Lexi Grant (L): Hi I’m Lexi Grant, founder of They Got Acquired where we support founders who are looking to sell their business today. We’re talking about our e-commerce deals report, which includes lots of examples of e-commerce businesses that have sold in the last few years. Our stories share how each of these founders grew their business, how they found a buyer, and what the deal looked like. In this conversation, we’ll tease out some of the big takeaways so you can apply them towards your own exit planning.
Joining me is Ryan Condie, who’s both an entrepreneur who has operated and sold e-com businesses and an M&A advisor who helps founders sell. I also consider him a friend, so it was fun to learn from him in this conversation. Ryan works at Quiet Light brokerage which is our sponsor for this report. They’re the reason we’re able to offer this report to you for free. Quiet Light helps founders find buyers and supports them through the selling process including e-commerce companies. If you think you might benefit from working with an advisor to sell your business, Quiet Light advisors are always really generous about doing free discovery calls with founders to talk through your goals and what you might expect from a sale. You can find them at quietlight.com. You’re about to hear Ryan and I discuss what the landscape looks like now for e-commerce, what types of buyers are going after e-commerce companies, and how you can make your company more attractive to a buyer; plus, other tips for building an e-commerce company you can sell. Thanks for being here, and hope you enjoy the conversation.
Lexi: All right. Hey Ryan, thanks for being here. We’re going to talk today about our E-commerce Deals Report and try to give listeners some takeaways and some insights things that they can apply to their own business. But first I’m hoping you can tell us a little bit about yourself and why you are qualified to help us understand this topic.
Ryan Condie (R): Yeah, you bet. Thanks again for having me on here. In 2012 I bought my first online business and since then I’ve then bought 7 businesses. I’ve built four, I’ve sold few of them, built some more from scratch. So I’ve been in the e-commerce game for a long time and just in the online business game for a long time. In those businesses, I’ve done Shopify businesses, Amazon FBA businesses. On the Amazon FBA side, 3 of them worked really well and 2 didn’t take off and so, you know, definitely some wins and some losses within all of those. I’m also an advisor at Quiet Light. We’re a white glove brokerage that helps sellers exit their online businesses and help dozens of e-commerce entrepreneurs and owners actually exit over the last few years. So, in a nutshell, I know what it feels like to have hundreds and hundreds of thousands of dollars in inventory floating on the sea and other times not having enough inventory and understand the peaks in the valleys that our e-commerce ah operators and owners will have.
Lexi: That’s great. I always think it’s interesting when someone who works as an advisor has also helped or has also sold a business themselves. They really get it because it’s sometimes not just a business. It can be a founder’s baby or something they put a lot of sweat and tears into.
Ryan: You’re exactly right. And I look back at every one of my own businesses and some worked out great. Some didn’t, but they were at different stages of my life and I actually link it back to my kids who were at a certain age, or I started this business before I had kids, and now this business is helping my kids go to Jujitsu or soccer—like paying for different types of things. One thing to keep in mind as sellers is it’s always an emotional experience, whether you’ve been running that business for 16 years or 2 years, it doesn’t matter. Every business is part of that stage of life that you’re in. There are definitely peaks and valleys to entrepreneurship and there’s definitely peaks and valleys to running a business and looking forward to an exit. And that exit, we’ll definitely have peaks and valleys emotionally with those highs and lows.
Lexi: Yeah I love bringing that piece into our conversations here at They Got Acquired, because I think one thing that makes us different is we understand that emotional piece. Too often I see people treating acquisitions like it’s just a transaction and especially if you’re a founder who has really cared about what you built. It’s so much more than that.
Ryan: I know when you exited your own online businesses you wanted to make sure they went in the right hands and that they could be taken to the next level and sometimes you’re just not the next person or the person to take your business to the next level. That’s okay. It’s okay to come to grips, and I’ve had to do that too where I thought: “Hey I’ve got a great lifestyle business I’m not ready or willing to be the person to hire a bunch of employees and take it to the next level. But how do I find the right buyer who will?” Because, very few—if ever—I’ve talked to a business owner that wants to see their business go to zero,. They want to see it go to the next level even if that makes sense for someone else to come in and step in and do that.
