WES S01E02: Preparing Your Website for Sale
Selling your website or online business can be quite an emotional decision. Those emotions often drive our decisions and even cause us to make mistakes if we’re not properly prepared.
One of the questions we often get is “Why would anyone ever sell a profitable business?” This question often comes with a bit of disbelief of why anyone would actually sell a site that’s making money. Whether it is the burden of regular maintenance or the need for extra cash for an important investment or an emergency, we all have our reasons.
On this episode, Justin and Ace chat about the reasons why people buy and sell businesses and share some proven strategies to help online business owners prepare their website for a sale. The tips laid out in this episode will help sellers attract the right buyers and opportunities and get a premium for your site. Don’t miss this episode jam-packed with golden nuggets of information for anyone looking to sell their online business.
Listen To The Full Interview:
What You’ll Learn From This Episode:
- The importance of communicating why you’re selling your online business.
- How much time you need to prepare your site for a sale.
- The ways that you should be separating yourself from the business you’re planning to sell.
- The records and documentation you need to keep.
- Why we think you should always use Google Analytics.
- How to determine the value of your site and price it accordingly.
- Ace’s best growth hack.
- Why you can’t neglect a business during the selling process no matter how tough it may be.
- The best and worst times to sell your business.
- And much, much more!
Featured On The Show:
- Google Analytics
- Clicky – Web Analytics in Real Time
- BizBuySell – The Internet’s Largest Business for Sale Marketplace
- HiveDesk – Simple and straightforward project management
- Built to Sell: Creating a Business That Can Thrive Without You by John Warrillow and Bo Burlingham
Ace Chapman: End of the day, we all would love to have millions and millions and millions of dollars for every project we put our hands on, but that’s just not the reality of how this stuff works. I’m sure you’ve talked to, Justin, and I’ve definitely talked to business sellers that just are out of touch completely with the reality of what a site is worth.
Speaker 2: Buying and selling businesses just got out 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: I’m really excited about the show we got lined up today. We’re talking about prepping your website for sale. And the truth is, when you’re selling your website or online business, it can be a very emotional decision. And often, those emotions can kind of drive those decisions and the things that you’re thinking about when you’re looking to sell your business.
Ace Chapman: Yeah, I’ve found that with my buyers and even me, personally, when you deal with the seller that has prepared and they know all the information regarding their site … There’s nothing worse than jumping on the call with a seller, you’re askin ’em a basic question like, “Oh, I have no idea. Oh, I don’t know that either.” It’s like, “Okay. Had you been thinking about selling this for a long time?” So preparing allows you to one, get the site sold; but also get a higher price.
Justin Cooke: Yeah. Not being prepared can cause you to miss out on opportunities ’cause you’re gonna have buyers that see it and go, “Oh, nope.” They don’t really have their stuff together. It doesn’t look like they’re very serious about selling their business. And as a buyer, you have to take a lot of time digging and to do due diligence. Right? And so it’s gonna take some time, some effort on your part, and if they haven’t put the effort up front, that’s concerning for you as a buyer. Right?
Ace Chapman: Yeah. A lot of times it’s not so much that anything sketchy is going on, but it seems like from the buyer’s perspective, that you’re being evasive when you don’t have the information ready to send to ’em, and if it takes you a long time to gather things up. So when you come to the table prepared, it’s a lot easier to engage the buyer.
Justin Cooke: Yeah, we sometimes get a little pushback from sellers when they’re kind of going through our vetting process and they say, “Ah, your vetting process is so strict. You’re requiring all this information from me,” and we push back again and say, “Well, you know, the only reason we’re doing that is because the buyer’s due diligence is gonna be even more strict.” And so if we can help you prepare the numbers and get everything ready upfront, it’s going to save you a whole lot of hassle when it gets serious and you get a buyer at the table that has the money, that’s really ready to engage and do business with you, you want to be prepared.
All right, let’s move into the listeners shout section. First up, if you’re new to the show, you’re just tuning in, this is our second episode. We’d really appreciate if you checked us out over on iTunes and gave us a review. One of the reasons we do this show is to help people get them more engaged and more information about the buying and selling process. And the best way to do that is to help our reviews in iTunes and to help us get more exposure and we’ll love you for it.
Second thing is, you can leave a question over on the site, webequityshow.com. Leave a comment in the comments section and we’ll make sure to answer that on the show. We also have a place where you can leave a quick voice recording and we’ll make sure to get you on the show, as well, on a future episode and answer any questions or concerns or comments you have.
All right, Ace, I got a question for you, man. Here’s what I got on Twitter. It said, “What’s stopping most brokers from jumping into adults?” So this is a question about … I know what you’re thinking in your head. You’re like, “Well no. What are you talking about, adult, man?” No. On the Empire Flippers podcast, we did a show where we talked to an adult website broker and we kinda got into the details a bit. And I had mentioned on the show that we don’t do adult, so we don’t do porn sites, we don’t help broker porn sites, we don’t do casino or gambling sites, as a general rule. Is that a rule that you have or do you do adult size?
