Summary

In this conversation, Jon Stoddard interviews Joe Valley, founder of Quiet Light Brokerage, who specializes in selling online businesses. Joe shares his entrepreneurial journey, the importance of preparation when selling a business, and the evolving landscape of business sales, particularly with the rise of aggregators. He emphasizes the role of advisors in ensuring sellers get the best value for their businesses and discusses the concept of stability payments and how to protect sellers during the sale process. Joe also introduces his upcoming book, the Exitpreneurs Playbook, which aims to guide entrepreneurs through the selling process. In this conversation, Jon Stoddard discusses the intricacies of business valuation, the importance of clean financials, and the emotional challenges faced by entrepreneurs when selling their businesses. He emphasizes the need for proper accounting practices, understanding market trends, and the role of advisors in navigating the selling process. The discussion also highlights the significance of due diligence and the psychological aspects of closing a deal, providing valuable insights for both sellers and buyers in the entrepreneurial space.

Takeaways

Joe Valley has been an entrepreneur since 1997.
Quiet Light Brokerage focuses solely on online business sales.
Preparation is key to maximizing business sale value.
Advisors play a crucial role in guiding sellers.
Market trends show increasing transaction sizes in business sales.
Aggregators are changing the landscape of business acquisitions.
Stability payments can protect sellers during the sale process.
Competition among buyers leads to better offers for sellers.
The Exitpreneurs Playbook provides a comprehensive guide for sellers.
Understanding buyer psychology is essential for successful sales. Understanding discretionary earnings is crucial for business valuation.
Clean financials instill confidence in potential buyers.
Accrual accounting is essential for accurate business valuation.
Valuation is influenced by market trends and buyer perceptions.
Emotional challenges are common when nearing a business sale.
Due diligence typically takes three to four weeks.
Proper pricing attracts more buyers and competition.
Advisors play a critical role in the selling process.
Buyers benefit from understanding valuation methodologies.
Transparency in financials is key to successful negotiations.

 

 

Jon Stoddard (00:00.398)
Hi, this is John Stoddard, Top &A Podcast. I have a guest today is Joe Valley. Joe Valley is from the founder of Quietly at Brokage. It sells online businesses and only online businesses. So Joe, welcome to the show. How are you? be here, John. Good to be here. Glad to be here. Thanks so much for having me on. So I want to go back. You and I probably first talked four to five years ago when I was selling my

trying to sell my e-commerce company, selling air and aids. And then you said, nah, it's not right for us. I don't remember what the conversation was, but it just wasn't ready to be sold because I just didn't have any processes in place, mechanics in place. Do you remember that? Yeah. Yeah, yeah, actually I do. Now that you bring it up, I have a recollection of it. be honest with you, I've talked to about 8,000 entrepreneurs over the last nine years. So I can't remember the individual conversations, but I can tell you that there's not many

that had hearing aid-based businesses. It was very unique at the time, but yes, quite some time ago. So Joe, let me ask you how you got started in this. mean, you're an entrepreneur by trade or just by because you love it. I mean, how did you get started in this? Yeah, I'm an entrepreneur. I've been self-employed since 1997, John. I'm an old guy, get some gray in my chin. And I was, when I left,

the last company that I worked for, I really had a choice. It came down to, I should probably move on and get to my own business because if I don't, I'm probably going to get fired. Right. I had been promoted to my own level of incompetence and, and I was, I had some bosses that had without question been promoted to theirs. And it just wasn't the same company that I, I worked at when I started in 1994, we went from.

I was employee number 34 and we went from 34 people in January of 1994 to well over a thousand by the time I left in September of 97. So it was an epic journey. It was great fun, but I needed to move on. And I did that in the fall of 97, started my own media buying agency for direct response radio clients. Within a year, I launched my own product on radio.

Jon Stoddard (02:23.852)
Within a year I launched a television infomercial and then I repeated that again. And that last product that I developed was a digestive wellness program. And I took it a hundred percent online in 2005 and then took it through the best of and the worst of that economy. Came out the other end tired, frustrated, needed to move on in 2010 and connected with Quiet Light and sold my online business through Quiet Light.

and then I joined the team. So I wasn't actually the original founder, my business partner, now business partner, Mark founded it in 2007. And then I joined it after I sold my own e-commerce business in 2010 and he and I are now partners. What's a digestive wellness? What is that? All right, well, it really started out as a colon cleansing product. If you really want to gross your folks out listening. Okay, yeah. So, no, anybody that's over 50 years old starts having this conversation where an octopus is gonna be inside their butt.

Yeah. Yeah. No, it's not suprapt. Like my wife just had her colonoscopy and you know, it's, it's, it's quite the process, but this was, know, I was 29 years old working at that company that I mentioned and I was single, living in Portland, Maine, where there's more bars per capita than almost any other city in the country, eating terribly, having a great time, living the life. And, we were selling this type of product.

through a radio and TV spot ads and infomercials. And I used it and I'm like, there's just no way I should feel this good. Given what I'm putting in my body with alcohol and junk food, I feel amazing. Why do I feel so good? And I said to myself, if I ever go out on my own, I'll launch a product like that. It wasn't the first product I launched, it was the second. And then it went from that to a full digestive wellness center where we wrote.

good quality content over the course of five years specific to the different processes in the digestive process from the mouth to the eventual exit. You were focusing on the copy and the offer, how great that has to be. mean, the Dan Kennedy and the big guys that write copy.

Jon Stoddard (04:41.602)
Yeah, all we did was write good quality copy over five years and Google rewarded us. We did spend money on pay-per-click because we did have a product or a product line. And it just paid off over time. It's patience. It's being as helpful as possible and educating the potential consumer on whatever element they're doing a research on. It wasn't pitching them products. It was very subtle, giving them the information they wanted.

along with an opportunity to look at a supplement option, if that was the route that they wanted to take. Yeah, I got to tell you, I just went to the doctor and just took my checkup and you know, a couple of things were high on my metrics. So you really start thinking about, you know, I need to change my HDL, know, less meat, less trans fat, less processing stuff. So there's that timing is perfect because you don't see those ads before that.

And then when you start thinking about it, you start buying stuff. all you have to talk about, all you have to do is talk about it with your, with your phone around and you'll be, you'll get ads served to you by Google. It happens to me all the time. It's a little creepy now. you know, back in 2005, when I started, it was, it was a little less competition, much easier in many ways, but very, very different also. And you sold that to quiet light through quiet light through quiet light.

