it allows us to do the business advice and help people along the way. And you just never know. We’ve just kind of found that by helping people all the time, they refer people to us. It’s just, you know, if you might say to yourself like, Hey, my Shopify business, it only does, you know, I make you know, $10,000 a month and it’s never going to be any larger than that.
Brad: 31:53 Why would anyone want to talk to me about it? It’s actually not the case. I’ve had lots of people that are smaller that come and get advice and then they refer their friend to me and their friend has some massive large business. And I get a really nice listing out of someone just having a friend that was doing something else. And then I also have people who say, it’ll never be any bigger. And I put them on a path. And then they contacted me a year or two later and they’re like, Oh yeah, remember all those things we talked about. We went and did them all and now we’re like five times the size. And now we actually think we do want to sell.
Caroline: 32:24 Fantastic. That’s great. So let’s get into talking about planning for an exit. So it’s really good to turn around and say, Hey, I’m exiting, I want to sell. But every business because I think that that’s what people need to understand. So if you’re listening, you don’t even think that you want to sell and you’re just listening for the sake of it, you still need to go through what Brad is going to explain. So Brad, you’re going to explain the four pillars and that’s sort of where you are. Build all of your strategy on. So let’s get into the four pillars, what they are and how they actually work for Shopify store. Let’s start with pillar one.
Brad: 33:00 Sure. Yeah. So the four pillars we call the four pillars of value, that these are the things that have the greatest influence over what kind of multiple, what kind of multiplier you’ll receive, you know, for your business. So I’ll just say on the outset, the four pillars are risk, growth, transferability, and documentation. So we’ll start with number one, risk. And this is a huge, huge issue. You know, if you’ve got a Shopify store and you have, let’s just say that you roll up using the Facebook pixel, you roll out a product, you’re selling. Are you allowed to sell CBD oil through Facebook ads or not through Facebook ads? Okay, let’s not use CBD all then cause that’s kind of a hot topic right now. So let’s just say you, you create a, you know, you create some baby shoes and you found a source for them.
Brad: 33:49 You want to sell them on Shopify. You go create your Facebook marketing. Let’s say you open up with a lookalike audience from a couple thousand orders that you had from somewhere else that’s in the baby category or something. Create your lookalike audience. You go out there and build the ad and he starts selling all these baby shoes through Facebook ads and then you come to Brad and you say, Brad, Hey, I want to sell my business. I’ve made $10,000 this month. I made $10,000 last month. How much can you sell it for? We’ve hit two major issues on the risk category right now. Risk number one, two months of history. No buyer’s going to pay for two months of success. There’s no, there’s no price out there. The value is zero. When you have two months of history, what else have we hit? Well, we have a dependency on this one.
Brad: 34:37 Advertising platform. Facebook, it’s 100% of my sales, so I don’t have any diversity in my revenue channels. So when you talk about the four pillars on risk, this particular store has hit major issues. It’s got no history, it’s fully dependent on Facebook and it has no diversity in its revenue channels. Now, let me give you another example. I know that on Shopify you’re dealing with folks that are already trying to do it more of a traditional e-commerce sense. We have lots and lots of people that are running Amazon stores coming to us. I think I mentioned earlier in the podcast that Amazon is one of our lower multiples. It’s our lowest, multiple by trend. Why do you think that is? Because the platform, Amazon, Amazon owns the channel at Shopify. You’re paying them for a service. They’re not going to take it away from you unless you’re doing something like illegal.
Brad: 35:33 They’re not going to be taking it from you. They want your credit card and they want to support you. And if you don’t want to support you, they’re going to give you the ability to go take your data and move it to another platform and support yourself somewhere else on Amazon. If Amazon decides that they don’t want your product there, then they can remove your store instantly with no explanation at all. If Amazon decides that they want to compete against you, maybe you’re selling like an Amazon basics type product and they want to just, they can go to your competitor and say, Hey, we want to buy these at wholesale and we want to sell them as Amazon basics. Now your sales have dropped. Yeah, they actually look at the wholesale, the factory where it comes from. That comes into their yes and then they contact them.
Brad: 36:20 Yes, I’ve, I’ve heard all those nightmare stories. So risk is number one in the four pillars and you can just see that. We just got to have, so that’s why when I was saying we need two years of history, like two years is not ideal. It’s just the first point where you can sell. I’d say that, you know, three or more is ideal, but all we’re trying to do is deal with risk. We’re just trying to say like what is the risk that this revenue is gonna go away? If someone’s going to go pay three times what you’re earning in a year, that means they need to get three years of your exact earnings out of the store to get their money back. And people are not wanting to buy a business where they think they’re only going to break even on it. They want to get six, eight, 10 times back on their money if they’re willing to work on it.
