Narrator: (00:01)
Welcome to the Process, to e Eco Profit Podcast, where we know top line sales just isn’t enough to have the business of your dreams learn to run a profitable business online that doesn’t run you.
Cindy: (00:17)
Hi, and welcome to the process, to e e-com profits podcast. Robin and I are joined today by, Jeremy Gross. He is based out of Seattle, so, we’re, we’re very warm today and he’s wearing a sweater because it’s cool there, so . But, Jeremy has, been an e-commerce, business owner for a while. That’s how I got to know him. He, came to books Keep, while he was still working in a corporate environment and also had a side hustle with his eCommerce business, and he wanted to, to get out of the corporate world, dedicate his time solely to eCommerce. And through that process, we worked together on Profit First and ultimately, Jeremy came to work with, with us and actually is, advising clients on Profit First, cashflow management. And here recently we’ve had a number of clients that are, have gone through the entire sales process, and Jeremy has been, at their right hand, going through the process, creating, creating the, reports in a way that gets him through due diligence, et cetera. So, we thought it’d be a great time to, to pick Jeremy’s brain and learn, learn a little bit about him, about what you can be doing now to set things up so that you’re ready to sell when the right time comes. So, welcome, Jeremy.
Jeremy: (01:37)
Hey, thanks for having me.
Cindy: (01:39)
Yeah. So, Robin, I thought I would just kick us off here and, and, get started with, Jeremy, can you, can you tell us a little bit about what you’re seeing with the clients that, that you’re going through this process? What are some of the, the things that they’re, having to do to prepare to sell that, that, that are kind of, consistent for everybody that you help them go through and, and, and take those steps?
Jeremy: (02:08)
Yeah. I mean, one of the, you know, people are, I was gonna say, people are running their business, obviously, and they’re just kind of going through the motions day to day. And a lot of the times they’re, doing things, in the business that also, kind of, kind of benefit their, their own personal existence . like for example, a business expense might be like the New York Times subscription, and a lot of times, and they just go about their business. And I think it’s important, that the clients are starting to think about the future of what their business might look like after they’re, after they sell, after they’re involved. And it’s better to start now, you know, immediately, and going through their expenses and thinking about things like, what are expenses that I have today that won’t carry on with a future owner.
Jeremy: (02:55)
we go through a process kind of called an add back analysis where we go through and look through their nitty gritty line by line, transaction by transaction, about expenses that are either not reoccurring or things that are for the benefit of themselves, maybe potentially like their salary. and we go through this process to give them a good idea for where they might end up, in the selling process or kind of getting towards a valuation, of what they might expect to see if they go through the selling process with a, a broker or DIY or really any, any approach.
Cindy: (03:27)
So you’re really kind of getting to a point where you understand what the profitability is without all the extra stuff that is unique to a particular owner, that helps may help them with their taxes, but is not necessarily something that somebody’s gonna have to have if they’re new taking over the business.
Jeremy: (03:46)
Yeah. It’s, it’s kinda like, it’s like what will the, what will the, the cash flow be for the future owner of this business once I’m outta the picture? Yeah. And it’s important to kind of weed out those expenses that are not gonna be carrying on with a future owner.
Robyn: (03:59)
So that would be things like, I decided to go to seven conferences and I had all the airfare that, that the future, unless that was like a, a fundamental piece of how you were doing your marketing that sure. That that wouldn’t carry over. And so that would be add back. if somebody is, is looking to sell, do you think that that those, I think there might be a concern like, well, maybe I should take them all out right now if, even if I’m not thinking about selling. like at what point do you have to, do you wanna start thinking about what those expenses are and may like, should at some point, should, what expenses should people pull into their personal if they kind of are kind of on that line,
Jeremy: (04:37)
into the line being like, I want to sell at some point in the future and what do I do? Yeah, I mean, to, to, I mean, like, I think they should just continue running their business as they, as they run it, but I think in the back of their mind they need to start thinking about, you know, these kind of buckets of expenses. and, and, and even we go through a process where we will structure, you know, kind of either a profit and loss to say, you know, this is what aback p and l might look like. Meaning we are kind of above the line below the line for operating profit. and, and trying to bring the expenses that we believe would be add back, add backable, below the line to get their true operating profit. so I, I mean, many times there’s, so certainly it’s kind of with our e-commerce clients, it’s like death by a thousand sass, right? But some software is needed to run the business and some are usually, some are optional. and it’s helpful to run the business, but it’s not critical. It’s not a critical expense that needs to carry on. you know, maybe, you know, some, some profitability dashboard software, like it might give ’em some extra insight, versus maybe, you know, a PPC management type of software.
