WES S03E03: Preparing To Sell Your Online Business (Part 1)

What are the exact steps you need to take if you want to sell your online business?

That’s the question we’re tackling in this 2-part episode.

We’ve shared tips/tricks in previous episodes and on the Empire Flippers Podcast, but we wanted to see if we could break the process down specifically for a potential seller.

We’ll be walking you through exactly what you need to setup and prepare if you have a mind to sell:

Phase I – Getting Your Business Started. Why do you need to think about an exit from day 1? What can you do to better set yourself up for a successful exit?

Phase II – Growing/Scaling Your Business. What steps can you take during the growth process that will improve value?

Phase III – 12 Months Out. What can you do when you’re 12 months out from a potential sale to maximize the value of your business?

In these two episodes, we’ll walk you through, step-by-step, from creating your business up to getting the online business ready to list.

If you’re at all interested in hearing about how to sell your online business, these two episodes will help you get there.

Fan of the show? Please stop by iTunes and leave us a review! We’ll give you a shout on a future episode and would love the feedback!

Have a question? Feel free to use Speakpipe to record a question and we’ll do our best to answer it on an upcoming episode of the Web Equity Show.

Listen To The Full Interview:

Podcast: Play in new window | Download

What You’ll Learn From This Episode:

• Getting Your Business Started (Phase 1)
• Growing/Scaling Your Business (Phase 2)
• 12 Months Out From A Potential Sale (Phase 3)

Featured On The Show:

• Built to Sell Book
• Dan Norris @ WP Curve
• Infusion Soft
• Drip
• Hubspot
• Empire Flippers
• Quiet Light Brokerage

Ace Chapman:
Even if you’re not ready to list that day, that’s their job. They want to get you ready so that when you are ready to list, it’s an easier sell for them.

Speaker 2:
Buying and selling businesses just got a lot easier. Welcome to the Web Equity Show. Where thousands of successful entrepreneurs go to learn about buying, growing and selling online businesses. Your hosts, Justin Cooke and Ace Chapman share their real life advice, examples, and expert interviews to help you build and grow your own online portfolio. Now to your hosts, Justin and Ace.

Justin Cooke:
Welcome back to the Web Equity Show. This is season three, episode three. I’m your host, Justin Cook, and I’m here with my cohost, Ace Chapman. What’s going on buddy?

Ace Chapman:
What is Upserve? We’re back at it again with another episode around seller, so I’m excited to jump in today’s episode.

Justin Cooke:
Yeah man, this is a great episode, Preparing To Sell Your Online Business part one. It’s actually a two part series.

Ace Chapman:
And the thing today, whenever I thought that somebody who has made the decision like we talked about last time, they’re about to get ready to sell, guess what the next question is, what do I need to do? How am I going to prepare my business for sale?

Justin Cooke:
Yeah, and by the way, as we’re talking through this episode, through these two episodes, one thing I want to mention is a lot of the stuff in these episodes is based on a book that you should really go out and read is called Built To Sell. It’s a short read, but has excellent insights on preparing your business for sale from the get go. And it’s written about a not real company and talking to this, I think, not real mentor about kind of what they should do, but the insights I got out of it are fantastic. I recommend it to anyone who’s potentially looking to sell their business. And a lot of the points in here are either got from that or are inspired by that book. It’s definitely something for you to check out.

Ace Chapman:
So in today’s episode we’re going to go through creating and scaling and eventually selling the business. And that’s what Built To Sale walks through. But we’re not going to get into a ton of the documentation in this episode. We’ll get into that in a later episode, but we’ll talk about a few tips that will get you ready as you get ready to exit your business, which is really exciting time.

Justin Cooke:
Yeah, we’re going to speak generally kind of about documentation, but the real detailed documentation episode is coming in the future. All right, man. Let’s do some listener love. First up, we have a five star iTunes review said, I wish I found this earlier. These guys had been in the trenches of website investing for a long time, and it shows they both have their own businesses, but the show isn’t a place to hawk their wares at all. It’s a solid, practical piece of content. I wish I had found this earlier. Thanks for that five star iTunes review. By the way, if you love the show, you’re digging the show this season, please do head over to iTunes and give us your view. It’s a way to kind of give us an appreciation, and a way for us to give you a shout on the show. So we’d love to hear from you on iTunes.

Justin Cooke:
You got a nice Twitter mentioned buddy from Daniel said, quoted you I think, you’re going to learn how to take your business to a whole new level by just shopping for businesses. I thought that was a pretty nice quote. It’s a quote you had from a podcast episode you’re on, and it’s interesting when you have your own business you’re running it already, and you start to look for new businesses to purchase, you start to see things. And either things that they’re doing really well or things that they’re not doing well, and because you’re judging them as a buyer, you start to look at your own business a little differently too, right?