Ace Chapman: Well, so I’m never lifted and adult side, but since I work with buyers, I have had clients that consider and look at both adult site and gambling sites. And it’s been interesting. I guess the really interesting thing is that we haven’t gotten one closed yet. So for one reason or another in each case, and it’s not to say that everybody in that space is [CD 00:04:31]. And that was a really great interview that you did with the broker that sells these deals. And he made a point that’s very valid. I mean, these guys are businessmen just like anybody else, men and women. And we looked at those deals, we’ve never closed one. It’s definitely a different space, and I really think it’s an incestuous business. Everybody does deals with each other. Everybody in that world gets it. And so it’s tough for outsiders to even buy those businesses, because if somebody’s lookin’ at that deal … And in a future episode we’ll, talk a little bit about strategic value. And so if you’ve got somebody that has a deal that’s already in that space, it’s gonna be more valuable to them than it is to you, and those are the folks that usually end up doing those deals.
Justin Cooke: Yeah, it just seems like everyone in the adult space is gettin’ in bed with each other. Doesn’t it? Sorry.
Ace Chapman: Exactly, exactly.
Justin Cooke: I couldn’t help myself, man. All right, let’s get into the show, now.
One of the questions I get all the time is why would anyone sell a profitable business? It comes with a bit of disbelief in the fact that anyone would sell a business that’s making money, that’s working for them. And do you ever get that, Ace?
Ace Chapman: Absolutely. Anytime I’m working with somebody, especially if the deal is a little more passive. I think people can understand when somebody is selling a business and they’d look at it as, “Oh, that’s a lot of work. They need somebody else to come in and do it.” And especially if the owner is using an excuse like, “Oh, I’m sellin’ this because I don’t have enough time to run it”, but then later on in the add it says, “It’s a passively run business, I spend no time on it.” Those kind of things can cause the confusion for a buyer, as well.
Justin Cooke: For sure. And there’s a dash of cynicism that comes with that, too. Like, “Why would anyone sell this businesses that’s making money? It just doesn’t make any sense.” And I get where they’re coming from, and I think they’re right to be somewhat cynical. And some of the reasons, Ace, you’ve seen this, too, where, like you just said, they’re contradicting themselves. You know, “I don’t have the time,” and “Oh, but it takes very little time to run this business.” Well, there’s a red flag, it’s something you to have to dig into.
But there’s also things like the seller just doesn’t think there’s much profitability in the niche, or they don’t see the growth of the niche, or they feel like they’ve capped out the website of the business, they can’t get any more out of it. And you know, that’s just a legitimate kind of … They may be wrong, though, on that. Right?
Ace Chapman: Absolutely, absolutely. Yep. Been involved in deals where you get in, you end up looking at it and you find all of these opportunities. And even when a lot of times sellers don’t think about how important it is to communicate the why. So they’ll just kind of haphazardly say, “Oh, I just want to move on to other projects,” or, “I don’t have any more time,” or whatever; as opposed to really communicating with the buyer, “This is what’s goin’ on. I need to take this cash and I’m investing it in this.” And those are the deals that do really well, when you’re working with a seller that’s very clear to exactly what they’re working on. And the more open you can be, the better, because the buyer’s looking at the situation and if they feel like, “Okay, that makes sense, you’ve got this project, it’s exploding and you want to take some money from this and invest it and put a little bit more in.”
Justin Cooke: Yeah, the sellers have to have an honest, real reason. And as someone that’s helping a seller, you or I, it feels like … ‘Cause sometimes we’re peeling back the onion to get to the real meat of it. They don’t wanna tell you what the real deal is, and then finally they do. And I think the reason for that is, it’s not like they’re making this … We like to think that, “Oh, when you sell your business, it’s a very good strategic decision. And it’s the right time in the market,” but the truth is, a lot of people sell for personal reasons. We had a guy sell because he wanted to adopt a baby, and that’s not cheap. Right? And so when we dug a little deeper, we found out that he wanted to adopt. Another guy wanted to buy his first home. He was selling an online business that gave him enough cash to buy a home in Australia. And so these are real, just kind of, not as sexy reasons, but they’re real. Right?
Ace Chapman: Yeah. I deal with the question from … And actually, just yesterday was talkin’ to a buyer. He had bought a couple of deals that we worked with them on, and he came to me not ready to sell, but just asking, “Okay, when should I sell?” And it’s a very personal thing, and so I gave him my personal philosophy on when I sell, but it is 100% based on me, my finances, my tax situation, opportunities that I come across. And I think a lot of times sellers want that end all be all strategic reason to sell, and that can happen sometimes, but a lot of times it’s exactly what you’re saying. It’s when something comes up, you need the cash, and you know that that’s there. And it’s really exciting. One of the things that gets me excited about the website deals, is that there is a liquidity in this market as opposed to other markets like offline businesses.
Justin Cooke: Yeah. And there are, aside from the personal reasons, there are those strategic reasons, or there are legitimate reasons where they need the cash from their business. As you were mentioning before, let’s say I’ve got some affiliate sites and I want to sell them off, and I’m going to get $120,000 for it, or whatever, but I need that $120,000 for my eCommerce business that is cash heavy; requires an intense amount of cash because of inventory. So I want to take that $120,000 and invest $80,000 of it into inventory and $40,000 into marketing, because that business is blowin’ up, let’s say.