Cindy: (05:52)
And, and it’s not necessarily that you have to take it out of the books. You, what we do is restructure the books so that you’re able to see these are the things that are critical to the business operations and these are the things that could be considered ad backs still. You can print that p and l out and take it to your, tax account and at the end of the year and it’s all there. it’s not put off in, in your personal books, but it, but it does give you, a, a level of, discernment so that you can say, you know, these, these things, I can truly understand my valuation of my business better if these things aren’t added in. So, just giving, giving you that, that information so that you can make better decisions because of it.
Jeremy: (06:43)
Yeah, and the way I like to think about it is for every, well one, you should still be running your business efficiently no matter what, so you have enough cash coming down the funnel so you can pay yourself and make profit and pay taxes and then reinvest and all that good stuff. But if you, you know, the way I like to think about it is, you know, for every dollar you either cut outta the business that doesn’t, that’s not gonna impact the business. But every dollar you cut, or for every dollar that you say, Hey, this is kind of an optional expense, and a future owner won’t have, that dollar gets multiplied by that value by that multiplier number. So if your exit is, you know, at three or three and a half or four, four and a half or whatever the number is, you know, for every dollar, if it’s a four x multiplier, you’re gonna get $4 at the bottom of, you know, at your exit. so, you know, it kind of changes the mindset of like one run efficiently, cuz every dollar you save, you get at the bottom times four and two, if there is a dollar that you know is not critical, you’re gonna get that times four, the bottom of your exit as well. and it kind of shifts the mindset a little bit for how they look at their kind of day to day and month to month view.
Cindy: (07:46)
So one of the things that, that we do at bookkeeping is we actually provide a, financial statement with these metrics in it. So you get your traditional financial statement, but we also give you a, a p and l with, with the aback separated out with, a graph showing what your multiple looks like and looking back over, like a rolling 12 months so you can start to see, how things are shaping up for you when you might go through due diligence.
Jeremy: (08:16)
And, and there’s, there’s the, of course, the big view, like the trailing 12 month, but if you, we, we create a really cool chart, that is a, that is a month by month. It’s kind of a bar chart and, and, and it follows the, the, the monthly contribution to that trailing 12 months exit. and, and boy, what’s nice about that, it really informs kind of from a data driven perspective, the story of what’s happening in the business. Because if you are, you know, if 11, 10 months ago business was not doing as strong as it is right now, you, if you wait for those, those less strong months to fall off the calendar and get replaced by stronger months, all of a sudden you, you kind of lock in at a, at a, at a higher, a higher baseline. and so you might wanna say like, Hey, I’m gonna wait three months because I know these poor months will fall off and I, it’ll look more rosy.
Jeremy: (09:07)
and the reverse can be helpful as well to look, say things were really strong last year now is not so strong. I know that every month that a strong month falls off, I kind of lock in at a lower level. And so, and it definitely is some gray area there, but it could generally inform areas that they need to, you know, fix in their business in order to kind of reverse a downward trend and, you know, play kind of a timing game so that you, because the narrative is important as well for what’s happening with your business. When you’re exiting
Robyn: (09:36)
It, it, it seems like, it seems like that would be a good, way for you to say, All right, if I know I’m gonna sell in three years, that gives me the incentive to like, make actions today. Whereas, you know, if I’m just thinking about three years, it’s like, Oh, I’ll clean it up next year. I’ll clean it up soon. Yeah. it’s like the, the difference between I’m gonna lose 20 pounds at the end of the year, or I’m gonna try to lose a pound this week. and then I, so I think there’s a lot of value there, but also for those that are thinking of selling in two or three years, it can, I would imagine it gives people a, a good insight of what time of the year is the best time for them to start the process. so cause so can you talk, Is that, is that right or?
Jeremy: (10:18)
I think so. I mean, like, yeah, I mean, you know, seasonality, especially in e-commerce can be a big part of, I mean, q4, right? You know, Q4 and trailing to Q1 is, is kind of the big, the big times. But of course it does depend on seasonality for your business. so I mean, time timing is definitely important. but, and again, if you do, whether you’re thinking of selling in six months or a year, two years, or even down the road, I think putting yourself in that mindset today, regardless of what your timeline is, is important because, you’ll make maybe different slash of better decisions for how you’re spending your money and the things you’re doing in your business to, achieve a certain, you know, number if you’re, if you have a particular goal in mind. one of the things that I’ll do, I’ll have in conversations with clients is, you know what, you know, everyone has their number.