Ace Chapman:
Yeah, it’s really challenging. So one thing that’s happening is obviously you’re getting exposed to all kinds of ideas. And when you see somebody else who’s doing something really innovative in their business, a lot of times you can tweak it and apply it to the business that you’re already in. The other part is, it’s challenging when it comes to people that are out there killing it. There’s nothing like other people doing really well in their business to make you feel like, man, I got to step on the gas and really turn it up. So I’m always, even when I’m not ready to pull the trigger on a deal, I’m always in the market for a business.

Justin Cooke:
Yeah, it’s cool when you see a business has done really, really well, especially if it’s like a round your industry or your niche and they just crushed it and you’re like, Oh God, I better step on the gas valve. I’ve got to catch up. This guy’s crushing me.

Speaker 4:
Yeah.

Justin Cooke:
Let’s get to the main point of this episode. We’re talking about Preparing To Sell Your Online Business. And before you even get into this section, we should mention that the best time to think about exiting your business is when you’re first getting started, they’re going to be a lot of things about starting the business that you may want to think about in terms of an exit. So let’s talk about this, Ace, we’re getting the business started. Let’s talk about some questions that a entrepreneur or eventual seller might ask themselves.

Justin Cooke:
The first one might be, will this niche still be popular or growing in two to five years? Or is it a fad? Right? Is it a short lived kind of a monetization trick? Is it a side hustle, or a short lived hustle or something that will last? And that’s going to be important if you plan on exiting. Sure, you can take advantage of something that’s around for two years and cashflow is like a boss. But if it’s not going to be around in five or six years when you’re looking to exit, that’s not going to be great payday for you.

Ace Chapman:
Exactly. And I see these businesses all the time where something has a nice little pop. There are riding a wave and the gutter, that’s how I refer to it. It’s like you’ve got a wave, and the wave is awesome, and it’s amazing. But as we know, all waves eventually will die out and something else becomes hot. And so when you’re in the business, most of the time savvy buyers are going to realize this is a fad. It’s going to be short lived, and you’re not going to be able to sell that business coupling, at least not at the multiples that other people are getting for more long term businesses.

Justin Cooke:
Exactly. All right man. So the next question I think would be, would the modernization type or source still be around in two years, three years, five years, something like Amazon. If you’re on the Amazon affiliate program or Amazon FBA, I think that’s fine. But you remember, Ace, was it a couple of years ago, everyone was starting a Teespring business. Do you remember this? Everyone was talking teespring. I know people that are making five figures a month on their Teespring business. And it was kind of the hot thing, but I don’t hear from those people anymore, or I know that some of them have switched over to things like Amazon FBA. So again, this is like a short term kind of cashflow thing they had because the monetization on that just kind of dried up. I don’t know if it was Teespring or just kind of the market was saturated, but it’s not happening anymore.

Ace Chapman:
Yeah. And now they were years ago where you could have something that was hot, and you could still sell it to buyers. Now, everybody is aware. We’ve seen things pop up, get hot like Teespring. I mean, there were a million dollar businesses in the teespring space that are just nothing now. They’re totally gone, and so if you acquired one of those, that’s a complete nightmare.

Justin Cooke:
That other questions you can ask yourself is, can I eventually replace myself with employees or process at some point? Will I be profitable if I do that? Sometimes as a solo pre neur people are either doing consulting work or that type of business, and they’re not making enough to where they can replace themselves and start building out a team. They’re just making enough to kind of pay their own bills. And so if that’s the case, and that’s as good as you’ll be able to get for whatever reason you’re not able to charge more for that type of consulting, that’s a problem. You’re always going to be the one that has to do the work, and that’s not nearly going to be a sellable a business as if you have a team or an agency. Right.

Ace Chapman:
Yeah. And it really leads into the next thing. Part of it is having employees, having the processes that they’re going to be able to come and do the work. I mean you can hire people all day long. We see large corporations where they hire a bunch of people just try to slam human force against the problem, and then they fire a bunch of people when it doesn’t work and have a bunch of layoffs. But you need the systems in place. And another part of that is having the system to track revenue, and expenses, and profit, the hours that you’re putting into the business, the hours that employees are putting into the business. I’ve talked to business owners who have the employees, and the guy can’t explain to me what is this person doing each day.