Yeah, I sold it through Quietlight. I had my initial conversation with Mark in the spring of 2010. And he's, you know, one of three brokerage firms that I talked to at the time. The other two were just trying to reach through the phone to get their hooks into me for a commission. And Mark delved into my P &Ls, looked at my ABEX schedule, firmed up my discretionary earnings, and said, hey, based upon trends, things are coming back rapidly. You're growing again after shrinkage and

2009, right, where the worst of the economy was. You might want to give it another six months before you sell, because it's going to be in your best interest if you do that. And he showed me the numbers based upon my growth. And I thought, this is a guy I got to work with. He's actually telling me to go away because it's in my best interest. And that's exactly what I did. And I came back six months later. Jason ended up being my advisor at the time. Jason Yellawitz, he's still with Quiet Light. Yeah, Jason, I've talked to Jason, yeah.

Jon Stoddard (07:01.974)
He's still here, man. He was my advisor back then and he's just a great guy. Become a good friend over the years. Did Mark tell you, did he prescribe anything or did he said, wait for the trends to turn around? he educated me. He educated me without a doubt on all the strengths and weaknesses of the business at the time, what buyers want, what they fear, what I needed to prepare for, you know, the eventual exit in terms of due diligence and SOPs that would make my life easier after the sale.

Basically everything I needed to know to have a better exit when the time came. That was the key differentiator. He really helped me and educated me as much as he could. I think you and a couple other people asked me, I was looking to sell my business at that time. A few people asked me how much time...

You know, the metrics were okay, wasn't great, but you asked me how much time I spent on the business and I said something like 50, 60 hours. And you, I don't know if it was you or somebody else just said, that's too much. Cause I'm selling other businesses that are, you know, pulling 400,000 a year and they're only working four hours a month. I think that's an exaggeration. Yeah. But the point was you said you got to have a system in place. Yeah. You know, a individual owner operator that wants to buy your business.

doesn't want to buy it and work 60 hours a week. They may early on because they're drinking through a fire hose in terms of their learning. But ultimately, most of these e-commerce or online businesses, whether it's content, SaaS or a physical product, operated in well, less than 40 hours a week.

And you joined the Quiet Light brokerage and how did that go? Were you just saying, I'm trying to understand, know, a lot of people go, I'm just gonna keep buying and then selling business and I'm, you know, I wanna keep growing these business or I'm gonna create a portfolio of them and then take it bubbly or sell it to private equity. Yeah. Why did you wanna get into a transactional type of mode? You know, I'd already had six,

Jon Stoddard (09:16.842)
acquisitions and exits under my belt at that point. And I got into the stage in my life where I didn't want to climb that hill again. I'd been there, done that, had my success. And it was a point where I wanted to help others. And that's really the team at Quiet Light. Everybody's a very successful online entrepreneur. They've all built, or sold their own online business. And this is just their next adventure. It's different, right?

The benefit of the role is that there's for an advisor, there's no overhead, right? You don't need working capital. You don't have money tied up in inventory. You just help. Now that's the key thing in a differentiator. They're not salespeople. They're advisors that have the experience, they've been there, done that, and they're here to help first and foremost. And that in many cases will lead to, look, John, I don't think it's in your best interest to sell right now. You need to fix this, this, this, and that. And then...

When you ready, when you're going to have your exit, it's going to be bigger and stronger. You know, had a conversation with somebody yesterday, I've known for several years and he's been running his business for 10 years and a couple of things happened in the business where he's just tired and frustrated. And he's like, have that, you know, this happened and I'm ready to move on. And I said, okay, well, what was your original exit goal? And it was $5 million. I said, okay. And what are you hoping to sell it for right now? He goes, I would take two.

And we went through the whys of why he would take two now versus, you know, getting through a rough patch and how to get through it and set a goal and reverse engineer a path to it. And now he's got to make a decision whether he wants to fix the things that need to be fixed and live to fight another day and have that $5 million exit or only take, you know, a small portion of that, not be able to be done, right? The $5 million exit for him would be done. He'd be like, okay, I'm good, I'm done.

I'm going to do whatever the hell I want for the rest of my life. And he's in his fifties already. So if he just does that short exit now, he's going to have to continue to work for another five to seven years. And we just went through the whole process with him and give him the tools to make the best decision for him, not talk him into listing his business for sale. Yeah. That's what we do. And that's what we do with everybody. And the economics are sort of like,

Jon Stoddard (11:40.46)
more like buying a house. mean, you're a hundred percent commission, right? You don't, you're not. Yeah. Yeah. Yeah. We're not your, we're not your, investment banking firm where they take a retainer and you know, a flat fee to start with, and then a monthly retainer until the business is sold and that retainer is non-refundable. We are success based advisors. So we only get paid if the business sells and you know, it's an exploding.

niche in the &A world. Granted, we've been at it since 2007 when Mark founded the company, but 14 years later, it's really catching on. We've had strong year over year growth and it's just the right place at the right time. And we don't have to pitch or sell people where the pipeline is big enough and long enough where we just want to have the best brand and reputation and help people first and foremost.

It's a strange thing, but the more people you help, the better your brand reputation and the more your business grows in the long run. And it grows the right way as opposed to focusing in on that commission, that next one, that next one, that next one, just trying to get the numbers in instead of truly helping people. It's a strange thing. As you get a little gray in your chin, you realize the more people you can help and benefit, the more it's going to benefit you as well. And that's basically the approach.

Yeah, you can't help somebody else without helping yourself. That's a nice parable, right? I noticed on your website, man, you're really moving up in the revenue. there's much larger businesses when there was, mean, I looked at, you know, five years ago, and you're like, you know, $100,000 business or a million. You're talking about $29 million businesses. Yeah, we, you know, that first

full calendar year when I was an advisor, did like a total of 23 transactions, which is just nuts at this point, looking back in history. And I think the average transaction size might've been 125, $150,000. Today, the average transaction size is just sub $2 million. But we generally do anything between 250 to 25, but as I said earlier, the 25 is creeping up.