So I mean, that’s a good strategic decision. And those are the reasons that we generally counsel people that it’s a good time to sell, or a good reason, but yeah. Sometimes people are like, “I wanna go to Hawaii.”
Ace Chapman: Yeah. So let’s talk a little bit about, you made the decision, you’re gonna sell, or even before you make the decision to sell, what it takes to get prepared. ‘Cause you talk to some folks and there’re all these things that come up at the last minute when you decide to sell and you haven’t taken the time. I’m sure you guys see that. You know, somebody comes to you, they haven’t had Google analytics. They’re like, “Okay, I need to sell because this thing has come up,” or, “This investment opportunity,” or, “A trip to Hawaii,” or you know, “Adoption,” whatever, but they’re not really prepared.
Justin Cooke: Yeah. You see this where they bring you their business and say, “Hey, okay, let’s sell it. I’m ready to sell it. Let’s sell it right now.” Well, not quite. Hold your horses there, buddy. No, we need to back it up a bit and take a look at your business because you know all your numbers and you’re sure that everything’s making what it’s making, and that your numbers are legit, but buyers aren’t just gonna take your word for it. They’re going to need some proof and they’re going to need some data and they’re going to need to dig into your business and their due diligence process. And some sellers are like, “When I sell my business, I just sell my business,” and one of the reasons we’re doing this show is to kind of back it up and talk about how to prepare your business to sell. I think it’s really important.
Ace Chapman: Yeah, absolutely. It’s so frustrating, even from a buyer’s perspective, when we’re going through the due diligence process and even getting the information at each step takes a long time. The more prepared you can be … And even if it’s just as simple as being able to hand over everything quickly and easily to a potential buyer, that gets the buyer really comfortable. Because even if it’s just, “Oh, okay, I gotta go and I gotta generate these reports, I gotta put those together, gotta catch up on my accounting and put my PNLs together,” and it takes a little time. On the other side of that table is a buyer that’s honestly rightfully suspicious at the whole process. So you’ve got to understand you’re dealing with somebody who’s really cynical and so, yeah, I’m excited to talk about some of the things that a seller can do to prepare. And the reason that’s so important is ’cause it makes a huge difference in the buyers you’re able to attract and being able to get a premium on your site.
Justin Cooke: Yeah, buddy. Well, we’ve got seven points you want to cover. Why don’t we just jump into ’em? The first one is you need to design your exit strategy as early as possible. And like I was mentioning before, seller comes to table, says, “Hey, I’m ready to sell my business.” Well, you’re a little late to be thinking about selling your business. Poor preparation generally leads to a poor selling price. If you want to get maximum value for your sale, you’re going to be thinking about it much earlier than that. And we generally recommend 12 months. I think that’s a good idea, is to start preparing your business 12 months out. But at a minimum, you’re gonna need six to nine months. And the reason for that is, a sales price and a buyer’s estimated price is gonna be based on net profit. Right? Some kind of multiple STE or net profit or however you want to figure it. And if you’re not thinking about that, and you’re not preparing that by cutting out exploratory spending and some of the crazy spends that you might do that are just kind of like testing stuff out; you wanna maximize profits and the 12 months, or at least six to nine months leading up into the sale. And if you’re not doing that, you’re leaving money on the table.
Ace Chapman: Absolutely. It’s a very bad idea to be a couple months out, you know you’re gonna be selling soon, and that’s the time that you start testing new marketing strategies, or you come up with some new aspect or feature that you wanna make some investments in and put cash into that, because a buyer really wants to see cut and dry; this is the amount of income that we’re making, these are the expenses, and this, on average, is the amount that we’re gonna plan on making in the future. Having those, even if it’s a good thing, you may have a few months leading up to the sale and you have some spikes in income. Maybe it’s because of a deal and then maybe it goes down a month and then the last month it goes up again. And that gets really uncomfortable for a buyer because it feels like, “Okay, this is very choppy earnings.”
So the more you can kind of level that out and show that, “Hey, this can be a very consistent income-producing asset,” which is what buyers really like to see, that’s what’s gonna get them excited. So being able to plan that out, yeah, it’s a big deal.
So let’s talk a little bit about the business itself. I’m sure you guys get businesses like this, where the person is directly tied into the business. And so it’s built around who they are and their name and they’re mentioned everything. So the second step is separating yourself from the business. And so one aspect of that, the person being the business, and so it’s built around either their name, they’re very tied into as an individual, their customers, and that relationship is directly with them, not necessarily with their business. That can draw down the value tremendously, or just make it unsellable. You know? I know personally for my consulting business, that’s not something that I’m planning on selling and, and it’s built around me, all of my other businesses-
Justin Cooke: Wait a minute. You’re not gonna sell acechapman.com?
Ace Chapman: I’m actually not gonna sell acechapman, believe it or not.