Lexi: That’s right. Let’s talk about some of the deals in this report. One of the reasons I thought you’d be a great person to talk to is because you helped sell a couple of the companies that we featured here,.
Ryan: Yeah, absolutely. I worked with Locker Lifestyle and with Fresh Heritage. #5 and #8 in this report.
Lexi: Cool, cool. So, when you looked through this, do you want to generally just kind of talk us through any big takeaways or things that stuck out to you as trends that you noticed?
Ryan: Yeah, it’s a good question. I’d say a few things that I noticed in every single one of these—especially the ones I know really well like Fresh Heritage and Locker Lifestyle—but across all the businesses that I see on a daily and weekly basis, many founders start off doing things that don’t scale at the beginning.
What are a couple examples? Very early on, people are the founders are handling customer support requests maybe because they’re small, but also because they want to understand the true feedback that happened within their products. I also think what’s interesting about the reports here and the reports I see across a lot of different types of e-commerce businesses is that there’s not one-size-fits-all to an exit or to what success might look like. Some were full time. Some were side hustles. Some started from scratch and some even bought before they exited. I think those are critical pieces. You want to take the pieces of the stories that apply to you and your own life and your own goal and then try to implement those stories that you hear into your own business and realize that your exit and your path in entrepreneurship could mirror some of these things, but it will always be unique in your own. The very last thing that really stood out to me is that every one of these sellers had their own career exit and life goals and there was one business that exited for $20MM, while a few others exited for 6 figures. There’s no right or wrong here, and very few of us will run the same business forever. That’s very okay and you know sometimes it’s as stepping stone and launching to the next business.
Lexi: Yeah, that’s such a good point I hear from a lot of founders who say: Do I have a sellable business? Or, is this even big enough to sell? Is there a point at which you would say a certain business is big enough that it’s going to be attractive to a buyer?
Ryan: One thing that’s really important with this report and across all buyers in general is there’s lots of different types of buyers: There’s individuals. There’s e-commerce rollups. There’s aggregators, which get mentioned in this report and were really big for 2020, you’re 2022. You can never predict who’s going to be interested in buying a business most of the time. But, whether your business makes $20,000 or $2MM a year in profit, there probably is going to be some sort of interest level there from really anybody. Now, does that hit your exit goals and does that hit the type of buyers that you’re looking for? That’s a totally different conversation.
Any business that makes profit, usually there’s going to be some interest that’s out there now. Of course we have to take into consideration the overall trends, if you’re just a copycat product, whether you’re growing, and all those other moving pieces. But, for people that are growing a business—if you are profitable, buyers like profit, and buyers want to buy something that actually makes profit and has a product-market fit.
Lexi: I heard you say “profit” a bunch of times there, which is really good because sometimes when I talk to founders, they’re focusing heavily on revenue. But they’re not focusing on the profit. Can you talk a little bit about how those two play together when you’re thinking about how to value a business?
Ryan: In 2020-21, interest rates were very low. You could acquire customers inexpensively, get debt inexpensively, and business valuations were all over the place. Especially direct-to-consumer. What that did was give false expectations to sellers. Fast-forward, we’re at the end of Q1 of 2023—businesses that aren’t profitable get absolutely hammered right now in the markets when they go to sell. You’ll see that on small businesses, big businesses, public companies, etc. It’s because times have changed where we had this amazing decade from 2010 to 2021, where, if you weren’t profitable, but you were growing, people / VCs were going to throw money at you. The great stories that people like to talk about with a Dollar Shave Club or Warby Parker—unfortunately, that’s not really the norm for most people and so profit is so critical because eventually someone’s going to need to make a return on their investment when they buy your business whether it’s just strategic, all the way down to just an individual who’s buying a business to to lead their W2. We’re seeing now that the markets are very unfriendly to something that’s not profitable and may not even be sellable.
That’s a different conversation if you’re doing $30MM a year in revenue and people might buy you because you are big enough or they get those economies of scale. But, for most people, if you’re sub $5MM and you’re not profitable, the ability or likelihood of exiting right now is not very good. This might play out the same for the next few years or maybe forever, where people will actually need to show that they can make a profitable business and actually have it grow and stand on its own two feet.