Jeremy: (11:07)
I want a million, I want 5 million, I want, you know, 40 million, as at an exit and, and the going through the exercise of, okay, let’s figure out where you are right now and, and we, we’ll start there and then we’ll worry about, you know, the $40 million later, but let’s figure out where you are right now and how far you are towards your goal. Cuz at some point if they’re like, I wanna sell for a million dollars and, and we’d do the numbers, and you’re like, well, you’re at like 900,000, you know, too far. Versus someone that’s like, I want $15 million, and you know, right now at a three x multiplier, they’re at like, you know, 17% of that. they know they have a little bit of work to do. and you know, some of that work usually points to product profitability, and, you know, ways of, of getting growth, that’s not always dependent on, you know, PPC and, and the, and the, the, the, the black hole that is ppc.
Robyn: (12:03)
Do you see that sometimes people in trying to drive for that valuation that they dig themselves a hole because they rely too heavily on like a heavy hand on the PPC and it ends up hurting their cog, like their overall costs? Or do you feel like, like that is, you know, Cause I think a lot of people look at it like, advertising is the way I’m gonna get the top line revenue and they’re really focused. I mean, there’s, I mean, like if you go to any of the conferences or any of the webinars, they’re all about ppc. And I think that, sometimes people can just rely on that hammer so much that it, like we, we do ppc, like that’s part of our, our service. you
Jeremy: (12:42)
Know, I better, I better be careful what I say .
Robyn: (12:45)
No, but, but we do it like, like looking at, like we manage to, like looking at the overall, like how it works with profitability, where I think that, you know, I’ve, I’ve had clients come to us and say, Well, our agency says we’re doing great because we’re getting a five row as well. If, if the, if it’s not profitable to a five R as, it doesn’t matter that you’re getting a five R as
Jeremy: (13:04)
Yeah, I mean, there’s times, I mean, ultimately, you know, the top line is, is the kind of advantage vanity number, right? It’s like the, the, the, ah, it’s like the cocktail party, like, Oh, I had a million dollars in sales. It’s like, okay, well how much did you keep? And so it’s kind of like a cliche, you know, that, that, that saying. But, I will say there are, I had a client who was, went through the sale process, and it kind of depends on how or what type of buyer is gonna be, you know, interested in, in you. like there’s like strategic exit strategic partners versus like, you know, more like a mom and pop, you know, e-commerce, like some guy in a corporate job who wants to have the side business or get, you know, have a, a side thing going on or maybe exit their corporate job, going with a broker versus going with an investment company.
Jeremy: (13:59)
So there are times that the client is directed to hit a certain sales number and we don’t care about what happens below the that line. We just, you need to hit this number. and in that case they’re like, Well, let’s turn on, you know, to open the faucet. that took that, at least in my experience, I think the level of, of sales that we’re dealing with, is I think more rare. but it happens. I mean, ultimately I think you have to keep a mind on what’s happening, you know, throughout the funnel. And if you’re hitting certain sales number and you’re happy, but then at the bottom, after you’ve covered PPC and all your other expenses, it’s underwater. that’s just kind of a losing, that’s a losing battle. and, you know, e-commerce is very much a pay to play environment. I think right now it didn’t used to be that way, but between competition and it’s, you know, it’s a, it’s a very sexy place to play, e-commerce. And so PPC is a kind of necessary evil, maybe from my stand , you know, from my standpoint, it’s important. but yet it needs to be very carefully managed
Cindy: (15:10)
Well because the add back, process, once you get to, to your operating profit number and you’ve dealt with your add backs, typically that multiplier is, is applied to the operating profit. That’s, and if, if all of the dollars have gone out the door to, fund ppc, then that operating profit number is, is really low. So, Right. yeah, it may put you in a higher tier to have increased your sales. It may, it may put you in front of more audiences, but then when they apply their multiplier times, an operating profit, you’ve, you’ve kind of shot yourself in the foot, so to speak.
Jeremy: (15:51)
Yeah, exactly.
Cindy: (15:53)
One of the things that, that I wanted to ask you about Jeremy, is confidence. I, I know from having dealt with a few of our clients that have sold, we’ve heard from them that having confidence in their numbers has really had an impact on the, the ultimate, price that they got for, for their business. Yeah. and unfortunately we’ve seen it both ways where people have had confidence and where people, people couldn’t support their numbers and, and, you know, last minute valuations are dropping, et cetera. So can you tell us what you see as people go through that due diligence about them being prepared, how that impacts the process?
Jeremy: (16:37)
sure. Yeah. I think that, you know, we all have our, we all have our strengths and the hats that we wear, and I think a lot of business owners out there, sometimes the numbers aren’t, you know, part of their, you know, strength. and, I think given going through this process where we develop kind of the, where we go through a cleanup process where we’re going through your, your financials and making sure everything’s traceable, and, you know, there’s, you know, the add back number we got to, it’s not just a number we pull out of the air. It’s, we’ve gone through transaction by transaction over, you know, the last year and we’ve decided, you know, this is or isn’t an advac and this is or isn’t, you know, a necessary operating expense. a and just kind of digging in the weeds with the, I think the business owners, one, it gets them more familiar with what’s actually happening down at that, in that detail level.