Jon Stoddard (14:01.196)
we keep getting pulled in that direction. And it's because of people that we've connected with and their business is just growing and we grow with them in that relationship. And then when they're ready, the business value just simply might be higher. I have no doubt in my mind, I was still talking to the team the other day, I've sold personally about a hundred million in transactions, the team collectively about a half a billion and that's gonna change.

pretty rapidly, but I think in the next 24 months, we'll have someone on the team that will close a hundred million in transactions on their own. And it could just be four transactions where each of them are 25 million. It's starting to happen. We didn't think we'd want to play in the eight figure exit business. But I had one that was just, just under eight figures, about $9 million. And the reality is that

they're not all that different than the ones that are a million or five million. The $10 million ones are very similar. The 25 million, your buyers may be different, but we're dealing with people that have raised hundreds of millions of dollars now and looking at these businesses and so forth. It's different type of buyer now. I mean, before it was somebody that, you know, it's, had $100,000 in cash or I went and got an SBA loan or

It's seller financing. Now you're looking at somebody and you'll correct me if I'm wrong because I'm still in the &A business looking for business too. But you know, if I could put up 500,000 but I still have to find another 5 million bucks to raise it. I'm going to go to a lender or private equity or family office. Yeah, most people have that lined up before they make an offer, right? Because they have to these days. If they don't have that lined up, they're not going to get

the business simply because in today's markets, there are multiple offers on most businesses that we list. We have more buyers than sellers, especially when it comes to an FBA business because of the aggregators. think year to date on average, we've had something like 4.6 offers on every listing. 60 % of them have gone at or over asking price. So how many have four to five offers on an FBA business? Yeah, on average year to date.

Jon Stoddard (16:25.27)
And it's because of those aggregators that have cash in their pocket and they're ready to put it out. Yeah, yeah. And individual buyers as well. Everybody's competing against each other now. But there's a lot more aggregators with... Yes, they have cash, John, but they're not making all cash offers, even though they say they are for the most part. Some of them are having to step up there because they're competing against other aggregators and do that. But generally, you know, they, what they want to do is put as little cash into it as possible. So if you're selling a business for

you know, a million dollars to an aggregator, they may get you a 600,000 in cash at closing a $200,000 or not in a $200,000 stability payments. And then they also want, you know, you to give them a couple of months worth of inventory for free. That's where they get their working capital peg. It's a creative to say it nicely. I haven't heard this term. What's the stability? Yeah, if you look it up, you Google it, you're not going to find it. It's something that they've created.

And now I originally thrust created it and now all the others are using as well. Basically it states, you know, John, if I buy your business and it's doing a million dollars in revenue in the trailing 12 months, when I buy the business, we're going to give, we're going to hold back 20 % of the purchase price or in this case, $200,000 as a stability payment. 12 months after I own the business, if the business is within 90 % of that million, I'm going to pay you that $200,000.

If it's below the 90%, you're not going to get it. So they're hedging their bets, trying to make sure they don't buy a business that falls off the cliff. You're counting on them to do at least 90 % in order to get your 200,000. So, you know, in the, in the, in the book, I go through that in great detail. There's things that you have to do as a seller to make sure that you don't go from 90 % or 200,000 to zero, right? You've got to step it down.

85 to 90%, you're gonna get 150, 80 to 85%, you're gonna get 100 and so on and so forth, and then try to create some upside for yourself as well. Is that included in the offer, the purchase price, or is that a bonus on top of it? No, no, no, no, it's not a bonus. It's not a bonus there. No, it's not. They're only gonna pay the 200 if it's part of the purchase price. in that scenario, you would get

Jon Stoddard (18:49.678)
600,000 in cash, a $200,000 stability payment if the business is doing 90 % of the same revenue 12 months out, and then a $200,000 earn out as a percentage of they're gonna shoot for gross profit or EBITDA, which you don't wanna do either. And how does that, how do you reconcile where, the seller is staying in the business partially or the new owner is running the business? No, no, no, the new owner, in this case, if it's an aggregator, they're running the business.

Okay. So one of the things I recommend is sellers, if they're selling on their own or through a firm like Wylight, and they've got any kind of stability payment or earn out, they should retain view only access to the reporting software or to seller central. So that they can sleep better at night and look at the numbers, right? Other things you want to do, if you've got any kind of stability payment or earn out or anything in there,

that's tied to their success when they're running the business, you want to make sure that they don't run out of inventory. So if you've got a stability payment or earn out, you've got to have a clause in there that says if during any two week period in the, you know, 12 months or whatever the or not period, if you run out of inventory on XYZ skew for two weeks, all bets are off. You owe me in full because these guys are growing like crazy, right? Take Thrust for example, these guys are

really good people, right, but they're growing like crazy. And they're just trying to find bodies to manage things. Those bodies, those people, those individuals that are, you know, doing inventory management are not going to care as much about making sure they never run out of inventory as you are the business owner. Yes, they've got more cash, but they've got people that are employees instead of owners that are not as passionate about it. And it's going to happen at some point where they're going to run out of inventory.

And if you've got a stability payment tied to, you know, revenue, but they run out of inventory for a four week period and you hit that 88 % instead of that 90%, it's not your fault. It's theirs because they screwed up. So you should get paid in full. So you're going to have a clause like that in there as well. Yeah, absolutely. I mean, if I was a seller and I said, well, look, I don't know about this stability payment because I've grown the business five years consistently every year inventories and you want me to.

Jon Stoddard (21:12.898)
You know, you're to judge me or grade me on some kind of a stability payment, you know, that happens in here. Yeah. All like they did was create something that sounded interesting or good so that they didn't have to give you as much cash at closing. The more cash they get to hold onto, the more businesses they buy the, the, the lower multiple cash wise they're putting up front. It's very creative. These guys are smart. They're well-educated. They're likable.

you would enjoy going out to dinner with them or having a drink with them. They're good people. but that's the point of being a buyer shrewd allocation of capital. And I'm not going to put as much as possible down on the payment. I can't because I got to conserve the cash for something else. You know, it could be inventory. Right. Right. And early on the likes of Thrasio again, good people had their way. Right. Today, there's, know,

50, 60 aggregators that have raised hundreds of millions of dollars. Well, 4 billion collectively, some have only raised 10 million, but they're all competing against each other. So we're now seeing closer to true all cash offers and the multiples are going up substantial in these types of businesses. Now, these guys, just curious, do these guys, these funds, do they expect you to present pocket offers or they just say?