Lexi: For a smaller business in the six figures, how do you account for the founder’s salary or sometimes founders aren’t counting their take home in the overall picture. When you get ready with a founder to sell a business, how do you work through that with a founder?
Ryan: Typically, if you’re in that range we use a term for profit called “seller’s discretionary earnings” or “SDE.” There’s a lot of different definitions, but it’s essentially your net profit plus owner benefits. Within that calculation, you can typically add back one owner’s salary up to 40 hours. If you have two owners working 40 hours a week you can only add one back. And then you would add back certain things like owner benefits that could be like a car payment— everybody has their car under their e-commerce business and we know e-commerce businesses don’t really need cars but they do it for tax purposes or their cell phone or maybe they’re 401k or their health insurance. Those are owner benefits and essentially a new owner would be able to determine whether they just want to pay themselves that or reinvest back into marketing, reinvest back into new product, etc. So, it’s up to their own discretion.
There are different levels. Typically, if you’re in that 6-figure range. There are some founders who have streamlined their business. They’ve hired 3 PLs, they’ve hired agencies, or VAs, and they know they put in 5-10 hours a week within that business. That’s a very normal amount and people sort of balk at that, but I’ve done it, and I’ve seen many many other people do it before where you can actually do that on a certain scale.
As you get bigger, you will have to put in more than 5-10 hours a weekend because it’s going to require you to build out a team. It’s going to require you just to put more time and effort to take it to the next level. Those are very desirable companies because if someone’s already working 40 hours a week and they’ve capped out at say $200k a year in profit, it’s not quite big enough to replace that owner with a really competent operator and still have a lot of wiggle room for profit left. That’s the next thing if you’re in that range. If you’re putting in 40-50 hours a week, it’s not that a new buyer will have more 40 hour weeks than you do. You’re sort of in No Man’s Land if you’re in that $200-300k in terms of that SDE or profit. It makes it quite tricky to exit and you’re going to need to find someone who’s going to want to put more capital into the business so that it can get to $400-600k in SDE or profit, because then they can actually hire someone for $120k a year to run and operate the business. You can get stuck in that No Man’s Land. It’s not to say that you can’t find an exit or a good buyer. There are a lot of people who are okay with putting in 40 hours a week or wanting to buy a job or wanting to get out of their W2, but it sort of changes the nature of where you’re at and you can a lot of times make you hang out in that No Man’s Land.
Lexi: I imagine that affects the type of buyer that wants to come after your business. Could you talk us through the pros and cons that you see of different types of buyers.
Ryan: A lot of times, you’ll hear “strategic buyers” and “individual buyers,” or other types of buyers. Strategics are the ones you hear about and they typically pay 8x-10x, or whatever the “X” is… very high. It’s because your business is worth more in their hands than it is in your hands, or really in anybody else’s hands. It might be that: you sell pet products and you want to sell to another pet company, but your product is patented; it’s got utility patents, design patents; people love it and then you want to sell to a bigger pet brand. Well, that bigger pet brand has distribution and Petsmart and Walmart and. It has an email list of 10MM people. All of a sudden, that product is worth significantly more in their hands because now they instantly can distribute it to 10MM people, plus Walmart. Those are the best case scenarios for an entrepreneur to exit (the strategic buyer).
The hard part is that those are actually pretty rare. Typically, with any business, you might only have 4 to 6 maybe even 5 to 10 on the high end of strategic buyers that actually make sense to acquire your business. So, your timing, size, and the market conditions all have to line up with your strategic acquirers goals and vision and balance sheet, too. They have to have a VP of Acquisitions or CEO who’s acquisition-minded and looking to expand. You need to court those relationships for a long time.
That’s everybody’s ideal, but it’s actually pretty rare. It seems like it happens a lot more than it really does because those are the ones we hear about on the news. We have these crazy multiples. What’s more likely to happen as you get into different ranges when you’re in the $10MM+ market, private equity starts to come knocking. Private equity has come down a little bit. $10MM is pretty low for them as you get to like $15 or $20MM. That’s when they start knocking. Those are great but a lot of times a founder is going to be forced to operate that business for another 6-24 months. Private equity groups don’t necessarily come in with a full management team. They’re going to have you be that full management team, have a big earnout, and over the next 6-24 months you’re going to train that new CEO to come in and you’ll definitely have revenue and earnout targets to actually hit. Then, as you get a little bit smaller, you get into individual buyers or smaller e-commerce rollups or buyers who are using SBA loans. Usually, those you’re going to get most of the cash upfront; maybe a 10%-30% seller note on the higher end, but usually the handoff is relatively simple where it’s 1-4 months of training and someone runs off and they’re able to move on from the exit. I’m happy to dive into each one of those specifically if you have further questions.