Jeremy: (17:30)
but two, that all funnels into these reports that we develop, which is they end up being like a little bit of a security blanket because they’re walking into a meeting. some of the clients that I’ve heard in the past, they walk into a walk into a meeting without a lot of organization, without really strong ideas of what’s happening in, in the detail level of their numbers. and going through the pro going through that process with us and then developing this report, they’re walking into the meeting, you know, having already answered the questions that they’re going to be asked. we had a client that said, yeah, I think she had, she had a meeting set up, she walked in there with her report, the meeting was 15 minutes long because she already had every answer to the questions that they were gonna ask at that meeting.
Jeremy: (18:13)
and, and that end, you know, ended up showing how confident she was in her numbers and how confident she was in the process. and, you know, she ended up getting an offer from, you know, down the, down the process through d through diligence and everything, but she ended up getting an offer. and, and, and yeah, it’s, so having all that, being proactive with your numbers and getting all that, that lined up ahead of time, arms you and puts you in a position of power when you come in to the negotiating table, or just with perspective buyers having these conversations cuz there’s no questions. It’s all, this is where it came from, these are the numbers and this is what I’m basing, you know, you know, these metrics on. and so it really puts them in a position of strength.
Cindy: (18:56)
And what I, what I’ve seen too is, when there’s years worth of data that don’t make sense, and then suddenly they’ve got like one year worth of data, it, it, it creates, for the potential buyer, it, it creates a lot of nervousness. They say, Okay, well why can’t we go back and look at a couple of years? And what I’ve seen with, with potential buyers and brokers is they want two years of good solid data. and, and, if, if you can’t support your data back that far, it may be a good, a good thing to think about just holding on a little bit longer. you know, there was a time, I guess about a year ago where things were just, people were selling at really high multiples and, you know, money was just flowing like crazy. But I think things have slowed down now, so people are being a little bit more careful in that due diligence phase and, and wanting, wanting that story to be defensible back for a couple of years now.
Jeremy: (20:06)
Yeah, I think, I think, I think definitely things have gotten a little softer out there from a valuation perspective and as well as, more kind of stringent due diligence and digging a little opening, opening more of the kimono and really digging into the details, behind the scenes. I, I, there was, I think with, with all the aggregators that were throwing money around, I think that there was just like, Hey, we got cash. We’re gonna buy a bunch of e-commerce businesses. And now everyone’s realizing, oh, we actually have to operate these businesses, and, and be profitable and, and make money. and so I think there’s, recently there has been a kind of a, a trend back in the, into the, you know, your business needs to stand on its own for a profitability standpoint.
Robyn: (20:49)
Do you think that, I think that for some people they’re hearing, oh, the multipl are going away, and so they feel this urgency like, well, I’ve gotta sell right now because they feel like the market is crashing on Amazon businesses. What advice would you have for those that maybe have not done the work, you know, because they’ve been busy, they’ve been growing and you know, they, they haven’t had a great team like bookkeepers baby that’s kind of got all that data for them. If they don’t have all of their, their kind of their ducks in a row, should they be trying to sell now to, I mean, obviously you can’t predict the market, but, you know, like what would, if somebody came to you in that position, what would be your advice?
Jeremy: (21:26)
I think if you move too fast without kind of getting your ducks in a row, it’ll probably end up hurting you more, with prospective buyers. you know, I really think, you know, being able to, Cindy, as Cindy mentioned, like be defensible in your numbers and your product. I mean, down at the skew level, your profitability, it’s, it’s important to get to really kind of clean house if you’re having issues in that, in, you know, in that realm. I think it’s, this is one of those like two steps back, you know, and then five steps forward. I think really taking the time and pausing and kind of assessing the situation, getting your arms around the scope, and, and, you know, looking at your own business through the lens of a perspective buyer, and doing, and, you know, and doing some cleanup, that’s gonna put you in a much stronger position. So, even, even with, I think even if it’s getting a little softer out there from a valuation perspective, you will put yourself in a, the, the best position possible in whatever market is, is there by cleaning house. And, and if, and if you find out from a timing perspective, you should wait, I think there, there will, I think there will always be buyers for strong businesses that are profitable no matter what the market is.
Robyn: (22:47)
And then we talk a lot about add backs and things like that, but it, you know, that is not gonna take into account if you’ve let payroll kind of run crazy or if you’ve carried a bunch of products that aren’t profitable anymore. you know, if cleaning up those things, it takes time and I would imagine the buyers are gonna wanna see that, you know, these things have, it was, it wasn’t just the fluke that this six months was good, that, you know, that you’ve been able to carry that performance over time.