Justin Cooke: I was gonna call you out on this one, man. I was gonna call you out and say, “Hey, I don’t know.” Separate yourself of your business. Okay, acechapman.com, I don’t know about that. But I know what you mean, And acechapman.com is your consulting business. It’s also kind of like your public entity, but you’re not gonna sell your public face. That’s the Ace Chapman show, or whatever, and that’s it. So all of your businesses are standalone and separate.
Ace Chapman: Exactly. So none of those businesses have anything to do with me or my name, and really, you can’t even find my name associated with them 90% of the time. So those businesses are built as assets that you’re gonna be able to sell.
The other part of separating yourself from the business is in the accounting. So a lot of people start to tie up other expenses. You know, you go out, you get a car, your business starts paying for that. You’d go out and you’ve got some personal subscriptions to things online. You see this with online things like, “Oh no, that’s not really associated with the business.” 12 months out, if you can start to get rid of some of those things and really just have the expenses that are in the business be the expenses that are for the business, that makes things a lot simpler for the buyer.
Justin Cooke: Everyone likes to call their dinner out a business expense until it comes time to sell their business. Then they’re like, “No, that wasn’t a business expense.”
Ace Chapman: Absolutely.
Justin Cooke: I like how you mentioned in the second point, as separating yourself from the business. You know, I hear some people say … They go, “Look, you should start your businesses, and it shouldn’t have your name on it at all,” but I’m not entirely sure, because you get an initial advantage for setting up your company and putting a name and a face on that business. So your point of separating it out makes sense after the fact, but don’t be scared to start a business with your name, with your face attached to it, because that may help you get traction. If you don’t get traction and you don’t get your business up and running from the get go, it’s not gonna matter when it comes to sell it, ’cause you’re gonna have nothing to sell. Right?
Ace Chapman: Yeah, absolutely, absolutely.
Justin Cooke: All right, so let’s talk about our third point, and that’s have precise documentation. And when we talk about this, we mean precisely track things like your earnings. Right? Know where all of your earnings are coming from. You don’t want have to go, after the fact, and go, “Oh yeah, I’m making some extra money here.” Track your expenses. And this is one that gets called out in due diligence commonly. And the reason is, I think people don’t really know all their expenses. And so they go, “Oh yeah, here are my expenses.” And then if a serious buyer calls you out and it says, “Well you don’t have expenses for this listed or that listed,” you go, “Oh, yeah, No, no, no. No, I do have those expenses. Here’s what they are,” that’s gonna put red flags in the buyer’s mind.
So it’s better to just list them upfront and be completely upfront and transparent about it from the beginning. You also want to be having documentation on your traffic. And I think really importantly is to have documentation on your process. So if there’s a particular process you use for marketing, let’s say that is, you have an assistant that’s going out and commenting on blogs or very involved in forums. You want to have the process that he or she uses written out, laid out so that when this transfers to a new buyer, they know all of the work and all of those steps that you’re doing. I think that’s critical. And you don’t see that all that often, and we really recommend that you do document these processes ’cause it’s really helpful for the buyer.
One of the other things you need to document is your business relationships. So if you have vendors, if you have other people, contractors that are doing work, then you need to be able to show those contracts and have them ready. And also be able to, hopefully, transfer those contractors to the new buyer. One of the things that you can run into that’s a problem is when, let’s say I’m running a lead generation site and I’m providing leads for my brother-in-law who owns a window repair company. And I say, “Oh yeah, Bob Sorenson,” whatever, “This guy is paying me for the leads. He’s my brother-in-law. No problem.” They’re like, “Well, would you have a contract?” “Well, no, but he’ll just continue paying the new buyer.” Well that’s not great. You and Bob, that’s not helpful to a new buyer that you have this relationship because he could cut it off right when you sell the site. That can be problematic, and we’ve seen issues like that.
Ace Chapman: Yeah, yeah. All right. Talk to me about analytics. This is a really simple one. Just put Google analytics on your site. You know, one of the things that a lot of people don’t think about is there’s no retroactive thing that you can do in Google analytics. So the every day that you’re not putting it on the site and starting to track is a day that’s just lost. I mean, there’s no history there. So the sooner you do that, the better that goes into the plan and starting 12 months and having those things there. And not just tracking it, but paying attention to what’s going on with your site. So are there some things that may look weird and weird source of traffic and things that a potential buyer may find and end up asking the question and then you’ve got to scramble to figure out what’s going on, which again, causes that cynicism to come out?
Justin Cooke: Yeah, at the very least have Google analytics on there. Right? And you know, it could be that you’ve set up eCommerce, you set up some of the goal tracking and you have that all in place, and that’s fantastic. But at the very least have Google analytics. And one of our exceptions is … Because I know some people just hate Google products. They’re like, “I don’t want Google knowing anything about me,” blah, blah, blah. And you know, some of their concerns may be significant, I don’t know. But we do allow Clicky, I think Clicky is a good third party alternative. They’re one to check out. But there is analytics software out there that can be manipulated. And so I think that’s one of the reasons, Ace, that you like Google analytics, that we like Google analytics, is that it’s not nearly as easily manipulated and it’s easy to find out problems or buyers to do their due diligence. Right? So to make sure that your traffic is legit, if you have Google analytics, it makes it a lot easier.