Brad: 37:00 Growth, it’s an easy one. So one of the things with selling a business, and this is if you’re, if you’re listening to the podcast and you’ve been thinking about selling or you’re trying to plan for when you would sell, growth is a major factor. So if we don’t have growth, the multiple suffer severely. So the example I said, where will we have a growing store? They sell for like a 2.8 to a 3.2 times multiple. Let’s say that you own a store that did $200,000 in revenue last year and this year it’s going to do $150,000 in revenue. Well, we have just made this a very difficult thing to sell to someone without growth. Now when someone looks at it, they say, well, you lost 25% of your revenue in one year. So if I go pay you on that 150,000, whatever the profit would be on that, if I go pay you on it, I’m not gonna be able to get it back in three years.
Brad: 37:54 So they want to lower the multiple and the multiples. Whenever the trends are down, the multiples can go as low as one times. They can go, I mean they could go as high as three, but typically you’re dropping into a lower than 2.5 times multiple. Once you start having declining trends. So you’re going to be somewhere between a one times multiple and a 2.4 times multiple. That’s a pretty wide range in most cases. It’s not going to go down to the one unless the prospects look really bad. That’s all you disclosed on the business because no one’s paying you anything.
Brad: 38:27 Right. And that’s, that’s what the buyers are afraid about. So growth is really important. I would say one other line of caution on growth. I had, I have a seller that has a really impressive Amazon business. He came to me, he said, Hey, I want to sell the business is about two years ago. He said, I’m doing four and a half million dollars in revenue, so big seller. And I said, okay, what are your trends look like? The trends look great. I’m up 50% for the year. Wow, that’s amazing. That’s great. So we started talking about listing. He said, you know, I just, I just feel like I need to hold on longer cause I’m 50% up. I’m like, okay, that sounds good. So we wait to go through the next year. He gets about nine months down the road and he’s like, Hey, I just wanted to check in.
Brad: 39:06 I’m thinking about selling, I’m doing great, all this. You know, I just, I just want to hold on a little bit longer. My growth turns 25% I’m still growing really well. I said, okay, yeah, let’s, let’s hold on. Let’s wait. Let’s see what happens. Contacts me later says, Hey, I think I might be getting close to being ready to sell. I said, okay, what’s your growth trend look like? It’s about 10% okay, so I said, so after we got the phone, I could just tell that he was really struggling with milking the trends. That’s what I call it, and he’s trying to milk the trends. He wants to get every ounce of growth out before he sells it. So I sent him an email and just said, Hey, I just want to follow up with you on this conversation. When we first started talking to a couple of years ago, you were growing at like 50% then nine months later you were growing at like 25% year over year.
Brad: 39:50 Now you’re growing 10% year over year and you’re still thinking about holding on. If you want to hold on, I think that’s great, but I just want to caution you that if you hold on too long you could lose your ability to sell for a good price. And the unfortunate thing about that story is that he came back that day and said, I totally see what you’re saying. I think we should go ahead and prepare the store for listing. We put it up, we got it under contract and then he was hit with a Hijacker on his number one product and his store sales dropped dramatically and then his trends turned and we had to pull the listing. And actually we’re going to go back and list this business later. We’re probably gonna do it in January, but it’s put him on like an 18 month timeframe of fixing this mess.
Brad: 40:46 That wasn’t really his fault. It’s just part of being in the Amazon stratosphere. And so that’s why I just would say be careful if you know you want to sell you, here’s the hard thing for entrepreneurs to hear. You need to sell when things look great. There are people out there that they don’t think about selling until things look awful. I’ve had business partners in the past that when things look great, I was like, which I’m not. I’m trying to say that I’m perfect on my judgment of these things, but one of the things I know is you want to sell and things look good. So in the past I’ve had business partners where I’ve said, Hey, things look fantastic. Like our trends couldn’t be any better right now. It’s probably not going to get any better than this. We might want to go ahead and sell and then have the other partner look me in the eyes and be like, are you nuts?