Jeremy: (23:13)
Yeah. And, and you mentioned inventory, it, you know, with your, with your exit number that you’re gonna get, typically the buyer is also gonna buy your inventory from you. but in that process as well, you know, it’s really kind of separate from the aback process. You want to make sure, like if you’re carrying a bunch of stale inventory that hasn’t sold for, you know, that’s just been sitting on the shelf, you know, turn, you know, we wanna, we always, we wanna take your the ice and turn it into to water, right? So you wanna go from, you know, the ice to slush to, to water into as cash. and so there might be other non-ad back related activities that you need to go and maybe you need to get rid of some of that stale inventory. and so, yeah, like you said, it takes time to sell through that stuff and, I mean, that’s all fair game for the buyers or to poke at, so you wanna kind of just keep, get things in order and be able to talk to, you know, the velocity of, you know, your skews at the, at the skew level, not just like, Hey, I have $200,000 in inventory.
Jeremy: (24:11)
It’s like, okay, well how much of that inventory is, you know, how much of that inventory is gonna turn over fast? Okay.
Robyn: (24:17)
Cause $200,000 is in inventory, doesn’t mean anything if it’s all if half of it’s stale,
Jeremy: (24:22)
You know? Right, exactly. Or, and
Cindy: (24:24)
It means something. It’s just not what you want it to mean .
Jeremy: (24:27)
Right, Right. Yeah, exactly. I mean, a buyer who’s gonna come in and, you know, pay $200,000 for inventory and then realize they need to put another 200, $300,000 into inventory that’s actually gonna sell, you know, it creates, it creates wrinkles in the, in the process.
Cindy: (24:43)
And that inventory process is, is a place where I’ve seen some of our clients really struggle. They’ve, they’ve not been able to defend when they’ve bought and when it sells through. I mean, you know, we talk about in profit first, how there’s a cash flow for operating expenses and the cash flow for inventory. And that’s something that potential buyers wanna understand is when are you purchasing it? How much and, and how fast does it flow through? I’ve, I’ve seen us prepare for part, for some buyers, through the due diligence phase, just an inventory, cash flow of how that inventory has worked through. And I’ve also, seen where it wasn’t making sense that, there were some last minute negotiations where people were like, I, I don’t, I don’t feel comfortable here. And they backed off on their purchasing price and that’s never a, a good place to be. So, you, you really wanna have, have dove into that to be sure that you can defend and, and, that, that that story it tells is, is one that’s gonna make your potential buyer or your broker comfortable.
Jeremy: (25:52)
I, I think another area related to that, I think one area, I mean, related to inventory, I think that, really one activity that will kind of strengthen, again, the process for you is, I, I find a lot of sellers don’t have, you know, how much is your next inventory payment gonna be and when is it gonna happen? and then when’s the next one and then when’s the next one? And even if it’s never gonna be a bullseye in the target, but if you’re on the general target of when you think the timing of cash out the door, and when you’re gonna get inventory, I, I think, you know, there’s definitely software out there that can, that can help you with these things. But I think, you know, even a simple Excel workbook can get you pretty far and just mapping out.
Jeremy: (26:34)
And some of it might be skew dependents, like if you have thousands of skews, you’re probably in a different boat than if you have just, you know, five or 10 or a handful of them. but really getting a, a idea for when cash is gonna leave the business for inventory and, and freight, and then, you know, getting a sense for how long that inventory will last coming, coming kind of armed with that data as well, will just be, you know, we’ll just add to your position, at the table with a buyer.
Cindy: (27:00)
Another thing that, I’d like to speak to from a bookkeeping perspective is, accrual books versus cashbook. when, when, you would talk with a broker, the one thing that they’re gonna want to, to be sure, that, that you have at the ready is that your books are, are done using the accrual method, at least through the, top part of the p and l. So your revenue needs to be done on an accrual method, and your cost of good sold and inventory need to be done on accrual method. When you get down into the operating expenses, that’s not as important. They’re not as concerned about, you know, accruing one 12th of every insurance payment across, you know, the whole p and l, but they do wanna see you. That’s where you can tell profitability, by being able to look at your revenue that occurred month, you know, in a month, and how that compares to the cost of goods for that month and what gross profit margin.
Cindy: (28:03)
I mean, this is why I hit it over and over again because ultimately it’s one of the factors that is gonna be huge in talking to a potential buyer and they don’t wanna see that recorded on a cash basis. you know, selling on Amazon, most people are getting their payouts every couple of weeks. So we all know that there’s those two months where we get that third payout and it just throws everything outta kilter. using a software like a two x that, that allows you to get your, sales in the month and allows you to put your cogs in that month so you can really see your profitability. And, if you, when you start down the process of talking to, a broker or a potential buyer, that’s one of the very first things they’re gonna wanna say is they want to see your financials and they want to see it on an accrual basis.