Lexi: That’s really helpful. I think a high-level understanding is probably enough for us. I am curious if you can go deeper into the multiples because just from looking at this report and at a lot of the deals that we cover, it seems like e-commerce multiples can be quite different from multiples that we typically see for other types of businesses. I know at Quiet Light, you not only sell e-commerce, but you sell some other types of businesses as well. What do you see in terms of multiples for e-commerce and how that fits in with the broader landscape of online businesses?
Ryan: E-commerce will have different multiples in a SaaS or content site. Food will have a different multiple than finance and those types of things. The landscape of Q1 2023 is very different than it was 18-36 months ago. The global economies have slowed down, consumers are typically just buying less stuff. We bought a lot of things over 2020-21. Fast forward to 2022-23, consumers just aren’t buying as much, so most e-commerce is actually down. But that will start to pick back up.
Online advertising is more expensive and harder than it’s ever been. Before this call, I pulled up our own data here at Quiet Light, and I applied a trailing of all the deals that have closed in the last fifteen months. Let me go through a couple different numbers here. The average e-commerce exit without inventory—because we’re going to value this as a multiple on your profit. For example, say you make $200k in profit. We’re going to play a multiple on that and then add your inventory on top because we know inventory numbers will fluctuate all the time. But the average e-commerce exit without inventory was a 3.4x, so if you made $200k last year in profit that would lead to you know a $600k-$700k exit.
It’s a little misleading because the last six months are a better indicator of where the market is. Things can change very quickly with online businesses. As we’ve seen, the credit market tightened up. There’s not as much free money out there. Interest rates are significantly higher than they used to be. Buyers are really pushing hard to understand the true profit. Over the last 8-9 months / middle of 2022, we start to slow this down. Our multiple in that range of the last six months is actually a 3.2x, so it went from a 3.4x to a 3.2x. It’s down but it’s really down about slightly. This, of course, is further from the highs at the end of 2020 and 2021, but I think also the key difference is you can’t time the market if you’re building a great business. There will be buyers at all times. Multiples are not that far off for really good businesses. What we’ve seen over the last 6-9 months is mediocre businesses or mediocre e-commerce businesses that are just like once they don’t have compelling brands or compelling products. They’re just not selling right now even with the reduced price versus a good business that used to sell at a 3.4x, and now it’s selling at a 3.2x. Not that much of a difference but it’s what we’re seeing is there’s a bigger desire to buy more buttoned up businesses that have defensible moats.
Lexi: I like that point about how you can’t time the market because I do see some founders who are wondering if now is the best time to sell, or should I hold off because of X or Y? You’re right that there are great offers all the time and there are bad offers all the time. It sounds like it’s very specific to each founder’s situation and their business.
Ryan: Absolutely, and everybody has different goals. We touched on this earlier—you’ve had multiple exits before, and I’ve had multiple exits. In 2019, I sold all my e-commerce businesses for personal reasons, as I had some health issues within my family that I needed to take care of. I probably would have done better by holding onto those businesses for another year or two, and then selling. But, I knew at the time this was the right decision for me and my family, and I needed to take a different path. For me, I couldn’t necessarily time it perfectly. Nobody can. Everybody will try, but it’s almost like if you’re trying to time stocks in the market. It’s got to come from where you are at on the energy lifecycle of your own business. Are you loving your day-to-day? Are you loving solving those problems? Or are you getting to a point where you start looking over the fence and the grass is greener. When you start to have those mental conversations, you’ll want to start having the conversations to start looking at that exit. The reason for that is, if you have one foot out the door and you’re still trying to run your business, that’s when we see businesses start to tank and go down and once those trends start to go down. It makes it very difficult to reverse those trends on the multiples.