Brad: 41:29 I would never sell this thing. Then you know what happens whenever the business goes, a major decline. That same person is coming to me and they’re saying, Hey, I feel like we should sell it, and I’m over there saying, well, we can’t sell it. It’s not worth anything now. So you got to sell while you’re growing. If you’re going to sell or you got to sell while you’re trends still look good. Third, third pillar. Transferability. This is really easy with Shopify, so I would just say transferability is just how easy do we make it? Here’s an example I’ll give, let’s say that you own five brands with five different Shopify stores. I don’t know if you have people that do that or not, but let’s just say you did and they just decided in their Google analytics to set it up under one email. John doe@gmaildotcom so they setup an account under johndoeatgmail.com and they add five properties to this one single account.
Brad: 42:20 If John DOE decided that he wanted to sell one of those stores, somebody is not going to get to keep that data. When you set up an a Google analytics account, you’ve got to set it up by business, by LLC and you know kind of to get into that too. Don’t create five businesses under one LLC. If you’re going to create five different businesses, you need to create five different companies to hold those businesses. If you ever think that it’s ever possible you would want to sell. Because if we don’t segment these things out, it’s very difficult. It’s very difficult to get through due diligence with a buyer. It’s very difficult to sell anything when it’s commingled with another business. So that example of the analytics, I’ll just give it as an example. When I was buying, I said I bought 26 online based businesses. So when I was buying I would buy a business and over half the time of my transactions I would say, okay, now content businesses are real easy to just see no.
Brad: 43:16 So I would only have to verify like their Google AdSense earnings and any other ad platforms and their traffic. And I pretty much had what I needed for what I was trying to do. So I would do these really fast clothes, like I would motivate people on cash. I’d say like, Hey, you know, I’ll pay $125,000 for that. I know that’s a discount, but I’ll pay it tomorrow if you’ll just verify these three things for me. And so that’s kind of how my, I would kind of motivate people on, let’s just get it over with. It’s a big motivator. If you’ve got cash and you’re looking to buy, that’s a great way to do it. But about half the transactions I did, I would say, Hey, I need the Google analytics counselors send me the email address that it’s connected to. It would need to be like connected to the business name or whatever.
Brad: 44:00 And about half the time they would say, well I have it here and I can print you out some reports that you can look at, but I really can’t because I got these other three businesses. That’s why I’m selling this one and they’re all connected to the same analytics account and I can’t, I can’t give you that. Or I will be giving you all my other data and then I’d have to start over for myself. So many times when I bought, I had to start from scratch on that because these people would get into a spot where they’re like, I can’t give you this data. I have to have it for my other business. So you know, transferability, it’s, it’s, it’s a headache, but it’s really important to build a business to transfer. There are certain things that don’t matter as much, like domain name, any domain name, you know, I buy by my domains at go daddy.
Brad: 44:41 People use all kinds of different places, but almost all domain registrars have what they call an instant transfer. If the, if the new person will just create an account. So if you’re at Dotster, you know, if you want to do a traditional domain transfer because you want to hold yours and go daddy, that’s fine. I wouldn’t recommend it, but that’s fine. It takes like five days kind of a pain. What I would do in that case, if someone said they were on Dotster, I’d say, okay, I’d go create a dot account and then we’d do an instant transfer. It’s done instantly. You can do it on closing day, no problem. So build the business to be transferred. Even if you’re not planning on selling, you never know what’s going to happen. You don’t know. If you’re gonna wake up tomorrow and you’re going to have a, you know, a headache and you go to the doctor and they say, Hey, you’re not going to live for for three months.
Brad: 45:25 You’ve got a brain tumor and you’re going to be like, I’ve got to get rid of this business. Or you don’t know. If you’re just going to see a new opportunity is going to come up. You’re going to say, I never thought I would want to do this so bad, but I’ve got to get rid of my business in order to have the money to invest. Got to build as a transfer. Fourth pillar documentation, this goes back to the LLC. If you’ve got a business, it needs to be in its own. LLC needs to be in its own company. We don’t want to commingle. Don’t have your shoe brand and your CBD oil brand in the same company. You’ve got to have them separate. You’ve got to do a monthly income statement. If you don’t want to do it, hire a bookkeeper. It’s not that expensive.
Brad: 46:03 You’ve got every single month, every single, any person listening to this show. If there’s one thing you’re going to take away from, how can I run my business better? Ask yourself the question, am I documenting monthly what I’ve done? I’ve been in business a long time. I can just tell you if you don’t know your P and L if you don’t know like September is getting ready to end. So right now if you don’t know what you did in August, if you don’t know what your revenue was and what your net income was in August and what your cost of goods sold, if you can’t go pull that and have it readily available for yourself, you’re doing yourself no favors at all because not only can you not sell it, but you don’t actually even know what you’re navigating. You don’t even really know what you’re doing.