Jeremy: (28:55)
And what, one other thing from an inventory perspective that what you’re saying triggered is, you know, inventory is inventory, but there’s buckets of inventory. One might be on the shelf and available to sell, and then one might be this is in transit and, you know, on a boat somewhere. And one might be, you know, and, and maybe you have components of that make up the manufacturing process and, you know, to get to the finished unit. So I think also, making sure you understand where your inventory is in the inventory pipeline, is important, as well. so
Cindy: (29:30)
So it’s part of that flow that you have to, Right, you have to, to, to think about and forecast out.
Jeremy: (29:36)
Right? Right.
Robyn: (29:37)
So where do you think is the, So if somebody’s getting started, they’re like, Okay, I know I wanna sell in a year, or I know that I want to sell, eventually I need to start getting these numbers together because whether or not I sell trying to increase the profitability is that the goal is the same mm-hmm. . So, having this data is not only going to help me, you know, it sounds like the first, you know, we need to look, look at forecasting and I think what you said about like, knowing when those inventory payments are gonna come out, especially now with, you know, with the tariffs and the increased shipping rates, it really helps you predict your, your, cash flow and kind of protect yourself from some of the shocks that people are getting. but you know, it sounds like something around inventory, looking at your above and below the line, cleaning things up, and then, making sure you’re on that accrual method, at least above the line, using a tool like a two x or having, a team like bookkeepers or somebody else that can help kind of do those things.
Robyn: (30:37)
Is there any other like really important like, do not collect, go, do not, you know, do not pass, go, do not collect $200 that you’ve gotta do, Like as soon as you start thinking about this process,
Jeremy: (30:49)
I mean, to me, I, I mean, I’m gonna repeat one of the points you made, but it’s, I think the first step is making sure you have a clean set of books, because that really is kind of the, the foundation for an ad back analysis and for understanding your inventory. And so like, you know, so you just need to get kind of, kind of a, a clean set of books, and working with your bookkeeper or accountant to, to do that. I think that to me, is important. And that might include going backwards a little bit depending on where you are. I mean, ultimately, like Cindy mentioned, like, you know, if you need a year or two years of, of financials, in order to kind of really get this process going, you just want that to be clean and making sure everything ties back to the bank accounts and make sure li your, your liabilities are all in place and your inventory and your cash and just making sure that’s, you know, in, in line.
Jeremy: (31:39)
I would say that’s kind of step one. If you do nothing else, make sure your books are cleaned, because, whether you do an add-back analysis or not, in the due d diligence process, that buyer is gonna be looking and looking at the we in the weeds at those numbers and figuring out, you know, they might tell you how you’re doing, and you don’t want them telling you how you’re doing, cuz they’ll probably have a little bit more of a, a foggy lens for how awesome you are, compared to your, your, your approach, what you think of how things are going.
Cindy: (32:12)
Yeah. And that add back analysis too. It it’s the starting place, you know, anytime you’re, you’re in this, sales process, it’s a negotiation. And so you can go through and, and, and we advise our clients on what that can go in that ad back bucket, but a potential buyer may look at it and say, Well, I’m gonna have to have that expense, so I wanna move it back up. And it’s something that you talk about. It’s, it’s not a, it’s not a, a list we can hand out and say, this is your list of ad backs, be sure you’ve got ’em all covered. it, it really does vary by client and, and then is a negotiation with, with the potential buyer. in addition to, to what Jeremy said, I, I think another thing, if you’re thinking about selling, you know, six months, couple of years down the road, it’s a, it’s a good idea to just start getting educated about what that process looks like.
Cindy: (33:09)
There’s, some really great resources out there. Joe Valley’s book, I can’t call the name of it right now, is a good one. there, the, Amazing Exits podcast is out there. and I’m sure there’s people in, your network that you’ve, that have sold that you can pick their brain. there’s courses out there. I know one of our clients went through a course on how to prepare his business for sale and, it was really interesting to, to, to watch some of the things that they worked on. but getting educated on what is a, what that sales process is like, what some of the variables are for doing it yourself, you know, listing it yourself on a platform versus, you know, having a, a broker work with you versus, you know, using a private equity type firm. Just starting to understand what all those options are. it is good to set you up for when you do get ready, you, you know, what kind of, world you’re stepping into.
Jeremy: (34:14)
And I think one, one more to add onto that in terms of like, you know, even if you’re not ready right now, you could go to a broker and they’ll, they’ll look at you and they’ll say, you know, and they’ll go through the process. You’ll go ask, Yeah, you’ll, you’ll answer some questions, you’ll provide some numbers and you know, they can be a thermo, a thermometer, temperature check for where they think you might end up. I mean, and there’s nothing to say that you have to pull the trigger right now. You can like go test the waters, have them do an evaluation, gather some information and they might send you off with some homework to make sure you, you know, check out these boxes and then come back to us. so that, that could also help inform, what you need to do in order to kind of get the, get the biggest bang for your buck in the process
Cindy: (34:56)
Yeah. And how to get started going down the path anyway.