No, that's not in our best interest in our client's best interest. Let's say I took you on as a client and all I'm going to do is present it to one aggregator. That's like showing up to the shark tank to pitch your brand and everybody calls in sick, but Mr. Wonderful kind of deal you're to get, right? Not a good one. You're going to get a royalty deal. It's not going to work in your best interest. So no, they all have to compete against each other in order to get you.

the best value and the best deal structure. That's the problem with, know, when I, Chapter 13 in the Expopreneurs Playbook is specifically geared towards working with aggregators and negotiating with them. it's so flat. I talked to somebody this morning, had coffee with them locally here. You know, he's been running his business for 20 years. you know, somebody has approached him and investment banking for him to buy his business.

Jon Stoddard (23:33.53)
We're talking many, many millions of dollars into the well into the eight figures. And as he said, the very successful entrepreneur like this, he said, it's flattering and it piques your interest. And there's no question I'm gonna explore it. The thing that he is smart enough to do is to make sure he's exploring it with others as well. He's not gonna just talk to one of them.

with the individual Amazon FBA business owners, they get flattered because one of these aggregator reaches out to them. And then they're dealing with just this aggregator. That aggregator knows at the moment there's no competition amongst the other aggregators to buy this particular business. So they're not gonna pay the best value for it. We had a situation recently through Quietlight where one of the aggregators made an offer on a business.

pre-listing at Quiet Light. They made an offer without us involved of about $2 million. A very strong business, very attractive business. The owner of that business ended up talking with a member of our team, signed an engagement letter, listed it. We had eight offers. We sold it for $5.5 million. my God. Wow. Huge, huge difference. Seller says thank you, Joe. Yes. I said thank you. Actually, she said thank you, Chuck.

But that's when you're dealing with one, you're not gonna get the best offer. So why pitched just to Mr. Wonderful or why only negotiate with that one aggregator that reached out to you that really has a true interest in your business. Yes, it's flattering, but it's not the best for all the time, energy, effort, risk that you took as an entrepreneur. You haven't taken all that much cash out of these businesses. If it's physical product, you're just keeping up with inventory. It's really not.

in your best interest to just work with one of them, you're not going to get the best dealer deals. Even in an auction. I mean, to the best price as a seller. Yeah. So, know, as a part of the challenge with a podcast like this, or a conversation like, you know, like this that I have with one seller, is that it's way too much information to observe all at once. So, you know, I've talked to, as I said, before we started recording about 8000 individual entrepreneurs over last nine years.

Jon Stoddard (25:54.808)
And there's so much information to absorb in those conversations that I couldn't, they're so nuanced and I couldn't talk to enough people, right? Because there's probably 8 million that could use the information. So that was the point of writing the Exitpreneurs Playbook. It takes an entrepreneur in the online world all the way from, hey, I'm thinking about selling my business. How do I prepare it? How do I train? How do I get trained on how to sell this?

all the way through to the closed transaction. It's everything you need to know from A to Z. And it's written in a way that, it's called the playbook. So it's written in a way with lots of sports analogies. The simplest one is that you don't wanna wake up and just run a marathon or a 5K. Let's just stick with a 5K, right? You could probably pull it off, but you're not gonna finish well and you're gonna pay the price the next day, right?

It's the same thing. If you don't train for your exit, you, and you just wake up and decide to sell or wake up and accept an offer from an aggregator, you're going to pay the financial price. Right. And you're going to have pain afterwards because the, the deal structure is not going to be good. So you got to choose the right pain. Do you want to have the pain of that poor deal structure and, and, and, and poor price and dealing with stuff after closing, or do you want to choose the pain of

getting some training, understanding the value of your greatest asset, your business, and prepare for it and exit well at maximum value with no catches on the backend. Nothing that's going to keep you awake at night. Yeah. You mentioned this a couple of times and you told me about this, but you've got a book coming out called exit premieres playbook and that's coming out June 15th, June 15th. Yeah. Next Tuesday available through your site and Amazon. Yeah.

exitpreneur.io where we also share lots of other tips and information, but you can just go to Amazon and just search exitpreneur. It's a new word, I guess, instead of entrepreneur, it's exitpreneur. And the book could be there in Kindle, paperback and hardcover as well. Beautiful. And it's all talking about how to prepare your business just to get basically the best price at sale. Yeah, yeah. This isn't going to teach you how to, you know,

Jon Stoddard (28:18.306)
build your online business in terms of marketing funnels and so on and so forth. That's not what this is about. This is about you understanding the value of what is likely your most valuable asset, how to set an exit goal and how to reverse engineer a path to it. It's everything you need to know from the thought of that all the way through to the eventual exit. So that brings me back to my business that's selling

hearing aids, you know, I've spent 50, 60 hours on the business. And then I was told by you and I think a couple other people's man, you're spending too much time, you got to put systems in place. Does it? I'm looking forward to reading this book, but tell me how that, you know, if you could say, yeah, we break it down in there as well. You know, I talk about, you know, here's what a buyer is going to say in that situation. You say, John, look, I love your business. I think it's fantastic. But, you know, I'm not working 60 hours a week and I'm not going to hire somebody that's going to

be the CEO of it and they're not gonna work 60 hours a week. So what I have to do is I have to hire somebody to make up that other 20 hours. And I only hire Americans and I only pay $25 an hour for that work or $50 an hour. They are in control of making that decision on how many hours they're gonna allocate to that new person that's gonna pick up some of the extra work that you do and they're gonna determine how much that's gonna cost.

Whereas if you train for your exit, you're to go, okay, I know that's going to be a problem. This is what buyers fear is this workload. I'm going to have to pick certain things and outsource it. I'm going to hire a VA or I'm going to, I'm going to be in control of who that person is that's hired and how much I pay them. You might be able to hire a really qualified, well-educated person from the Philippines for $5 an hour or $10 an hour and overpay them. Right? So they're incredibly loyal. and you may find that you're now working.

30 hours a week. That's going to make your business much more attractive to buyers. And they're not going to look for an adjustment to the discretionary earnings for that additional payroll that they would need to pay someone else. You're in control of that dollar amount instead of them. And you're in control of the hours that somebody else works instead of them. kind of wish that book was around earlier because it took me about a year to fix that. Yeah, well, you had, look, we had conversations about it and you had conversations with other people as well.

