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Fireside Chat Results in $6,000,000 Increase in Value
Joe Valley is the Co-owner and Director of Brokerage Services at Quiet Light, a business advisory firm that helps online entrepreneurs achieve amazing exits. Joe joined the firm after selling his own e-commerce business through Quiet Light in 2010. He has advisor expertise in all web-based niches, including SaaS, e-commerce, and content businesses.
In addition to being a frequent speaker and podcast guest himself, Joe is also the co-host of the Quiet Light Podcast.
Here’s a glimpse of what you’ll learn:
- [1:59] Joe Valley describes how applying an add back can bring more value to your business
- [6:42] Joe details the formula for discovering your total add back amount
- [10:34] The three levels of add backs and some exceptions to keep in mind when calculating them
- [19:33] Joe talks about website redesign, masterminds, cashback, and more commonly missed add backs
- [27:55] The importance of properly calculating your cost of goods sold for a greater exit
- [31:07] How to avoid common mistakes that lower the value of your business
In this episode…
How can you discover the true value of your business through an add back schedule? Where can you go for expert advice on how to calculate and maximize your seller discretionary earnings in order to achieve a greater exit?
Exiting your business can be a daunting task. With complex spreadsheets and calculations, how can you create a clear path to your goal? According to Joe Valley, understanding the math behind add backs is key. Knowing how to dig deep into your expenses can change the structure of your deal and increase your exit by millions. Today, Joe is here to break down the formulas and share his tips for helping you maximize your exit.
In this episode of the Quiet Light Podcast, Joe Valley sits down to explain how you can formulate your add back schedule to achieve your most incredible exit. Joe shares an overview of the three levels of add backs, the common exceptions you may be missing in your calculations, and how to get on the path to reaching your business goals and earning a more extraordinary exit.
Resources mentioned in this episode:
- Quiet Light
- Quiet Light on YouTube
- Joe Valley
- Mark Daoust
- Quiet Light Podcast email: [email protected]
- The EXITpreneur’s Playbook: How to Sell Your Online Business for Top Dollar by Reverse Engineering Your Pathway to Success by Joe Valley
Sponsor for this episode…
This episode is brought to you by Quiet Light, a brokerage firm that wants to help you successfully sell your online business.
There is no wrong reason for selling your business. However, there is a right time and a right way. The team of leading entrepreneurs at Quiet Light wants to help you discover the right time and strategy for selling your business. By providing trustworthy advice, effective strategies, and honest valuations, your Quiet Light advisor isn’t your every-day broker—they’re your partner and friend through every phase of the exit planning process.
If you’re new to the prospect of buying and selling, Quiet Light is here to support you. Their plethora of top-notch resources will provide everything you need to know about when and how to buy or sell an online business. Quiet Light offers high-quality videos, articles, podcasts, and guides to help you make the best decision for your online business.
Not sure what your business is really worth? No worries. Quiet Light offers a free valuation and marketplace-ready assessment on their website. That’s right—this quick, easy, and free valuation has no strings attached. Knowing the true value of your business has never been easier!
What are you waiting for? Quiet Light is offering the best experience, strategies, and advice to make your exit successful. To learn more, go to quietlight.com, email [email protected], or call 800.746.5034 today.
Hi folks. It’s the Quiet Light Podcast where we share relentlessly honest insights, actionable tips, and entrepreneurial stories that will help founders identify and reach their goals.