Jeremy: (35:00)
Right.
Robyn: (35:01)
I don’t wanna backtrack too much, but you know, on, on the area of clean books we have, there’s a lot of people who started Amazon businesses that are naturally frugal and resourceful and scrappy. And so there can be this tendency like, well, I wanna save money on my bookkeeping now and I’ll go and clean up my books after the fact, like when I’m ready, how much more does it cost? Does it cost significantly more to go back and clean up books versus maintaining them from the beginning?
Cindy: (35:30)
Yes. , I mean, I mean, I mean, for one thing you’re relying on somebody’s memory and, and going back and trying to pull data. I mean it depends. Everybody has, some people are really good at keeping their books, you know, they may not have every, bookkeeping tool in their tool belt, but, but they understand finances enough that they’ve got the bulk of it taken care of. others are just, you know, I, everything is just thrown in here and I’ll deal with it later. And that’s really hard to, hard to clean up. you know, there are, are systems out there like a two X that take a lot of the, that do a lot of the heavy lifting, and our smart start program where we just get, you started doing it right from the beginning and then you keep it going.
Cindy: (36:23)
so there’s resources out there that, you, yes, it takes a little bit of investment to get going, right? But then you can keep doing it yourself. You don’t have to pay somebody to do it. So, but, you know, neglecting it for a long period of time and then saying, somebody come clean this up for two years, that’s where you can’t answer all the questions. And so the data that you get is not gonna be as defensible as, data that you’ve been on top of and understand. And, and to me that’s, that’s the thing that I really have seen with clients that have gone through this selling process, the ones that are very confident in what their numbers are and how, how they’re put together. They convey that in those due diligence discussions and it elevates the whole money discussion. And so you, you wanna be at that level. and it doesn’t mean you have to pay somebody to do it, but if you know you’re, you don’t have good defensible stuff, then that’s just gonna cost you later.
Jeremy: (37:31)
And I, I think it helps give an indication of just how you run your business. Like if you come to the table with, I know my numbers and on my details, I can answer questions, but that’s a little bit of an indication of maybe how you run the business from a do you have documented processes? Do you have, you know, people that you contractors? So like, you know, it’s just kind of an indicator of how you might run the rest of, of the show, to, to a buyer. If you come to the table with, you know, these, you know, this very critical area of your business, you know, cleaned and taken care of.
Cindy: (38:01)
Yeah.
Robyn: (38:02)
And they’re gonna be able to see if you have a giant accounting expense that, you know, like , like they’re gonna be able to, clearly you’re gonna have to explain like, well, I spent $5,000 on a cleanup for, you know, or I spent $10,000 on a cleanup because I was completely not managing the books at all. Like, I’m kind of here with dumb luck with the profitability that I have. Right. And whether or not that’s true, that could, that could be how it lands.
Jeremy: (38:26)
Well, hey, and at least that $5,000 would be an add back in that case.
Robyn: (38:29)
Yes. That’s
Cindy: (38:33)
Visible though. Yes.
Jeremy: (38:35)
Yeah, Yeah. It’s just like, you don’t, you don’t want them to pull on the, the thread on the sweater and just start like unraveling. Cuz it’s like if there’s things that they unturn it’s like, oh, you know, stones that they lift up and they’re like, Oh, why are these bugs under here? you know, that, that just again, does not put you as a, as a seller in a position of, of strength.
Robyn: (38:53)
Well, and I think that there’s like a tendency like, I don’t wanna know my numbers cuz I’m afraid they’re gonna be bad, but if you wanna sell, you need to know all the bad things up for kind of like a politician. You have to be able like, yes, I did smoke marijuana and you know, I’m I, you know, like, and you need to have an answer for that before they say, and you can’t be like, Oh, well I didn’t realize that that was the case. Cuz then it makes it, that’s where your valuation gets hurt, I feel like.
Jeremy: (39:15)
Yeah. Yeah. You need to know the scope of the, the scope of what, you know, what it looks like. I mean, it’s kind of like if somebody has a bunch of credit cards or credit card debt and loans and it’s like, I don’t wanna see it, but it’s like, well you can’t address, it’s like, you know, the measure and manage thing, right? Yeah. It’s, you have to know what you’re dealing with in order to move forward and, and come up with a plan. so it’s, it’s best to know that you have a couple, you know, really poor profitability, poor profit skews, so that you can make the decision to either cut ’em, liquidate it, and move that money into a more efficient use. and, and again, that’s, that helps you now and even if you don’t sell, but also it’ll help you in the sales process, to get, to get a better, a better outcome.