Justin Cooke:
So next question is, can you set up a system to track revenue, expenses, profit, and hours that you’re putting in each month? Are you going to be able to track all of your expenses, your cost of goods? Are you going to be able to track all the revenues coming in each month? How are you going to do that? And the hours you’re putting into the business. These are things that in sale you’re going to need to know numbers on.

So one of things you can do to start is good old Google docs. Pull up a Google doc and track your expenses on a monthly basis, track your revenue on a monthly basis, and that’ll be good enough to get you started. You don’t need really fancy systems. Eventually, if you get quickbooks online or something like that and you have a bookkeeper that can kind of take care of everything, that’d be really, really helpful when it comes time to sell, but it’s a good idea to start off tracking that anyway. And it keeps you, I think, focused on how much revenue you’re bringing in, what kind of growth you’re having, whether you’re profitable or not. I think these are really important things to kind of at least be aware of when you’re shutting off and to kind of get in the habit of tracking.

Ace Chapman:
This next one is one that I’m dealing with on a deal right now, and the seller needs to ask themselves, what can I do different than my competitors? When you’re looking at a business where the owner of the business realizes it, but there’s just becoming a very crowded space, and right now he’s still making money, but you can see that all of these competitors are starting to dig into his business. He doesn’t have what Warren Buffett calls the moat around his business to protect him from those competitors. So you want to look at your competitors and figure out, hey, what am I doing differently? Because the buyer of your business is going to look at your competitors. And then you want to ask yourself, how can I use that differentiation to accelerate my growth, make sure I’m set apart, and then most importantly, command a higher multiple at this closing table?

Justin Cooke:
Yeah, you want to stand out from your competitors. If it’s just a me to you business where you’re copying what someone else has done, you’re like, Oh, if I just steal some market share from them, or I can get a little bit of that business and do it myself, that’d be great, and I’ll just be just like them, a just like them business doesn’t stand out. And in a sale, it makes it shaky, it makes it less interesting. You’re definitely, at the very least, you’re going to get a higher or better multiple by differentiating yourself, by having something that’s very unique to your business that makes you stand out in the market. Right? And also I think that really helps to accelerate growth, because your customers are going to view you differently. They’re going to view you as a being slightly different, right? Hopefully a better way of doing things than your competitors.

The next point I want to mention is, it rarely makes sense to spend time with legal. And this is something that I think a lot of entrepreneurs get stuck in, right? Where they’re trying to set up their corporate entity. They’re wondering what country or jurisdiction should I do it? I need to get lawyers involved. I need to get this all figured out, and what kind of accounting structure should I have? And all this stuff. When really that’s … I think a lot of people use it as a crutch to why they’re not getting started, and really getting into their market. Why they’re not talking to customers, why they’re not trying to sell. They’re like, oh, I’m setting on my business. And so I’ve known people that were setting up their business, I’m doing the air quotes now, they would set up their business for a year, two years, right?

So don’t worry about setting up your corporate structure, don’t worry about accounting. And this is, by the way, this is true for, 99% of the business out there. There are some businesses out there that do need particular kind of legal instruction before they get started, but it’s likely that that’s not your business. It’s likely that you just need to go out, start talking to customers, get into the paper stuff and hustling. Right. And it’s a lot easier to go back and fix corporate structure and to fix legal and get everything kind of squared away after the fact. So sure. I mean, I guess it’d be great if you had it set up from the beginning, but I don’t think it’s ideal. And from an entrepreneurial perspective, I think it can really set you back.

Ace Chapman:
Yeah. One of the things that you want to consider is just the fact that no matter how amazing your idea is, it’s probably one, probably not going to work, and it’s going to change. And the other side of this is that people spend a ton of time working on the entity, coming up with, do I want my phone number with grasshopper? Which one of these SAS businesses thrive too? It’s just really endless today, and it’s amazing. I’ve talked to people that are in the first few months in their business, and they’re working on their SOPs. When you get into a business, the last thing you want to do is start coming up with your standard operating procedures, before you’ve gotten in before you’ve made money, before you figure it out, hey, how is this supposed to work?

Justin Cooke:
Oh, so I got a story about that. I did that in the mortgage company that Joe and I ran. When we were just getting it started, I started creating hiring and training SOPs for how are we going to hire and train these people. But we hadn’t actually done it yet. So I was kind of laying out this detailed plan that was pages and pages of stuff. Right. Just really laying it out. And all of that changed when we actually started hiring and training people and getting them on board. So everything on my whole plan, maybe like 30% of it we used or something, and it was not really helpful. So from an entrepreneurial perspective, yes, we talk about standard operating procedures all the time. How to document your processes. I think it’s fantastic, but it’s not fantastic if you haven’t actually done it. The only thing you want to be documenting are the processes that you found to be successful that are working for you. If they’re not working for you or you haven’t even tried them yet, don’t document anything.