Lexi: We ran a post recently about how, in an ideal world, you want to sell before you’re totally burned out. Like you said, it’s not always possible to time, but that’s one thing that I’ve been encouraging founders lately—if you’re starting to hear that voice in your head, maybe it’s time to push yourself to think about it a little harder so that you’re not getting to the point where you can’t bear to work on the business anymore. Because selling a business is a marathon in itself.
Ryan: Yeah, absolutely. Selling a business will take so much mental headspace and it does take a lot of time, but it takes even more mental headspace. You’ll be thinking about selling your business 24 hours a day. You’ll wake up at 3am thinking about it. There are so many peaks and valleys when it comes to exiting and eleventh-hour freakouts from buyers and sellers. If you’re burnt out before you get to that, you’re really opening yourself up to be disappointed.
You need to have enough energy to keep building the business while going through this mental gymnastics upselling. What we see sometimes is that businesses get listed, they get some interest, they’re going through due diligence, they get an offer going through due diligence, and all of a sudden their business starts to tank because they’ve taken their eye off the ball. They’re so bored, they’re so burnt out, and they can’t do the right things to keep the business afloat. All that does is actually put the deal at jeopardy before it actually closes, and then you’re back to square one if it falls apart. Now, you still have your business, but you haven’t been operating it like you would at a higher caliber, and you still got almost two feet out the door rather than being able to finish it and see it all the way through.
Lexi: What you just mentioned is what founders tell us is the hardest thing about selling their business: It’s not finding a buyer. Sometimes, it’s not even deciding to sell. They say the hardest part is continuing to run their business at top notch while going through the due diligence period.
Ryan: Yeah, the mental headspace—you’re almost operating two different businesses. One is: I’m selling my business. Two is: I’m actually operating my business. Those don’t play well together in the same brain. They’re very separate.
I’ve actually seen it work well sometimes when you have two partners. One will be focused on selling and one will be hands down focusing on operating the business. Because very quickly you can get distracted. You can lose focus, and before you know it, you’re down three months of trends and you know you could have a 10-year-old e-commerce business, but buyers are always at a disadvantage of the information that they have versus the seller. They always will put a discount on the information received from the seller and they will have a 10-year-old business and put so much emphasis on the last month or the last three months of data, regardless of whether it’s been completely consistent for 10 years straight. They feel like something is out there that they can’t tell, which is why it’s supercritical over the last few months before you exit to make sure you’re operating at that high level.
Lexi: That makes sense. You mentioned something about mediocre brands versus great brands and I’m wondering if we could dig into that a little bit and talk about what makes a company attractive to a buyer. What types of things are they looking for that they’ll get excited about?
Ryan: I always see myself first as a buyer, because that’s how I started in 2012. I bought my first online business in every business I look at I’m like: “Oh, what would it look like to buy this? Can I solve those problems?” This is when an operator e-commerce owner will take their seller hat off and put their buyer hat on: What would you want in your own business? It’s probably the same for most buyers of what they would want in your business.
Let me give you some examples: You want unique products. You want differentiated brands. You want a clear way of why people buy from you, and if you don’t have that then buyers are going to not understand why people would buy from you to begin with. Many of the things that were forgotten about during the really good high times and the frothiness in the market of 2020-21 was diversified revenue. Diversified traffic. You need a business that’s transferable. It can’t be tied to your face.
I just ran into an incredible e-commerce business doing $7MM a year in revenue. In 4 years, they have exploded to almost $2MM in profit, and they originally built the business off the two founders’ influence. Maybe they’re influencers, but they had a network and a following, and they used that to launch their business. What they’ve done over the last year is remove themselves as the face of the business. Time will tell what impact that will have on that business, but if they hadn’t done that it’s not a transferable business. It’s tied to someone’s images.
You want a solid team—especially as you get into larger numbers, anything above 7 figures. A solid team that will transfer. The other thing that I see a lot of that’s been coming up recently is—we had so many supply chain issues in 2020-21, that you don’t want to have a single supply chain risk. Only having one supplier in the world can manufacture your products is tricky. You want to have a second or even a third manufacturer that once or twice a year you send orders to make sure that they can produce your high-quality product and that just allows you to diversify for political climates. I’ve had friends whose factories burned up in different parts of the world. I’ve had friends where the factories lost electricity and never got it back. I’ve had friends that have had containers lost at sea in the Pacific Ocean. There’s a lot more focus on the supply chain risk from a buyer perspective.