Jon Stoddard (30:46.878)
it, it's, it's hard to absorb those conversations. Look, I've been on podcasts like this. I know what I know. Cause I do it every day. I've done it thousands of times. And sometimes I, I talk about it so casually that it's, just goes over somebody's head. And I've been on podcasts where I've explained something. Somebody asked me a question, I explain it. And then at the end of the podcast, they try to reiterate it and it doesn't come out right. Right. And it's not because.

They're ignorant. It's because it's complex. They're experts at, this case, that particular individual is an expert on selling on Amazon, but not an expert on, you know, making that Amazon business as valuable as possible to buyers. Well, there's such a, I'll be honest with you. There's a couple emotional parts in there. There's ego in there. There's all kinds of fear, worry, and doubt that just do not penetrate inside when somebody else is telling you what you should be doing. Cause they saw it 8,000 other times.

Well, that's why it's in the book, right? think that you'll be able to look at it and read it and go, okay, that makes sense. And here's three examples from his experience and clients whose names have been changed to protect the innocent, right? There's tons of examples of people's success stories and some epic failures, including my own. They're both in there. And so everything you hear from other people,

and you retain part of it. And you're like, okay, well, that kind of makes sense. But let me work through that. It's all here now. And then there's math and logic associated with it. And that's the key is that you're going to be able to understand how to get a pretty close ballpark calculation of your discretionary earnings, and then a ballpark value of what that business would be worth. And then that kind of gets a little bit more exciting because you want to, you just can't, as an entrepreneur,

we just sort of march along and we're on that hamster wheel and you can't get off, right? But, and you have good days and you have bad days, but if you're working towards a goal, like everything else in life, if you're working towards a goal and it's very specific and clear, those hard days get a little easier. And so we're trying to define that goal and show you how to get there with the details. Do you talk about that? Like how to have your exit in mind? Absolutely. Yeah. Absolutely. It's all there and it's not a...

Jon Stoddard (33:12.11)
It's not a pitch for Quiet Light Services. This book is written by Joe Valli. It's not written by Quiet Light Brokerage. You know, so people can take it if they're thinking about selling their business on their own. You know, it's there. This is going to help them. If they're working with another brokerage firm and they've got a relationship with somebody and they want to sell eventually through that other brokerage firm, this book is definitely going to help them. If you're a buyer out there listening and you're thinking, want to buy an online business.

this is gonna give you the inside track to that because it's gonna give you information that may be at a higher level than what your seller's information is at or what that seller's advisor is if they're inexperienced. You could look at something and go, they missed that ad back. That gives me instant equity. I'm okay paying full price because they did it wrong. And the business is actually worth more because discretionary earnings is $22,000 higher. of, you know, it's great for all parties involved, I think.

That's interesting. And I'm looking forward to that. That's June 15, right? June 15 on Amazon or Exitpreneur. Yeah. If you go to exitpreneur.io, you can get three free chapters as well. The book was written to help, right? First and foremost. So I can't just say that. I have to, you know, walk the walk as well. So I've got the intro and three, what I call shareable chapters.

So I'm giving links to view only PDFs of the chapters that will live in my Google Drive folder for anybody to review and share with anybody they want. And those chapters are deal structures, negotiating those deal structures and a full chapter on ad backs as well. And then there's an intro that gives big picture stuff. So they're kind of the three most important chapters that I think somebody can use.

Let's get, let me go back to just a couple very common occurrences that happen, which is what are the, what are the, do you see as like, what, when you come to a seller, what's the most common things that happen? I like, first of all, it's valuation. know that because you just, everybody thinks their business is worth more than it is. And how do you have that conversation with somebody? Do you just say, Hey, look, these are the stats, these are the comps and

Jon Stoddard (35:37.408)
It is what it is or is it more of a.

It's black and white. Yeah, and every business is different, right? There's no two businesses that are alike. So we got to deal with each of them individually. The first thing that I see, and this is the tide starting to change on this because we've talked about it enough, but too many, I'd say more than 50 % of online entrepreneurs, again, whether it's SaaS content or physical products, are not using accrual accounting.

And they may not be using QuickBooks or Xero. So first you gotta get your financials Ooh, in this stage of age doesn't use some kind of a QuickBooks or something like that. I just had a conversation with somebody that's got a business that's probably worth about $15 million and he does not use QuickBooks or Xero, doesn't even run P &Ls. He just pulls money out of his business when he needs it. And he looks at his merchant statement and Shopify statements and things like that.

Does that affect his valuation? Well, is it going to instill confidence in buyers? No. Absolutely not. And so, you know, that goes to, you know, the risk factor or pillar, or, you know, we talk about what buyers want and fear and risk is what they fear. And you got a business doing $15 million in revenue, but you don't have any financials to speak of.

That's not going to instill confidence in your buyers and they're not going to pay as much for your business. Whereas if you hired a good quality e-commerce bookkeeper, you can do that probably for the less than a car payment every month and they'll get the numbers right for you. They'll do it in a cruel basis accounting and they'll present you with profit and loss statements, balance sheets at the end of every month. All I need to do is get an export of that with a monthly view going back as far as possible. And then I can help firm up the true value of your business.

Jon Stoddard (37:32.97)
You got to have that to get in the door with buyers. You got to get in the room. So clean financials, clear financials will get you in the room. What they'll pay for it is depending upon, you know, trends, risk, balance, growth trends, transferability, documentation, all of these other factors. So once you have that conversation with them about valuation, they Hey, look, we're in the same ballpark. You've got to range from.

You know, there's a risk, let's say an IT business, we've been looking at IT businesses and business valuations, resources, values, and at 2.7, 8.7, something like that. And medium is 5.2. And a number of, you know, factors. If the guy leaves the business, there's no IP, there's no reoccurring businesses. He's not going to get an 8.7. He's going to get about 5.2. How do you guys settle on that? And then.

and it on quiet light? Well, we're looking specifically at recent closed transactions that are similar, right? And that's where we're placing the value on the business. We know what the feedback we're getting from buyers are. We know what the average multiple is for any Amazon content business or SaaS business. That's pretty standard. FBA business is pretty standard multiple, right? No. No? No. Changing dramatically because of the aggregators.

just going up. Yeah, yeah. And the deal structures are changing. Yeah. So you can't go, all right, well, FBA businesses sell for three times. It's not the case. It's not the case at all. It's, it's got to be, you got to look at it individually because no two are alike and some are worth a heck of a lot more than others. Some are going to sell right away at a three time multiple. Some you're going to right away at a six time multiple.