Ace Chapman:
What are the things that, as a last mentioned on this that I find to be the case? And I’m curious, your thoughts on this, is that you aren’t really ever working on the SOP. What you’re working on is documenting each section of your business as you figure out little tiny things that work. When we get this request from a customer or a complaint, this is how we take care of that. You document that really well, and then this is what the marketing that’s working right now. And then before you know it, you can put all of those together in a SOP.

Justin Cooke:
Yeah, this can be as easy as, I had a question from a customer about this. I kind of write this detailed email response, and I’m like, okay, so I’m going to, if I get this question again, I’m going to save this in my email. I’m going to create an FAQ out of this. I’m going to start tracking this, right? And then eventually I can either build out an FAQ or have a particular process for answering questions depending on what the question comes in. So it’s just kind of starting that process. And really a lot of times documenting is just for your own benefit. Let’s say I went through a set of seven steps and something worked out really, really well, when you write those steps down, so I remember to do it again the next time that situation comes up, right? So if it really worked, I’m like, okay, that was great. I want to repeat that again and again and eventually have employees that do it for me.

Justin Cooke:
All right man. The last point under getting your business started is the question of whether I should partner, right? And in terms of … because we’re talking about selling your business, right? I think the question on whether you should partner not as a really difficult one, probably deserves full podcast episode, frankly. But I think one of the questions, and one of the major questions you need to ask yourself, does one plus one equal three, right? Does one plus one equal four. So by having a partner are you able to get a lot more done than you would otherwise? And does that person really needs to be a partner or can they be an employee? Can they be a limited partner? Can they come on at 30% or 10% or something? Right? So does it have to be a full on partner?

Justin Cooke:
And the other thing is still, Joe and I started our business together from the beginning. So we were 50 to 50 partners. We have kind of the marriage partnership where in terms of the business we both own everything. We’re both involved in everything. But I know other people, for example, Dan Norris at WP curve, he started the business himself. It was all his, and then eventually realized he wants a co-founder in the business and sought one out, right, met with a few people. And it’s a lot easier to do that when you have something of value, when you’ve already proven your business to the market, and the market is says, yes, I want what you’re selling. You’re going to have a lot more interested, potential co-founders, a lot more kind of peers that you can talk to that will be interested in potentially partnering with you than if you’re like, hey, I got this idea, I want to partner.

Ace Chapman:
Yeah, I definitely agree. And in the partnerships that I have, I mean, I have businesses where I bring in partners, and those businesses are obviously acquisitions, and I’m bringing something to the table. So do we have an application process for my partners in the business? Because as soon as they come in, we’re going to be making money.

Justin Cooke:
Dude, you’re an interesting case study here or interesting point, and I’m just going to bring this up because this is relevant to you in particular, but you have partners. You have online businesses that you own that you either are a limited partner, maybe you’re an investor only, sometimes you’re actually a partner where you’re doing some of the work, they’re doing some of the work. So you have kind of multiple versions of partnerships, but you have the other part of your business curved the holding company is the Ace Chapman Show, right? So it’s all you. You don’t have partners in that. And in fact it’s very Ace branded, right? It’s all you. Do you just never plan on selling that business. Is that just kind of you’re going to keep that forever, and you sell off pieces of other businesses you own with partners. Is that kind of your play?

Ace Chapman:
Yeah. My exits are in the businesses that we acquire. And this is something that you have to be prepared for if you build a business around a personal brand now. As we were just talking about before the show, Justin, we just did one of the very few deals that we’ve done where we acquired a business with a personal brand, but it’s very, very rare.

Justin Cooke:
Oh that’s super rare. I couldn’t believe you guys did it. I was actually kind of … I was one of the ones who were selling, and it was kind of one of those tricky ones. It was very kind of personal branded, and I was like, oh, that’d be a tough sale. But it was a good business. So we’re like, okay, we’re going to list it and take a stab at it. And you found a partner that it looks like it was a good fit for us. Because I was surprised about that one actually.

Ace Chapman:
Well, and the thing that I will say as a kind of warning for the folks out there is that, that business we paid a lot or multiple than we do for some of the other businesses, and he understood. The seller understood, yeah, you’re right. I’ve got to go lower on this deal. So we bought it, but it’s still kind of a word of warning for those people that are building around their personal brand.

Justin Cooke:
Did you do a bigger earn out on that one and keep the seller involved for a bit?

Ace Chapman:
Yup.

Justin Cooke:
Yeah. I figured. That’s the other rest, right. If it’s the Justin show, right? You’re going to want to keep me around for 6 months, 12 months, about much longer transition period.