Sellers typically don’t think of the supply chain risk that buyers do because sellers don’t understand the risks that buyers are seeing within their business. Sellers have been operating that business and being okay with those risks for so long that they don’t see them as risks anymore. They just learned how to sleep at night with those, whereas buyers are going to come in with these new risks.
The final piece when I say you know what’s a mediocre business versus what’s a great business is just the overall trends. I know we’re beating a dead horse with the “trends,” but is your business going up? Is it going down? I talked to so many buyers who crush it for a few years, didn’t want to offload a business when they take their foot off the gas, or they got sidetracked by a shiny object. From a buyer perspective, you’re just going to get hammered from a multiple.
Lexi: Yeah, I’m always excited when I talk to a founder who says that their trajectory is on up, because I know that they’re they’re already getting they’re setting themselves up for a really exciting time ahead. Thinking generally about this report, if a founder looks at this they understand the stories that we’ve shared in here, and they get a sense of how these different sellers have connected with buyers, and how their businesses were valued. Is there anything else that you think a founder should think about in terms of turning that into action and setting up their own business for a future sale?
Ryan: Something we haven’t touched on too much—and I know two of these eight examples very well—things that they did well was actually have clean, buttoned up financials. With one of them, we actually had to redo the financials for the prior two years because their bookkeeper wasn’t doing them correctly. They were doing them on a cash basis versus accrual basis and they just weren’t accurate. In order for any of these eight businesses, or any business, to actually have an exit that you want to tell people about and tell your friends at the bar and you know have it be a success… you’ve got to have clean financials.
This is the number one area that founders miss, and I get why they miss it: They start a business. They’re like “Oh why do I want to spend $200-$300 a month on a good bookkeeper? I’m just going to wing it for now and figure it out at tax season.” That continues years down the road and then all of a sudden your books are a financial mess. You don’t know your numbers day in, and day out. You don’t know your numbers on a monthly basis. You’re actually operating your business less efficiently. But if someone comes to you and asks to buy your business, you don’t have your finance ducks in a row.
It took one of the groups that I worked with three months to fix their financials. A lot can happen in three months, and they were wanting to sell and start the process three months prior, and it just pushed everything three months further out. So, you run that risk of burnout and the business operating at that high caliber. That would be the number one thing I would recommend for business owners. Even if you’re not trying to sell today, have clean financials and understand what those look like. Set aside two hours every month to run through every single one of your numbers or however often you need to—that will allow you to build a better business. And even in the short term, as you operate this for the next few years, you’ll be way more profitable and understand exactly where you land.
Lexi: Yeah I’m hoping we can put together a course on this at some point because I even see some founders who say, “Oh, yeah, I have a bookkeeper. I’ve had a bookkeeper for years.” But, then, when they go to sell, the books still aren’t as clean as they thought they were and that seems to be quite common.
Can you tell us briefly what the difference between cash and accrual accounting is, for people who don’t know the answer?
Ryan: Let me dive in right before answering that question: you want to find a bookkeeper that is familiar with your industry. If you sell e-commerce, find someone who has other e-commerce clients and is very familiar with it. If you’re selling online, you don’t want to go to just the local main street type bookkeeper that does the HVAC company and the pest control company down the road, because they won’t have the necessary skill sets to do it accurately.
With that in mind, let’s talk a little bit about cash to accrual. Keep in mind, Lexi, I failed accounting twice in college. So, these are things that anybody can learn. These are going to be high-level. Basically, cash versus accrual cash accounting is when you account for your inventory purchases on your profit and loss when you make that purchase versus accrual accounting is accounting for the cost of your inventory when you sell it.
Let me give you an example of the difference in why this makes sense. Say you’re gearing up for Q4. In July, you spend $100,000 on inventory that you’re going to sell during Q4. Cash accounting would allocate $100,000 in July when you buy that. The problem is it makes June and July look super low on your profit and loss and it’s actually not accurate. You’re just transferring it from cash to another asset which is your inventory. Accrual accounting will actually take that $100,000 and allocate it as you sell that inventory over the next six months, so $10,000 / month over the next six months.