It's something that's never occurred in history, right? These types of businesses that are consistently getting three to four times discretionary earnings. It's happening and we're getting more than that in many of the cases. it's looking at it individually, John, and making a decision based upon all factors on risk, growth, transferability, documentation, trends, skew balance, the owner and how prevalent they are in the business.

Jon Stoddard (39:59.99)
QuickBooks and zero and, and accrual accounting, whether it's content or SaaS as well. you know, if you've got a SaaS business and you got 500 customers or 500 users, but 250, one of them come from one company. That's a risk problem, right? 50 % of your business is truly with one company, even though you've got 251 pay in users underneath that company. It's a risk and buyers going to, well, okay, we got a problem here. We got to pull that value back or that's what we would do.

before we listed the business for sale. We're gonna look at it from a buyer's point of view and put it all out there. And here's the most important thing. And this is what, when people sell their business on their own, oftentimes they're selling for less than they should, not more than they should. And I think that you said earlier, people think their businesses are worth a lot more. I find when they don't have a good grip on their financials, they think it's actually worth less, because they might be doing the numbers off of cash accounting and they don't understand that aspect of it, which is okay.

But if you price the business properly, you're going to attract more buyers. There's going to be more competition for your business and more offers. And when you have more eyeballs on the details and more competition, it's going to get you a better deal structure that's at or over asking price. And it may get pushed up a little bit. The difference is that if you price it really aggressively, buyers are instantly going to go, yeah, that multiple is too high.

I get what they're doing here. What I'm going to do is just low ball them. And even with low balling and negotiating, you don't get up to that properly priced listing, you know, number it's, it's, it's a, it's a psychology thing with, with buyers. So the best thing you can do as a seller, if you're selling on your own or with an advisor is make sure it's priced right based upon real market trends so that you get as many eyeballs on it as possible and as many buyers on it as possible.

So hopefully you'll be in a situation where you've got multiple offers and you get to choose your buyer and choose your deal structure. Because it's not just about going under the letter of intent, it's getting all the way through due diligence and then having a nice healthy training and transition period so that you can move on to your next adventure. Or if you choose to do an equity role, somebody that you trust and so on and so forth. So this due diligence process, how long does usually see that takes? It's generally three to four weeks.

Jon Stoddard (42:25.806)
Not a whole lot more time than that. Are you seeing these larger funds outsourcing the due diligence to somebody else? No, not necessarily. If they started doing it initially, they're now doing it all in-house for the most part. Some of the smaller ones might be outsourcing it a little bit because that's part of their investor requirements until they bring it in-house. Is there a big 125-point checklist that they run through?

Each of them are different. I know that there's a company out there called Centurica, it's owned by Chris Yates. And Centurica has a checklist like that. They'll look at it depending upon the type of business. It's C-E-N-T-U-R-I-C-A.com. They've got that checklist and they'll run through all of those points for an FBA business, for a Shopify store, for a content site SaaS business. They'll do all aspects of that.

research for you and due diligence, checking the numbers to do a live screen share with the owner of the business. And they'll give you a healthy report at the end of it all. And that report will tell you what the strengths and weaknesses of the business are, what you should pay attention to in terms of potential problems. And really at the end of the day, what it tells you is where you can strengthen up the business and have it even a stronger value when you eventually exit.

And it's, you know, it's somebody that's done it a few times. It just, you should do it. You should run your own number of financial analysis and check everything yourself, but have them do it as well. yeah. We, I was working with this guy, a lot younger than I was. And he was trying to buy this e-commerce business with his jeans and they got into it and they saw, most of the sales were coming from mask. I, well, that business is dead, man. This is not worth anything.

Right. Yeah. I mean, that's, this should never been listed that way. Right. mean, I've had those evaluation calls as everybody else on the team here at Quietlight. And the reality is that, you know, that's a temporary blip in revenue. It's going to change and buyers are going to look at it go, no, I don't think so. And so I'm shocked that even one letter been sent. I mean, it's like bordering on frog.

Jon Stoddard (44:46.702)
Just saying your sales are, you know, $5 million in jeans, like, but, you know, 3.5 of it came from mass. What an incredible waste of everyone's time. Yeah. Right. Yours to sell with a buyer, everybody involved. You know, you gotta, you gotta get ugly fast or quick or something like, forget Chuck on the team uses that phrase and he corrected me. I'm not using it right, but you gotta be, you gotta be honest. You gotta put the details out there.

the expose the warts of the business in the, a package so that people understand, you know, it's strengths and weaknesses and get through all of that before you go under the letter of intent. When you do that, you do it right. You get to closing when you hide things. And like you said, you know, borderline fraud stuff. It's a waste of everybody's time and you're not going to get to closing. There's no point in going under LOI if you're not going to get to closing. I want to go back to the expert.

Premier's playbook. Now it's easy to say, you know, look, here's what you should do to get the best valuation in the company. But sometimes that takes, you know, I've got to go find those resources to put the team together, to help me in that area. Do you recommend certain areas or you say, just, you Yeah. Finally, finally, you know, we've been referring people out to, you know,

tax advisors, CPAs, e-commerce bookkeepers, lenders, lenders for inventory, SBA lenders, attorneys for years at Quiet Light. And finally, I put together a list and it's on the partner page at exitpreneur.io. If you go to the partner page there, it will give you resources of people that do all the different aspects of this part of what we do that will help you.

If you need a good e-commerce bookkeeper, there's probably five or six there that you could choose from. If you need a contract attorney, which you eventually will when you sell your business, there's some in there. We can help you with the value of your business and reverse engineering a path to that eventual exit, but we're not tax advisors, right? So we've got some tax advisors in there as well that can help you with.

Jon Stoddard (47:00.75)
getting a much clearer understanding of what's going to be left over after the sale. I talk about it in the book. I give you ballpark numbers, but those numbers are subject to change based upon the political climate and administration. If capital gains taxes go up or down, you never know, but you really got to do your own numbers at the end of the day to determine, you know, how much you're going to have left after the sale. Because exiting for X amount isn't really as important as how much am I going to have left from that amount when I'm all done?