But the second thing is because people know Google analytics. And so if I’m a potential buyer and all sites being the same. I’ve got site A and site B and side A has Google analytics and site B has some crazy analytics system I’ve never heard of before that I have to learn to even do the due diligence; it makes site A a hell of a lot more attractive. Right?
Ace Chapman: Yeah, yeah. And that goes to bein’ able to sell your site at a premium.
Justin Cooke: All right, man. So our fifth point here is that you need to create separate web hosting accounts for your sites. And the main point here is that if you have your hosting account mixed in with a whole bunch of other sites, that can be problematic, it can make it a bit sticky. And when you have multiple revenue streams, you’re gonna wanna make sure that it’s all coming into one account, into one site, into one banking account. I think that’s really important.
When you’re ready to hand over that website to the buyer, having it in the same hosting account and being able to transfer that account to the buyer makes it a lot easier than, “I’ve got one site of many in this particular account.”
Ace Chapman: Yeah, absolutely. It makes it a lot easier even in the transfer. Sometimes the buyer just wants to come in and take over the hosting, so you just have different options when you’ve got that dedicated hosting for that specific site.
Justin Cooke: It’s all for a monetization of programs, too. Now, certain ones you can’t just automatically transfer to the new buyer, but others you can. So the ones that you’re able to transfer, it just makes the transfer process a lot easier. If the new buyer has to go and get approved with that affiliate or get approved with AdSense, it can slow down the purchase process a little bit, and it may turn off some people or they may not get approved, and that may be … You’d hate for someone not being able to get approved for AdSense killing the deal.
Ace Chapman: Yeah, yeah. So let’s talk about the value. Valuations. This is the fun stuff. At the end of the day, we all would love to have millions and millions and millions of dollars for every project we put our hands on, but that’s just not the reality of how this stuff works. So I’m sure you’ve talked to, Justin, and I’ve definitely talked to business sellers that just are out of touch completely with the reality of what a site is worth. And most of the time, that errs on the side of being outrageously higher than what the market will bear. And so just like with a house or a car, or anything else, there’s a marketplace and there are certain things that determine the value of any asset. And so it’s the same in this market. Just because it’s a website or just because Uber got a valuation and you’re gonna be the next Uber one day-
Justin Cooke: Oh, God, Ace. Don’t [inaudible 00:24:53] Uber, Twitter. Oh my God, yes.
Ace Chapman: Yes. We’re like, “Airbnb, we’re the next one.” And so this isn’t Silicon Valley, this is a just small businesses buyin’ and selling. So a couple things to think about in that period of planning your exit strategy, one of the things you want to do is spend some time studying other businesses in your space that come into the market and what they sell for, what they’re listed for and start to build those comparables. And it’s great. I mean, it’s a really great opportunity to do some research and be able to determine some of the factors that may make that deal weak so that you can fix it in your business.
The other thing that some folks will do is they’ll base their value off of an offer that wasn’t a real offer. You know, “I had some guy,” or, “Visited this website. They said that my site was worth this,” or, “I had a guy that contacted me, he said he’d pay me a million dollars.” That, a lot of times, is just not reality. And if that’s the case, I would say go and take the million dollars from ’em.
Justin Cooke: Yeah, and in fact give me his name and number ’cause I got some businesses the sell him, too.
Ace Chapman: Yes, exactly, exactly. So get in touch with your marketplace, what businesses like yours are selling for and then based on your multiple, on a reasonable amount. And if you want more money, it’s great to start with that 12 month planning period where you can ramp up the business and grow it.
Justin Cooke: You know what sucks, Ace, is sometimes we’re stuck in a situation where we have to gently, or sometimes not so gently, let sellers down. And so I’ve heard the complaint that, “It feels like my is broker is competing against me.” Like, “He’s trying to get me to drop my price and,” and it sucks. Right? It’s a really crappy situation. They’re coming to us, we’re gonna work together on this deal and they’re like, “No. No, your site’s not worth that much.”
One of the worst things, and I swear you’ve seen this, Ace, is that you get someone that says, “Look, I spent two years, I spent $100,000 building this, the tech here is amazing. This is gonna revolutionize X, Y, or Z. It’s just amazing.” And you know, “I need to get at least $150,000 for it,” or something.
I’m like, “Well, how much does it earn?” And they’re like, “Well, $200 a month in profit, but that doesn’t matter. It’s really the money and effort I put into … This tech is amazing.” And what sucks to tell them, it’s like, “Look, it sounds like you wasted $100,000.” Buyers, they’re interest is not in paying you back the $100,000 you spent. It’s not like they’re like, “Oh my God, let me make sure Ace gets paid back his $100,000 in development costs. Geeze, he needs to get paid for that.” They don’t think that way. They don’t think about you got them ahead toward whatever goal or plan it is that you had them going down. They don’t care about any of that. All they care about is what it’s done in the market, and what it’s proven itself to be. And like you said, we’re not talking about Twitter and Facebook, Uber. Great for them. Go to Silicon Valley and raise your $5 million, and whatever. Good luck to you. But for the rest of us that’re doing real business, that’s just not realistic.