Why is this important? If you have a fast-growing business and in January you have $50,000 of inventory, and at the end of the year in December you have $300,000 worth of inventory, it will look like you lost $250,000 on a cash basis accounting. So, it’s really going to hammer you and it’s a very inaccurate way to value the business. You could potentially be leaving 250x—let’s just use 3x for an easy multiple—$750k on the table. Not to mention, a higher multiple because the bigger the business, the higher the multiple that you get. Now from an accrual standpoint, they’ll take that $250,000 and they’ll apply it as you sell through that inventory. That’s why you want to value your business on an accrual basis. I usually say people run their business on a cash basis and “How much cash do I have in the bank that I can use for inventory or ads?” So you’re paying your taxes on a cash basis, you’re running your business on a cash basis, but you have to value your business on an accrual. Hopefully that wasn’t too deep into the weeds and it makes sense everybody there.
Lexi: No, that’s great because I think most entrepreneurs start businesses on a cash basis and then eventually move to accrual over time which is fine, which is a great way to morph and grow over time. We’re coming up on our time here. If someone wants to work with you, you do help founders sell their business. What makes somebody a fit to work with you?
Ryan: Yeah, so I’m always open to talk to anybody you know, no matter the size if they want to sell in two weeks or 2 years It doesn’t matter. If you’re 2 years away from selling I’m happy to work with you and it’s better to have these conversations now, because there are going to be a lot of things that you could fix in your business in preparation for an exit. Just by the nature of our white glove service, the best fits for us is someone who’s doing at least $100,000 a year in profit, because then it will make sense for them and our fees and everything. But, at the end of the day, I talk to entrepreneurs of businesses doing $20,0000,000 a year in revenue and $100,000 a year in revenue, and am happy to put you in the right direction if we’re not able to help you out. I’ve been in all those different shoes before and sometimes it’s hard to navigate this landscape, so I’m just willing to talk to anybody and hopefully we can only set them in the right direction even if they’re not a fit for us.
Lexi: Yeah, I love how you said you, you don’t have to be ready to sell tomorrow to talk to someone like you because I think it does make sense for a lot of founders to think about this ahead of time and there’s lots of things you can get ready even if you’re not quite ready to sell yet and different levers that you can pull to help increase your valuation over time.
Ryan: Yeah, there’s a million different things that you can do. Most of those can’t be done in two weeks if you want to sell two weeks from now so you want to start you know, planning like you would for any big project or any any big undertaking you want to start planning as soon as possible.
Lexi: Can you share a little bit about how your fees work as an advisor.?
Ryan: Yep, absolutely. Our fees are sliding scale based on the size of the business. So it’s typically 10% on the first million, 9% on the second, 8% on the third, and continues to scale down til it gets to a flat 3%. That can range on all different levels—$10,000,000 is going to be different than if you have a $500,000 business.
Lexi: Great. And where can people find you?
Ryan: Yeah, so you can find us at quietlight.com. You can reach out to me firstname.lastname@example.org. Happy to have any questions and I’m sure there’s a link down here below on this page. You can feel free to click on that and we’ll be able to jump on a call and do a valuation range for you.
Lexi: Great! Can you promote your podcast, please? I think the people who listen to this might be interested in what you share in your podcast.
Ryan: Yeah, sure. Many years ago, I started a podcast called “Let’s Buy a Business,” which is pretty obvious: it’s about acquisitions. It’s about buying, because I’ve always seen myself as a buyer. We dive into all things “buying a business”—due diligence, how to find businesses, what businesses I like, which ones I don’t like, and we have lots of fun guests on there—people who’ve sold their business, bought businesses, etc. We do everything from Main Street to online, so it’s not solely focused on e-commerce, but we do a lot of online businesses there. You can find more at letsbuyabusiness.com, or really anywhere you get your podcasts.
Lexi: Ryan this has been great. You always pack so much value into a short period of time, so thanks for being here.
Ryan: Thanks Lexi, appreciate it. Love what you’re building there at They’ve Got Acquired.