Right, right. Do you find anybody that, you know, looks at your the, you know, the wisdom that you've been still through them to go, Hey, man, I've got a renewed spirit in this. I'm just going to keep the business and just stay with always. Yeah. And that's, that's awesome. Right. You know, it's great. You know, I had a, I had actually had to talk about it the book there a little bit. I had a business that was listed for sale.

And it was in the mid six figure range. And it was, it was being sold because the owner's husband was being transferred to Japan. And she's like, I, you know, I'm going obviously. And some of her business was tied to local vendors in the San Francisco area, which is problematic, right? Because you can't sell to somebody in Maine. If you have a business that is dependent upon local vendors that you go visit in San Francisco. But it was a must sell situation. So we went ahead and listed the business.

there was actually interest in activity for about a three week period. And then the transfer fell through and she said, look, I'm to go ahead and pull the listing and work on those things that we've talked about that should have been worked on prior to listing it. And she came back 18 months later and the business was worth more than double. And she wound up with nearly a seven figure exit because she went back and fixed the business to make it fully transferable, not location dependent, cleaned it up.

financials are in perfect shape. had multiple offers within a couple of weeks and ended up selling the business for all cash. That's beautiful. Yeah. So you've taken 8,000 conversations instilled this wisdom in a book. How, it's definitely going to help a seller. How would it help a buyer? because the buyer now will have a full understanding of how these businesses are valued. And when they look at a listing, they'll be able to look at it and say,

Jon Stoddard (49:26.53)
they got this right or they got that wrong. They'll be able to determine, the best way as a buyer to get instant equity for a business that's growing like crazy is if the seller presents it on a cash basis, because they're, especially an inventory based business. And it's the same is true for SaaS and content. That if it's cash, that net income is always lagging 30 or 60 days on a content site.

or if it's a business, a product business, the, let's say they've got $300,000 in inventory on hand on a cash basis. That's just $300,000 off the net income of the business. You sell that business for that and your multiple is four. just lost 1.2 million. If a buyer sees that they can jump on that, make an over asking purchase price, all cash, and they're gaining a ton of instant equity instantly. So they're going to learn, you know,

what people are doing right, what people are doing wrong and be able to analyze that in the businesses that they're looking at. Wasn't written for them, but it's definitely a side benefit for them. Yeah. What do you think of marketplaces? just an example of the Airbnb, I'm not saying that that large, but the smaller marketplaces where you need aggregate buyers and sellers together. Nothing really grows until there's a interaction in commerce between the two. There's a place for it, right? And it's not...

for a business that is a half a million, two million, three million dollars, because the nuances are, I mean, you're not gonna get it right first. You can't get the scale right. just, yeah. Right, right. So if somebody has a smaller business, let's say it's $100,000 and they wanna list it on their own on a marketplace, this book will help them value it tremendously. They'll get it right.

You mentioned something about emotions earlier on. What most people will not be prepared for, and I talk about it in the book, is the emotional stress that is gonna happen when you are two weeks away, three weeks away, a week away from $100,000, a million dollars, $5 million. You are gonna stress out. You're so close, but it hasn't happened yet. Your transaction will fall off the rails at some point. It's gonna go sideways.

Jon Stoddard (51:50.914)
You just have to have the emotional fortitude to stick to it, not lose your cool and not, you know, renegotiate the price of the business unless it's done with math and logic. Right. That's the problem with marketplaces. they're, you just, you just, it's, don't have somebody helping you in a sense, right? Somebody with experience helping you and holding your hand. they're okay. And there's a place for them, eventually quietly. We'll have a smaller.

you know, listing marketplace because we just get so many that are coming our way and we just try to help them so that they get larger. But some of them are just absolutely ready to sell and eventually we'll have that and there is a place for it. And they're just capped out. Sometimes you get in an industry, you build a marketplace and you're just capped out. You're really not going to grow anymore. I mean, we, I'm going to give you an example of this. I was a co-founder of TurboSquid and it's a marketplace for 3D assets. It took 20 years to sell that. Shutterstock finally bought it, but

It took 20 years. Wow. Yeah. Well, what I see is a marketplace in this situation is just putting buyers and sellers together where they can, you know, look at a listing and make a transaction decision based upon the information that the seller puts up there on the marketplace. The book will help them put accurate information up there on the marketplace or prepare their business for sale before they put it up there on the marketplace. But they won't have somebody helping them with the transaction in between.

They may have somebody that moves the transaction from point A to point B to point C within the marketplace to help them go through the processes, but it's not somebody that's have those deep conversations with them about why they should or shouldn't accept this particular deal, or maybe you wanna work with this seller instead of that buyer instead of that buyer. In that situation where that business sold for 5.5 million,

when an aggregator offered two, there was a multiple offers and they were almost ready to agree and sign a letter of intent for one of them. And then another offer came in that was a million dollars more. And emotionally- Two completely different aggregators, just a million dollar difference in an Yes, yes. The seller, she was distraught about it, right?

Jon Stoddard (54:17.688)
may sound strange, but she had her mind set. She was done. She picked one, liked the people and had made the decision that that's who she was gonna work with. And then another one comes in out of left field. And you gotta do your homework and research on that aggregator to make sure they're legitimate, make sure they're truly funded already and not going out and raising funds for this sale. That's not what you want. And it was very, very tough.

I know it sounds odd, another million dollars, tough decision. Just take it, right? No, it was, are they real? Can we really close? it too good to be true? And the reality was her business was amazing. She had multiple offers. If it fell through, she was gonna get it anyway. Prior to being an entrepreneur, she was a branch manager to bank making $60,000 a year. So we did the math on that. What does this mean? How many years are you gonna get paid for with this extra million? And it worked, we stuck through it.

And it was tough for her emotionally at the end in particular, because it's never real until the money hits your bank account. And eventually did, and she's very Yeah, So there's two points in that. I remember selling my business and how many times you actually check your bank account to make sure that it comes in after the LOI signed, after that's agreed to. then you're check the bank account, check the bank account. And it did, just go, holy shit. Yeah, I finished my transaction up, the transfer of all of the assets on a Friday afternoon.