Ace Chapman:
Absolutely.

Justin Cooke:
All right man. So let’s give them the phase two, which would be the growing and scaling your business phase. And the first thing I have to say about this part of your business is, don’t worry about profit. And I know this sounds funny, but if at all possible, take every additional dollar in profit that you’re making and dump them into growth, right? If you’re not relying on your business to pay the bills, hopefully when you’re starting off the business you’re not, take every additional dollar and double the growth. So whether you made $1,000 last month or 3,500 or whatever, if you can take that and just kind of put fuel to the fire and get the engine’s burning faster, you’re going to get up to speed faster. You’re going to hit something that’s actually interesting faster, and you’re going to just exponentially grow your growth in the early stages.

Ace Chapman:
It’s important to use some of that money to test. It’s really easy to find something that works and then start taking the money out. But when you find something that works, you want to take some of that money and then diversify into other marketing channels, other products, just doing split testing. Some of those things are what’s going to make a business that has some longevity.

Justin Cooke:
Yeah, say that I’ve got a site or business that’s making … It’s just really new. It starting to call [inaudible 00:21:00]. I’m making 2,500 bucks a month in profit. I’m going to take a 2,500 bucks a month and split up on paid Facebook traffic and half to AdWords. And I want to see if either of those new marketing channels can grow it, rather than taking 2,500 bucks for myself or whatever. If I have other income or if I’ve got my own personal savings or income from other sources, that’s even better because I can really double down on this business.

Second Point is, we were talking about this a minute ago, but whether you injected personality into your brand or not, and if you did, and I’m going to make the case that if you’re starting off your business, putting personality into your business is a great way to differentiate you from the competition. Your competitive founders are not you, right? And so you’re going to bring something to the table, an attitude, a personality that they just can’t have that. So if you’re, whether you’re doing a podcast, or you’re either talking to customers, or you have a blog where you’re talking about your business, that is so personality driven, that’s an easy way to differentiate and separate yourself from your competitors.

Now, if you’re injecting that person on your brand than you should milk it for all it’s worth. Take full advantage of it, but keep in mind and in the back of your mind, know that you’re going to have to put a plan in place that eventually replaces yourself, either with other employees or with other marketing channels or whatever you needed to do. You’re going to need to probably back yourself out eventually to some degree, right. You can’t be the full face of the brand if you’re looking to exit. You’re going to get a lower multiple or you’re going to have earned out problems that we mentioned before.

Ace Chapman:
Yeah. The pros and cons are there, and we kind of talked about them, but the more you’re tied to the brand, whether it’s personality, or you’re just doing the work, the lower of the multiple is going to be. This next one goes back to what we talked about earlier where we said, hey, hold off on worrying about the legal structure, all of the kind of random little things you want to add to the business, [inaudible 00:22:53], all those things, and even hold off on building a large team. And so the question becomes when do I need to do that? Because obviously at some point you need to, and I think it’s when you hit that five figure a month profit level, when you’re making a couple thousand a month, you may go and get a VA, but it’s not time to build the business out.

Justin Cooke:
Yeah. Not a team, right? Not a team. You’re not going to … It’s not time to go and worry about your legal or tax structure when you’re making $1,800 a month. Nope. When you hit that five figures, now it’s like, okay, well now I’ve got enough money coming in. It’s a lot easier to pay for lawyers out of the business profits when you’re making 10, 15, 20 thousand dollars a month. It’s a lot easier to pay for legal. It’s a lot easier to pay for accounting. And those guys will be happy to take your money to go back and clean everything up for you and get you squared away. So a lot of times we’ve talked about five figure a month problems. Yeah, well, don’t worry about that. It’s a five figure month problem. When you get to that level, then it’s worth going back and fixing legal, fixing accounting structure, and start looking at hiring people and building out a team.

All right man. The other point we want to mention are growing, scaling your business, the fourth point is. And you just start putting systems and processes in place as you’re growing and scaling when you hit definitely, yeah, I’d say a five figures a month in profit is a good time to do that. It’s a good time to start looking at things like CRM. That’s a good time to start looking at tools like marketing automation, whether it’s Infusionsoft or Drip or what we use is a HubSpot, but started looking at those things. It’s a good time to start, if you’re in the E-commerce business, start looking at inventory control, what kind of software you can use to manage your inventory, things like that. So it’s a good time to start looking at software, looking at SOP, it’s a good time to start looking at building a team, that kind of thing.