Brad: 46:43 And I would say on documentation, there’s other things if you want to sell some day, like keeping good SOP standard operating procedures for your business, like if you’ve got a VA that does work for you or something like that, build that out into a manual. So that VA ever goes away. We’ve got a manual that’s going to tell everything you need to do, keep contracts, your documents, keep everything, just keep really nice clean records for everything for the business. It’s doesn’t take that much time to do it and it is a big deal, you know when it comes to selling the business or ever transferring it.
Caroline: 47:14 Okay. So if someone, those last two points, especially let’s say someone has put themselves in the situation where their Google analytics is set up incorrectly, is it just a good time now to just swap it over now deal with the fact that they don’t have all that data themselves and just deal with that until they go to sell? Is that the best way to do it?
Brad: 47:35 Yes, and I’m not necessarily recommending this, but just so you know, you can have multiple instances of analytics on a site. So I’m not sure exactly how you hack around that for Shopify, but I’m just sure it can be done. So if you’re unsure, but you’re like, I really know I need a separate one, you, there’s probably a workaround in Shopify where you can add a second one.
Caroline: 47:57 Maybe just use the code into the header as a like as a standard set. Okay. So people can look into that, but it’s worth looking into. Yeah,
Brad: 48:05 And I’ve done two. I’ve actually done it myself, so it just, in specific instances I’ve done it where I’ve run two but, but honestly if you just started out and you’re like, well, Hey, I want to plan for eventually selling it, go ahead and make the switch, get it into an individual account now. I totally agree. Yeah.
Caroline: 48:20 Fantastic. You have been an absolute pleasure to talk to. I think that everyone listening, whether they were thinking of selling or not, I think it’s opened their eyes to a few areas that they need to think about in their own business. You’re definitely someone that I, I think exactly the same as you. Like I said in the beginning, I’ve been in that situation, my particular business that I wasn’t intending on selling. I really thought that that was going to be something that I kept forever and then I realized, Hey, hang on. I wanted to do this move for years. I just never saw it actually happening and I realized I’d made that mistake. It worked out in the end because those things that you talk about, I already had those sort of things planned out anyway, so a lot of those things weren’t a big issue. But I can say from being in that situation myself, everyone listening needs to think about this no matter what. I think that it’s just worth having that option. The flexibility that I’m, you never know. That’s why I say it is you just never know and you want to be open to that. So I think everyone’s taken away a lot and but I love that you said is that people can reach out to you privately by email. Do you want to repeat your email address so people can get into contact with you?
Brad: 49:30 Yes. Yeah. Two quick things Brad. At quiet light brokerage and just email me and just mentioned that you heard the show and I’m happy to answer any questions for anyone on we do free valuations so we can do anything there. The other thing I’ll mention for anyone listening is we do pay referral fees. So the way you get that is if you have a friend that you think might want to sell their business or you think might be a good opportunity to talk to us, you can just send an email to me, Brad@quietlightbrokerage.com And copy your friend on it and just say, Hey Brad, I want to introduce you to my friend Sandy and she might be interested in selling. Whenever I get that I tag in our CRM your email to that potential client. If we ever sell their business, you get 10% of the fees that we generate. So that could be anywhere from $2,500 to 500,000 or two $50,000 so depending on the size of the deal. So
Caroline: 50:29 It depends how successful friend is!
Brad: 50:33 Yes, that’s right. Who do you hang out with. But anyway, we do a lot on referral fees, so I just want you to know and that’s one thing that’s funny about that is we’ve had people reach out to us that were from years ago and they say, I just got the greatest surprise check in the mail for $15,000. Thank you so much for doing what you said. We just tag it in our CRM and then when we go to fill out our closing, you know, report for a business, we say, Oh you know Caroline over here recommended that we talked to so and so three years ago and that deal finally went through. And so anyway, really enjoyed being on the show. Thank you for having me on and please reach out anyone if you have any questions.
Caroline: 51:07 Fantastic. I’ll put your website in the show notes. I’ll put your email address in the show notes so if anyone has any questions they can contact you directly. Brad, you have been wonderful. Thank you so much for talking, talking to us and giving us that advice and for everyone who’s listening, thanks for being here. And until next week, keep smiling.
Intro/Outro: 51:26 Thanks for listening to the winning with Shopify podcast. Join the Facebook group, facebook.com forward slash groups forward slash winning with Shopify and get our show notes at justaskparker.com forward slash podcast don’t forget to subscribe to this podcast so you never miss an episode. And as a listener, get 20% off. I’ve just asked parker.com by using the code podcast.