Ace Chapman: Absolutely, absolutely.
Justin Cooke: Let me ask you … So okay, let’s say, for example, that I sell a cat furniture business, an eCommerce site. Right? And I wanna see … Like you said, I wanna know what my competitors have sold for, if they’ve sold. How do I find that out? Where can I go to find out another cat furniture business? Or, let’s say even dog furniture is close enough. Where would you go to … How would you research that?
Ace Chapman: Yeah. So one of the things I personally am just a big fan of is always, always being in the market. I feel like anybody that owns a business should always be in the market to buy a competitor. So if you’re somebody that’s growing your business and you’re coming up with all these marketing strategies and you’re testing things out and you’re adding features and figuring out new ways to partner with other people, those are all growth strategies. But the greatest growth hack is to go and buy a competitor and instantly add to your bottom line. So part of that starts with the philosophy of just being in the market and seeing what’s out there. And then once you’re doing that, goin’ to sites like BizBuySell, being on the list. And at the end of the day, it does mean you’re gonna see things that’s not related to your business. So you take that example of the eCommerce business that’s in the cat furniture space. Well, you wanna get on the list of all the brokers and sites like BizBuySell, and it’s gonna mean getting emails that aren’t related to your business, but it still is 20 minutes a day in a strategy that could lead to you doubling the size of your business with a single deal.
But it does mean looking at a lot of deals and seeing what’s out there. And you can kind of refine that down to eCommerce, so you’re only paying attention to ecommerce deals. So you’re not gonna find the next cat furniture business and be looking at a lot of those, but even within eCommerce, you’re going to see some multiples and some trends, and then goin’ out and requesting those prospectuses. And that kind of thing can allow you to learn a lot about some other businesses and, like I said, have the potential to grow your business through acquisition.
Justin Cooke: Yeah, as long as you’re seeing the deals come across your plate and you’re on all these lists, I mean, it’s really easy to archive. Right? Hit a button, “Okay, none of those businesses interest me. Archive,” whatever. But you may come across parallel industries, like if you’re selling cat furniture and there is a great company comes up with cat toys, or something, for sale and you’re like, “That’s a strategic purchase for me. Those customers are my customers, I’m gonna get a whole lot more value out of them than just a portfolio buyer might get it out of that.” A portfolio buyer’s gonna look only at the earning that makes. You know, $5,000 a month net profit. I’m going to base the price on some multiple of that profit. Right? But you, you’re like, “Oh my God, they’ve got an email list of customers that are 8,000 deep and I could sell all of my cat furniture to them? That is a steal.” My valuation on that business is instantly higher because those customers are my customers, as well.
So, yeah, man. I [inaudible 00:31:10]. Yeah, I think staying on the list, it’s kind of pain in the butt, but … Well, the one thing you mentioned was just having your ear to the ground and cooperatition with your competitors. In your marketing, there’s gonna be opportunities for you to reach out to your competitors and get on the same page with them and maybe even market together or align yourselves temporarily as you both grow. And if you’re that close, hopefully they’ll be wise enough to reach out to you and look for a strategic buyer when they’re looking to sell.
And we had a situation, Ace, where we were using this a company called HiveDesk, and it’s a time tracking software for virtual assistants. And we were using it, we were one of the early users when we were using it, and then all of a sudden we were giving them feedback in their beta and they start growing, they got customers. Reached out to the guy, and he was like, “Yeah, I sold it.” Like, “What do you mean you sold it?” And he told us, and it was for low four figures. And we were like, “What?” Like, “We use this all the time, we’re big users.” Like, “We would’ve promoted the hell out of this. We would have bought it for more than that.” We were just like, “God, you should’ve reached out to us, man.” Like, “Why didn’t you tell us?” And it’s our fault, too, for not being closer to him to where we would have known that that business was selling.
Ace Chapman: Absolutely. We definitely … I can think of two deals that we literally bought and once the users or clients found out that it was for sale, they were really disappointed that they didn’t get a chance to buy it. And one of them actually invested in the business at double the multiple that we bought the deal.
Justin Cooke: Oh, wow.
Ace Chapman: So yes, that is absolutely something that just happens. People don’t think about making those connections.
Justin Cooke: Did you snake that Hive deal for me, man? Where it was kind of … That was you, huh? Such a jerk.
Ace Chapman: No, it wasn’t that one.
Justin Cooke: All right, man. So let’s get into the seventh point. I think this one’s really important, is that during the selling process, you can’t neglect your business. Now I mentioned before … Yeah, businesses from a buyer’s perspective, even strategic buyers are valued as a multiple of current and previous profits. Right? And usually that’d be something based on a six month average, or the last 12 months, or three months, or something like that. But if you start to have a dip either right before the selling process or during a process, it’s gonna make buyers worried. Right? They’re gonna get nervous. So some buyers are gonna say, “Oh, it looks like earnings are dipping. This site … I don’t like this business, I’m done with it,” and they’re gonna walk away. The ones that’re still interested in and go, “Ooh, I can steal this one. I can offer less than they’re asking. I can get a sweetheart deal,” and so they start to give you a lower price offers. So it can really crush those offers and your final sales price, both from people … A, people are walking away and B, from people thinking they can get a deal and trying to offer you less.