Ace Chapman:
It’s also a good time to shift how you think about your brand, and how you’re getting the word out there. When you’re first starting, a lot of people are terrified that their competitors are going to see their twist on the business or their industry, and then come in and squash them or whatever. Once you get to this point, the business is stable, you’re making some money, they’re thinking about selling, You want to get the word out there and honestly just get your name in front of your competitors because those are great potential buyers. Now that we’ve got a portfolio of businesses, any time a business comes on the market, this does the same thing that one of our other business does, or in the same industry, or sells similar product, or any of those things. I’m looking at it very seriously and we just did an acquisition. And a lot of the reason was because, okay, we’re already in this business. We already understand it. They’re doing things a little bit differently. Let’s bolt these two together and become bigger and stronger and a little bit more diversified.

Justin Cooke:
Yeah, man. That’s where I think it makes a lot of sense to be cooperative with your competitors. And so you mentioned like making sure your competition knows about you. And the ways you can do that obviously are getting some press, right. So reaching out to press if you have an interesting angle on something that you can get at least a mention or even a byline if you’re writing an article. But those things are helpful in having your competitors see you. But there’s nothing wrong with like reaching out directly and looking for your ways to work together. And we’re actually going to talk about that a little bit later.

Don’t you think that if you have a competitor out there, and let’s say they’re crushing it, but they’re not kind of either reaching out, or they’re just not getting press, not enough to where you’ve noticed them, I think that’s a missed opportunity. It’s a missed opportunity for them to potentially sell to you. You might be a good acquisition target for them to sell their business to you or you might be a great business for them to acquire, right? They may be bigger than you doing super well and be like, look, Ace, I want to buy you out. So I think there’s real value in at least connecting your competitors. A lot of times there’s rivalry and stuff there, but you’re business people in the end, right? And so looking for opportunities to either work together or to buy each other out is potentially good business.

Ace Chapman:
And it really changes the way you’re calculating your multiples and changes your bottom line at the end of the transaction. Because when you can make the case that, hey, as soon as you buy this, you’re going to be able to promote our product, let’s say to just your database of customers, if it’s the right database customers, you can legitimize the fact that, I mean this is going to be a 10x growth for you. So instead of a three multiple, all I want is a five. And that happens.

Justin Cooke:
All right man. So we’ve gone through kind of the growing and scaling your business, which is phase two. Let’s talk about phase three, which is where we’re getting down to it. We’re let’s say 12 months out from a potential sale, right? We know that we want to exit in about 12 months. We know that we’re kind of getting towards it. What are some questions and things you should be concerned about? The first one is that if you’re 12 months out, approximately, from when you’d like to sell your business, you’re heading into your trailing 12 month period. What does that mean? Well, businesses are based on what they’ve done lately. So in 12 months it’d be based on your previous earnings, and generally people will look back 12 months. And As a six for a variety of reasons, which we’ve talked about, and we’ll talk about again, but when an if possible, they’re looking at the last 12 months of earning.

So starting right now, if you’re at the 12 month period, you’re on the clock, man. It counts. So the money you make this month and the next month and the month after that are going to matter. So everything you do and you need to be keeping that in mind. And so that’s why having a record in your revenue, expenses, profit month over month is important so you know what kind of trajectory you’re on, so you know exactly where you’re at month over month. An important thing to do here would be to dump exploratory marketing.

What I mean by that is, let’s say I’ve got a paid AdWords strategy that’s just crushing it, right? And Facebook is doing pretty well, but I was doing some Instagram testing and I’m not really seeing an ROI, but I’m still tweaking it, and it was spending three, $4,000 a month on Instagram to kind of test through it and get it working. Well, I may want to dump that, right? If AdWords is crushing it, and I can get it squeezed any more money out there, I need to switch from scaling the growth mode to let me maximize my profit mode. So I want to take my 3, 4 thousand dollars spend that’s kind of testing out on Instagram, and not dump that on Facebook because that’s just doing okay. I want to dump in AdWords if I can make it at all bigger. If I haven’t maximized that channel, I should be putting that money into AdWords. Does that make sense?

Ace Chapman:
Yup. And it’s also a good time to start checking with brokers. As you’re growing the profit you’re doing that. I’m amazed at the folks that don’t get rid of obvious expenses that aren’t necessary. But a lot of times a broker is going to give you that advice. So the little things like that are important, but check in with a broker. A lot of them are going to sit down, are going to talk to you. They’ll take the time, even if you’re not ready to list that day, that’s their job. They want to get you ready so that when you are ready to list, it’s an easier sell for them.