Cindy: (40:00)
Yeah. To me that’s, that’s the interesting thing. as, as people think about selling, they get serious about the things that they really should be doing all along. And if you’re running your business well that will always be a buyer that will pay for that, and it always puts you in the best position. So, so just do it , you know, just do it
Jeremy: (40:23)
it’s worth. And I just, I get to, to reiterate what Cindy said about, you know, you can learn how to do it yourself and then run, I, I’m all about opex efficiency. Like you sh if you spend a little bit now, get the education and do it, you know, even at an 80% job when you actually want to either bring on a perf you know, a professional or whoever, you know, the heavy lifting will have been done already and it’s, it’s gonna be less expensive later. plus you’ll make better decisions in the day to day operations of your business anyway.
Cindy: (40:51)
Yeah. You’ll have learned, you’ll have learned some of those nitty gritty things that put you in a better negotiating position. And, you know, one of the, one of the, one of my favorite memories is, with a client that was getting ready to sell was, they were approached, they really weren’t looking to exit they, but they were, they were approached and, we had some discussions put together, the, the smart cell statements that we, we do for our clients. And, they went to their meeting and they, they just said, you know, no way was I gonna sell for, They, they just knew that that was a low ball offer and they walked away and, total confidence walking away, not, not like, oh, you know, should I have really done this? Should I, should I have no, they walked away with total confidence and then later that buyer came back, knowing that, that, you know, they’d set the bar high and, it paid off for them really, really well. But it, it made me really proud for that client to know that, that they didn’t have any regrets in that conversation. They knew exactly what they had and what their value was and they, they knew that was a low ball offer and so they didn’t have to spend emotional energy, you know, worried over it.
Jeremy: (42:14)
It’s like having the answer to the, to the test before you have to sit down and take the test
Cindy: (42:19)
. Exactly. Yeah. Well, Jeremy, thanks for for joining us today and we’re gonna go over now to our five minute fix.
Robyn: (42:26)
This is Robin Johnson with your five minute fix, and today I’m talking, gonna be talking about making sure you have your trademark filed. Recently we had a, a client that came to us that had been in business for a very long time, but they didn’t ever invested in a trademark and they didn’t think that they needed it because their brand was pretty unique and pretty niche. and they were really well established in the field, but as they started to sell on Amazon, not only does not having the trademark impact their ability to, I in impact their ability to be able to use tools like brand registry and a plus contact and sponsored brands and have access to the brand analytics, all of those things. But additionally, we saw that, you know, there were some people that because they hadn’t put their branding on all of their products, people were selling their products as their own brand and it was very difficult for us to go after and try to remove those sellers so that our, that our client could potentially sell themselves.
Robyn: (43:18)
It is important that you protect your intellectual property, even if you think it’s not worth very much yet it’s important to protect it as soon as possible. So if this is a side hustle and you’re just barely getting started, you can wait a little bit. But if you’re starting to see some, sales and you start to see a brand that you really wanna develop, it’s important that you get that trademark right away. The other reason is you might be selling under a specific trademark, and we have this happen to another client that, you know, they, they were gonna get their trademark as soon as they had enough sales where they thought it was worth the attorney costs. But by the time they did the attorneys and they got the attorneys hired, they realized there were somebody else using that mark and so they weren’t able to get it approved, and so they lost all of the brand affinity that they had been building.
Robyn: (44:00)
So it’s important that especially for your brand name and for like your hero product names, that you do the work to invest in a trademark, with copyright. You know, you do have some in like inherent protection, but it is important that you consult with an, an IP attorney to talk about those things. The same is true about patents. It’s important that you make sure you talk to an IP attorney about any potential patents you might be able to file. This is especially important if you’re expanding internationally. In some countries the first use is the one that’s awarded the patent. In some it’s the first people person the file. It, it really depends from country to country. So especially if you are going to, expand internationally or you’re looking to really build a brand, it’s important that you make sure you have your trademark, you understand copyright, and you make sure you own the license for all the images that you’re using and that you make sure that you file and, and, and really, work to advocate to get any patents that your product might be eligible for to protect you from a against competitor actions and to make sure that your brand has a, the strongest possible position as you sell.
Narrator: (45:10)
Thank you for listening to the Process. To e-Comm Profits podcast. Make sure you subscribe to get updates for new episodes. Leave a review and one lucky winner. Each month will win a one hour call with your choice of our hosts, a value of over $300. Keep listening to Hear the Winner Announce on the first show of the month. You can contact our hosts by using the Contact us form at process to e-com profits.com. You can also find the contact information of our hosts and show guests in the show notes for each episode.