Ace Chapman: Absolutely.
Justin Cooke: And from a buyer’s perspective, a businesses that’s growing is hot. Right? And I know I can think of a deal in particular between you and I where you brought a buyer to the table and the business continued to earn more, continued to earn more, and you guys held off a little bit. You ended up pay more for it simply because it did grow in a month or two. And you’re like, “Damn, I wish I could’ve got it for a little less.” But that helps you leading into selling your business. So, if you keep growing the business and it continues to grow, you may get even a larger multiple or definitely, you’re gonna get more money based on the profits it’s making.
Keep in mind that the sales process can take anywhere from one to 12 months depending on a number of factors like how many buyers there are, what site it’s priced at, what kind of industry it’s in. So if you’re going six months, you don’t walk the six month decline while it was listed, ’cause someone’s gonna try to get it for a steal, and you’re gonna lose some money. You’re gonna walk with a lot less money. So keep that train a-chugging, keep your business going. And it can be difficult when you’ve set your mind to sell. Right? Like, “I’m sellin’. I’m outta this business. I can’t move on to projects A, B, C,” whatever it is, and you start to come … You’re over it. You’ve mentally move past it, but you have to stick with it until the deal’s done.
Ace Chapman: Yeah. I’ve been involved with deals … Especially offline, it’s a little more work, where I just held onto it too long, you know? It was one of those things, especially when I was younger, I’m probably a little more trigger happy now, but you’ve got a business, it’s going great, you know eventually you want to sell it, but you start to come in, you’ve got some momentum, you grow it, and then the momentum dies and the excitement’s gone and you’ve moved on to another project and it’s kinda slowly dying. And right before it’s gonna die, you’re like, “Okay, I need to sell this!” That’s the worst possible time to try to sell.
Justin Cooke: It’s like trying to get credit, right? It’s easiest to get credit when you absolutely don’t need it. So that’s why you should be getting it when you don’t need it. And when you actually need that credit, let’s say you’ve hit a hard spot, or something, and it was like, “Nope, don’t want to lend to that guy.”
Ace Chapman: Exactly, exactly. Oh, let’s talk about a couple of tips outside of these steps that we walked through that may just be some things that you’ve noticed as far as how somebody could maybe improve the value or sell their site at a premium, or find the right buyer. And I know, for me, a couple of those things. One has been finding that right strategic buyer. Even as a buyer, there have been deals where I know I’ve got a database of users, then another business that I can go and promote this business that I’m looking at purchasing, too. You know, it’s, “You’re makin’ this. As long as there’s a reasonable multiple, I want that deal because I know I’m gonna instantly explode that business.” And so that, we’ve just done in a lot of deals like that. And so from the seller perspective, that’s the buyer that you want.
And so looking at those strategic types of buyers is a huge opportunity. And one of the things that a lot of sellers don’t take advantage of is mentioning that, and starting to suggest that. Because sometimes, a person may own a business or have a asset that can be leveraged, and they’re looking at your deal, and they don’t make the connection. So you, as the salesperson of your business, you need to communicate that to them and give them a lot like, “Hey, somebody would be able to kind of leverage this business and grow it by doing this and doing that,” and that kind of thing. “And if you’re a strategic buyer that has something like this, here’s some of the opportunities that we haven’t been able to take advantage of.”
The other thing is having a team that’s willing to transfer to the new owner. It’s so frustrating when you’re in a deal, everything looks great, the income is good, everything checks out, it’s running really smoothly. They mentioned that they’re running it pretty much passively and then you find out that the people that are runnin’ it for them aren’t gonna transfer to you because they’re working on other projects for them. Or, they’re willing to work with you for six months and then you’ve gotta go out and find somebody else to do that.
So that’s one of those things where it’s just a new headache for the buyer, and it’s another hurdle for them to try to overcome to get excited about your deal. So having a separate team that can run your business self-contained, it goes with the business, again, it increases the likelihood of connecting with that buyer and increases the value of your business.
Justin Cooke: I like that. It’s kind of like if you have multiple businesses all paying into the same business account, that’s not ideal. Ideally, it would be broken out. Right? Now sometimes, especially for these small businesses, I just may have some virtual assistants that are working on two or three businesses, online businesses that I run. Right? And that’s just a fact of life. So if you’re going to do that though, you need to at least, at least have some kind of turnover or a transfer process to the buyer. So, “These agents will continue to work with it, and will continue to work with your virtual assistants for two months, three months, six months,” or whatever, “In the transfer.” You know what I mean?
Ace Chapman: Yep, exactly.