Justin Cooke:
Yeah. So speaking selfishly here, right? We have a brokerage, we’d love to help you list and sell your business. If you talk to us and you’re 12 months out, we’d love to talk to you both because we’d like to build a relationship with you and kind of have a look at your business and give you some tips that make it more sellable and more valuable, right? Because we get only get paid based on the sale of your site and a piece of that. So we want to make it as big and as profitable as possible so we can get as much money out of it as possible, But it’s also fun for us. We love looking at these bills as we love talking about him. So reaching out to our team or any broker really that you’re interested in working with, they’re generally happy to talk to you about it and give you some tips on what they think you should do over the next 12 months and really guide you through it.

Ace, I got a quick question for you. We’ve talked about this, but we haven’t done it with Empire Flippers, is to do an exit planning series, where maybe depending on the size of your business, we go further. If it’s a smaller business and maybe it’s some kind of email responders and a quarterly call or something. But what if we did some kind of exit planning with people that were 12, 9, 6 months out? I think it would be helpful. It’s hard for me to see whether we get an ROI on that, you know what I mean? What do you think?

Ace Chapman:
Well, I don’t even know what the ROI matters as much as even what we’re doing today, breaking down, being very specific, giving little tips and advice for the different types of businesses, how SAS preparation for exit is different from E-commerce, and getting a little bit more specific as powerful, because when you look at larger businesses and how they’re groomed from the very beginning, not just 12 months, five years, and they’re preparing to eventually exit and go public and everything. That business is built around the fact that one day we are going to exit. We’re going to take this public, and it’s going to be big. And so being able to provide that kind of service I think is something that’s missing for the middle market and micro market.

Justin Cooke:
Yeah, I think there’s probably some value there. I think that’s … we’ll see someone listening to this podcast a year, year and a half who might have this crazy exit plan thing in place. We’ll see about that. But you get these questions too, I’m guessing from buyers that you work with, or someone was like, look, they bought with you before. They partnered on different deal, but they’re calling you back up. They’re like, look, I’m not really ready to make a move now, but I might be in six months. Any tips or anything you see that maybe we should look for whatever. You happen to take those calls. I’m sure you do them regularly.

Ace Chapman:
Yeah.

Justin Cooke:
Let’s talk about the next point, which is, you really need to have a detailed profit loss record from here on out at a minimum. So we talked early on about kind of tracking it at, whether it’s in a spreadsheet or eventually, quickbooks or zero or whatever. Now, it’s do or die. Now, I don’t care what you did before, you have to have it moving forward. So you’re going to need a month by month profit and loss showing revenue, all your expenses lined out, your profit every month. And ideally the time you’re spending in the business. So how many hours you’re spending a week, how many hours you’re spending a month, what are you spending your time on, that’s going to be helpful.

You’re also going to want to verify this information. So it’s easy to put it in a spreadsheet and just kind of forget about it, but you’re going to need to be able to go back and provide proof of that. So here are my bank statements. Match those up with my Amazon affiliate account, for example. So you’re going to be able to prove that income that you put in the spreadsheet, but have the spreadsheet at the very least. QuickBooks ultimately is great. We love working with that. It’s fantastic for us. But some kind of accounting software would work.

The next thing I want to mention is you need to start thinking about converting the Justin’s show to Justin Cooke’s Company Inc, right? It needs to be not so low branding. It needs to be company branding. And so it’s a good time to start backing yourself out a bit from being the face of the company.

Ace Chapman:
Yeah. And it’s really funny because I’ve done this mental exercise before just to kind of walk through what would it look like if I turned Ace Chapman in to a company that I wanted to sell. And the truth is there are very few things out there that if you did the work, you can turn it into a company, but it’s just going to be stepping back and starting very early, remove yourself out of the business, because it can become a brand and eventually a brand that does exit if you build it the right way.

Justin Cooke:
Yeah. I’ve personal experience with that. You know Ace, what it’s been like. Empire Flippers was very much the Justin Joe Show, right? Justin Joe Show and it was very awesome to the point of being like the first iterations of our site had pictures of us on the homepage, right? Like hey this is us. Very, very us focus. So now we have a team. We’ve been introducing them more and more to kind of replace ourselves so it’s not so about us, and it’s more about the brand, it’s more about our team, and there’s more people involved, and that’s clear, right? But that hasn’t been easy man. That’s actually been … and I’m not sure if it just me as a marketing guy, if that’s been kind of harder to give up, or if it’s actually been difficult. I think it’s a little bit of both, but it is challenging. So you need to start doing that at least 12 months out from selling your business.