And so once I transfer the assets, then the funds are supposed to be transferred from escrow to my bank account. so I had to, I did it on a Friday afternoon. So the money's couldn't be released until Monday. That was the longest weekend of my life. had no business. had no money. You know, I was, I was terrified, but yeah, it's not real until the money hits your account. I have another client that, you know, they, they had the money hit their bank account, seven figures.

had hit their bank account when the market took a dive last year because COVID hit and things were being shut down. And so it's something like March 17th or 27th of 2020. Things just looked awful, except they just had seven figures hit their bank accounts. And they were like, hmm, this is pretty good. It's a good time to get some money and maybe make some investments. But they went through emotional hell.

Jon Stoddard (56:41.336)
for a while because their transaction was so tough and things fell through and got it back on the rails. Those are the things that marketplaces do not prepare you for and they don't help you with that. And I think having an individual advisor at your side is definitely necessary for the larger transactions because of that. Hey, I'm gonna ask you one more question because we're running out of time. You know, when you said and when an offer is real, somebody else coming in with a dollars, you know what I'm seeing a lot of, and this has happened,

you know, maybe five times in the last year is a private equity firm will come in, make an offer like, we'll give you $5 million for it or we'll give you $20 million for it. And then it just screws up every other offer that you worked on before, because it's two times what it was. But then you go through this and it's not real. I mean, they're gonna put you through 90 days of due diligence and they'll probably readjust your offer and it's probably gonna go down. And then they want some conditions on there.

Like you got to stay on for three years. You, have you seen that where it's just not real? No, no. Cause we, we vet these buyers. We pushed them through a process and our letters of intent are very, very clear. Sometimes it's a lot of intent that the buyer presents, but there are certain things that need to be in there. got to Chris, you got to lay out the deal points in a crystal clear way, because those deal points are what's going to wind up in.

the asset purchase agreement. And if it's a private equity firm that's used to working capital pegs, we'll make it crystal clear. There is no working capital peg that will be applied to this business. Yeah, so you're not trying to anything into the, I mean, this conceptual letter of agreement covers everything you talked about, what this offer is going to be. And they say, yes, I'm agreement. Yes, I'm agreement. Yeah, when you leave anything up to interpretation, you're leaving yourself up to renegotiation.

in due diligence. you know, talking about that in, I'm not even sure what chapter is at this point, but on negotiations that you can get for free at exporter.io, it talks about, you know, that everything in due diligence, if there's a renegotiation, it should only be with math and logic. If your seller's discretionary earnings was truly off by $10,000, you had a $10,000 higher, there was a...

Jon Stoddard (59:01.806)
currency conversion issue where it's really $10,000 lower. That is not an emotional decision in terms of renegotiation. It's math and logic. You're under LOI for four times. Four times 10,000 is $40,000. List price of the business goes down by 40,000. You might be able to say, totally get that, but we've been under LOI and another 30 days has passed. The SDE has actually climbed by

So let's just call it a wash. I see that happen as well. You've got to build trust early on. You've got to put, you know, by, by, by full disclosure in the package that you're talking about with your business, you've got to vet your buyer very closely. You've got to put all of the details properly in a letter of intent that clearly explains what the deal structure is. And then everything else is math and math and logic. I don't recall the last time I had a deal or we had a deal fall apart in due diligence because

a buyer was just trying to renegotiate for the sake of renegotiating. Yeah. And the way you said that if it's left up an interpretation, you're back into renegotiation. Yeah, that's, it's really important because I had this one experience I was in on a deal and I had to bring in an investor on it. And we had an LOI in place and it was signed. And then they got on the phone and they started pissing on each other's couch. You're like, wait a minute.

We've already talked about this and it was so important what you're talking about right now, just to have this trust upfront and then vetting these buyers. Yeah, I won't go under letter of intent with a buyer unless the person with the money is actually on the call. Somebody says, yeah, my father-in-law is investing the money and he's going to give me money for it. I'm like, okay, well, put him on the phone. Let's have him part of this call. We're not going to be going under a letter of intent with you because, you know.

We don't have the full confidence that that person that's funding it is actually, you know, on board with you. So we need you both on the call and in agreement with this before we sign a letter of intent. Same thing with SBA lenders. Look, if you come to the deal and you're an SBA buyer, awesome. Love, love that. I think it's better for the seller because they're going to get more cash and they keep the business for an extra 60 days and make more money. Emotionally, that's incredibly hard for the seller. Most of them choose not to.

Jon Stoddard (01:01:24.494)
go with an SBA lender if they've got multiple cash offers as well. But I will not go under a letter of intent without having the SBA lender on a call with the buyer and seller. It's like LIBO bank is saying already qualified or need the bank to say yes? no, no. We've got to have a pre-approval. The bank's got to be on board with it. We won't sign a letter of intent until the bank's fully on board with it. But I also want the buyer and seller and the bank on a call together talking about timelines and setting expectations.

before we sign a letter of intent. That way everyone is on the same page and the emotions are not as high when the bank ends up over promising and under delivering on when they're gonna get that commitment letter, which they tend to do, right? They speak a different language, they live in a different world. They may say, yeah, we're gonna close in six weeks.

Closing to them, maybe signing documents or getting that commitment letter. And then it's another 30 days to funding. So you've got to make sure everybody's speaking the same language. And the best thing to do is get on a call. We're all there. Let's do Zoom. I want to see the white to your eyes. Let's do it. And just make sure we're on the same page. It's the best way to do it. You can't leave anything up to interpretation. How important that LOI and that conceptual agreement is.

Joe, we went out of time, but I gotta tell you, I wish this book was around a lot earlier, because I've learned a number of things here today. And you've got a book called Exit for Entrepreneurs. It's a mouthful, isn't it? Yes, I've I surveyed a bunch of people in the industry, and I gave them two titles, narrowed it down to two. And one was Incredible Exits, and the other was The Expert.

was Exitpreneur, it was just Exitpreneur. Exitpreneur's Playbook coming out. Yeah, that's what it is. Everybody chose the other title and I went to go with the Exitpreneur's Playbook. Yeah, so you can find it on Amazon or at exitpreneur.io if you want to get some free chapters. Beautiful. Thank you so much, Joe. I appreciate this. My pleasure, John. Thanks for having me on. Take care.