Justin Cooke: Cool, man. So I got two points. First one is just build your business to sell from the get go. So have it in place, an idea in your head, that you’re planning to sell the business. And maybe it’s two years down the road, maybe it’s four years down the road; but build it to where you’re planning to sell it anyway. And the real … And this isn’t earth shattering news here, but you know, if you’re building it to sell, you’re gonna try to maximize your profits, right? And the benefits and maximizing your profits are you have more cash that you can put in the business and you’re able to grow faster.
So if you’re maximizing profitability, which is what you would need to do to sell it anyway, you’re gonna be building a stronger business that’s worth more and gives you more cash to put back into the business. One of the great reads on this is a book called Built to Sell. It’s a fictional agency where there was a guy who was trying to figure out how to sell his business and it’s not worth much because of the way he runs it. And so his mentor explains to him some of his steps you can take to make it a much more sellable business. And it’s a fantastic read. It’s short, you can read it, take a Saturday or something and knock through it. It’s totally worth it.
The second point I wanted to bring up is that it really helps you, as well, knowin’ our common platforms. I mentioned earlier things like using WordPress, for example. Right? If it’s either Joomla or WordPress, way more people use WordPress. So if I’m a potential buyer and I’m looking at your site and it’s a Joomla site, I just might be less interested ’cause I’m like, “God, I gotta go learn Joomla and my VA doesn’t know Joomla.” Like, “That sucks, is gonna be a pain.” Whereas, if the same exact site was on WordPress, I’d be much more interested in it.
Now you’re not gonna do this to the point where you hurt your profitability. So everyone’s heard of AdSense and Amazon, those are easy monetization methods. But if you have one that’s better, don’t switch to that to sell it even if it earns less. Right? So if I have a affiliate and I’m like, “No, I better switch to AdSense, ’cause people know it,” and I’m earning half of what I was, that’s not good. If at all possible, or when you can, use platforms that are more well known. Google analytics, we talked about earlier, is one that people have used and are familiar with, and it’s gonna help in a sale because ultimately, you wanna reach the largest buying audience possible. So you don’t want to discount anyone because of a platform you’re using.
Ace Chapman: Yeah, it is tough. And that Joomla example hits home for me, ’cause it just is … It’s not even that Joomla’s terrible software. It’s just, at this point, a lot tougher to find people that can do anything with it. WordPress is kind of the standard, but I’ve got to worry about when I sell it, am I gonna be able to … Where is Joomla gonna be at that point? So that’s huge, and a great call. I feel like Built to Sell is just required reading for a business owner.
Justin Cooke: Yeah, buddy. So let’s let’s kind of wrap up this with some news, man. What’s goin’ on with you? What you got goin’ on in your business?
Ace Chapman: You know, I’m working on a very interesting offline deal right now. It’s a casino that’s in the Caribbean and that’s a neat thing. It’s a foreign deal, it’s a got some different aspects with dealing with the government and some licensing and all of that. So that’s been a lot of fun. I’m just a deal nerd, so anytime I can get into somethin’ that’s totally different from anything I’ve been involved in, that’s exciting for me.
What about you guys? I mean, y’all have so much goin’ on, man. All the articles and getting in fights with the mafia, to just some explosive growth that … What’s goin’ on with you guys?
Justin Cooke: Oh, just pissin’ off Russia. You know what I mean? No. Well, first off, dude, I’m a Facebook buddy of yours, and I’ve been seein’ your pictures. You’re like, “Oh gotta go to the Dominican Republic again. I gotta work on my casino,” like, “That’s so horrible.” It is so funny, dude. Yeah, man.
So yeah, so we had a crazy article go out where we got scammed for $25,000 by some thieves in the Regions credit card fraud. Right? And so we put that out and we knew it was gonna be a big post, because it’s really out there, and we nailed them to the wall. We went and mentioned exactly who they are and the whole story and, it got picked up on Hacker News and Reddit and got just a ton of traffic. And it was really interesting to see, and all the comments rolling in, and all the attention the post got for a painful situation. We actually got the sites back, was kind of the spoiler, there, but we got the sites back from someone in our audience who had kind of read our hinting about it. Reached out to us and said, “Hey man, I think I bought those stolen sites. Let’s work out a deal.” It was crazy.
We’ve been havin’ a few really good months of businesses doing really well. We’ve been taking that extra cash and really looking to roll it into expanding our business. I mean, important for us as brokers is deal flow. Right? So the more deals we can get on the table from our buyers, the better we’re gonna do. And we’re moving up into the six figure, mid six figure territory, and that just requires us talking about those types of deals and having them available; simply having them available brings the buyer. So that’s what we’ve been working on.
Buddy, I really like what we’re gonna be talking about for the show, and we’ve got a whole bunch of things. We’re gonna bring on experts, we’re gonna be talking about offline versus online businesses, which I think is really interesting. I am a huge fan of online businesses and I know you still do the brick and mortar thing, so I’m gonna beat you up on that if at all possible, and we’ll debate the [crosstalk 00:44:23].
Ace Chapman: Yeah, I’m excited. I’m excited about this. I love just kind of some of the things we’re focused on, we got planned for this show. So hopefully you guys share the show and stay tuned. We got some neat things comin’ your way.
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