Last thing I want to mention in this episode is that you need to start laying the groundwork to show that month over month growth from now, definitely, from nine months out through the actual sale, you’re going to want to see a trajectory that’s positive, right? So the work you do right now, it’s going to have an effect two, three, four months from now. You need to push it, right? You want to show significant increase month over month leading up to the sale, because not only is your business valued based on the previous months of profit, it’s also going to affect your multiple, whether the business is growing or declining. If it’s declining, a lot of times buyers want discounts. They want a discount it because you’re basing on previous earnings, which it looks like it’s getting worse, but if it’s growing, right, they understand that they’re going to have to pay a multiple that’s at a premium.

Ace Chapman:
Yeah. And it’s just going to be tougher all around. A lot of the brokers, you guys that go out, and just a lot of brokers don’t want to list things that are going down because it’s a lot tougher to sell. Buyers don’t want to buy it. Nobody wants to do what I call trying to catch the falling knife. It’s possible that you’re going to catch the handle, but why take the chance?

Justin Cooke:
Yeah. That’s interesting because you’re totally right. Brokers don’t really like declining. So like I said, we have a few and we sell them, but we don’t love to. And it’s because it just feels like the seller gets disappointed, right? Because they’re going to take a lower price or they’re going to get lower priced offers. And there’s a lot of wheeling and dealing because buyers are nervous because of declining asset. Right. And so buyers are nervous about the sales, sellers or some guys aren’t happy with the multiple that I’m selling at. It’s kind of depressing. It’s just that it’s not as great as a growing business.

So that doesn’t mean that they’re not valuable for a buyer’s perspective. I’ve got to say there are businesses that are declining because so and so just hasn’t been there. They haven’t been involved or it’s obvious to the buyer that they can fix. So those are … for buyers it looks like it’s a great time to see if you can get a discount, but you as a seller you’re not in your best position. Makes Sense?

Ace Chapman:
Yup.

Justin Cooke:
All right man. Let’s do a wrap up to this part one of Preparing To Sell Your Online Business. The best time to think about exiting your business is before you even start, is when you’re starting the business. You need to be thinking about that exit, because it’s going to help you determine what types of niches you should be looking at, what type of monetization methods, and whether that’s really a good business for you to get in if an exit is your plan or your goal. We said you want to make money first. Don’t worry about legal structures, don’t worry about where to incorporate or tax shelters or anything like that. You can fix those problems. That’s a five figure a month problem. You can fix those easily when you have some money and lawyers and accountants. It’ll be happy to go back, have you pay them and go fix it for you.

You can use personality and your brand, but know that you’ll need to scale that back later. It’s not the easiest thing to do, but it is doable. Lots of companies do it. So I say if you think there’s an advantage to putting your personality and then there often is, then do it, but know that you have to pull that back later. And you mentioned, Ace, don’t start with SOPs, right. If you start, and I made that mistake, I started with SOPs, and they were thrown out the window when we realize that my imaginary process wasn’t as good as the actual process that we figured out. So figuring out the process first, I mean, that works and is effective, and then going back and writing them out and documenting seems to be the better way to do it.

Ace Chapman:
Yeah. When you’re doing those SOPs, the other tip to remember is just take, breaking it down into small things, because I know for a lot of people it’s overwhelming to think about creating the SOP.

Justin Cooke:
All right man. The other thing is to drop your exploratory marketing spin, drop any side or test projects you have to make sure you’re doubling down on things are producing an ROI. So if you’ve got like two or three channels you were testing and one or two channels that’s crushing it, drop the ones you were testing, reinvest that money and the efforts into the channels that are crushing it, because you’re going to want to maximize your ROI. You’re going to maximize your profit as you head into the last 12 months before selling your business. And again, you’re on the clock, right? So once you get inside of 12 months, you are on the clock. Every dollar in profit you make there is going to be multiplied by some multiple, maybe 20x, maybe 25x, maybe 30x. But every dollar may be worth an extra 25 to 30 dollars in an exit. So keep that in mind and maximize your profits.

All right buddy. That’s it for this episode. If you’re listening to this episode and you dug it, please again, head over to Web Equity Show. Leave us a comment, drop us a note. We’d love to hear from you. You can also leave us a review on iTunes, and we’d really appreciate that. In part two of Preparing To Sell Your Online Business a snag or to look at the steps you can take and you should take in the last 12 months before listing your business for sale. We’re going to walk you through 12 months, 9 months, 6 months, 3 months out, and kind of get you all the way to the sale. All right Ace. So let’s give this one a wrap.

Ace Chapman:
See you guys.

Speaker 2:
Thanks for listening to the Web Equity Show. Now is your chance to be a part of the action. Go to www.webequityshow.com/gift and send us your business acquisition or exit question and have it answered on the show.