Joe Valley 0:28
Hey folks, Joe Valley here, host of the Quiet Light Podcast. Thanks again for joining us for another episode. This one is on a strange day to be listening to podcast, it’s on Thanksgiving Day 2021. So rather than bringing a guest on and take the chance that none of you are actually listening, because that guest is really important to us, you’re just going to get me. And what we’re going to talk about today is add backs, the three different levels of add backs, and how important it is to getting it properly done. So that you get the true value for your business when you sell. Now this is going to apply to those that are working with Quiet Light working with other firms. God, why would you do that, but also those that are choosing to go ahead and list or try to sell their business on their own. They’ve gotten a call from somebody an email, a snail mails, and hey, I want your brand, I want to buy your business and then make you an offer. The key thing for you to do there is make sure that you are properly calculating sellers discretionary earnings, and then applying a multiple to it, I can’t help you with the multiple if you’re selling on your own, you can try to guess that part of that is gauging how much you want to sell the business for. But getting the sellers discretionary earnings. Correct is all math and logic. And if you do it right, if you go through the exercise, I’m gonna do that with you today. This will help you make sure you get maximum value for your business and don’t give what I call an ignorance discount to your buyer. Short story before we begin, though, begin though. So a few weeks ago, I was at a boot camp for eight figure sellers, really experienced entrepreneurs that are doing some pretty big numbers, I think the the lowest revenue, one might have been 14 million. And then there were some folks, you know, close to nine to eight years. But I was having sort of a fireside chat with one of the one of the attendees. And he does, you know, somewhere around $15 million a year in revenue. And he’s had an offer on his business. And we’re talking about the value of his business. And his offer was sizable, like 10 times. And I asked him a question about add backs and he said What do you mean, he didn’t understand that backs he he didn’t do an add back schedule, didn’t dig deep enough to make sure he’s getting maximum value for his business. So the simplest and easiest one I I asked off the cuff as well. Do you use a cash back credit card? Because Oh, yes, no, absolutely we do. We do credit card stacking. We have multiple credit cards, and I get about $50,000 cashback a month just slid over to my personal account. And I’m like, Okay, well, that’s an add back is What do you mean? Like, well, that’s, that’s an owner benefit to you, right? As an owner of the business, that’s money in your bank account? He said, Yeah, but I don’t, I don’t claim it. So I’m not not paying taxes. I’m like, That’s okay. The IRS hasn’t figured out how to tax that because it’s actually a discount off of your advertising. So they haven’t figured out how to do that properly. At least according to my CPA, I said it is an owner benefit to you as the owner of the business. And even though you’re putting it over into your personal account, it’s an owner benefit. And therefore, it’s an add back. Any kind of like, pause, he’s like, Well, like, I get $50,000 a month in cash back. Like I heard you the first time. That means that you have $600,000 a year in add backs that you’re not applying. He said, Well, I’m selling my business for 10. I’m like, yes, that $6 million added on to the list price of your business with math and logic by taking your time. And I didn’t I didn’t lecture him like I’m doing it now. It by taking your time and working on the advect schedule. He bought the beer that night. By the way, perhaps I’ll get something more later on down the road. Dinner perhaps but that’s part of the fun of what I do at these events that I attended and get to chat with entrepreneurs, individually one on one and just simply help. It’s part of why I love doing what we do here at Quiet Light.
Okay, so with that, what I’m going to do is jump into a partial presentation that I do oftentimes for amas and things of that nature. And if by the way, anybody is running a mastermind group and happens to be tuning into this or as a member of a master group and tuning into this. I love doing this stuff. So if if you’re watching You’re listening and you want. I’m trying to do multiple things at once your folks, if you want me to do a similar presentation like this, or part of an AMA, for your mastermind or anything like that, I’m all in. This is chapter two of part of an AMA that I’ve done short shortened. And then we get to lots of questions. And that’s the best part. But it’s, it’s all about AD backs. It’s the real value booster. And I talk about the three different levels of ad backs. For those that are watching, you’ll be able to see it all for those that are listening, I’m going to do my best to make sure that I’m explaining what is on my screen. So add backs are simply a one time expense, or an owner benefit. That’s really how it’s defined. A lot of people will call it adjusted EBITDA, so earnings before interest, taxes, depreciation, and amortization. And then adjustments to that for that single owner operator salary for the car that you run through the business when it’s an online business. And you don’t need the car, your mobile phone, cash backs, as I mentioned there, and then some one time expenses, so those are owner benefits. And then one time expense is a one time expense, maybe a patent utility does not use utility, patent design patent or a trademark, or even an attorney that you hired in the last 12 months because you bought out your partner before then selling the business as the single owner operator. But that’s that’s a one time expense that won’t carry forward to me, if I buy your business, it’s not going to carry forward in the next 12 months. So all of those things are really, really important. One of the key things I want you to look at are all of the different types of add backs, one time non recurring expenses, accounting expenses, depreciation, amortization, and then the owner benefits in the payroll. So if you run a profit and loss statement, the the way that you do the add back schedule is below the net income line, right. So you’re going to run a profit and loss statement, hopefully, from QuickBooks or Xero. You’re going to export it to Excel. And you’re going to look at the trailing 12 months sellers discretionary earnings. In this one I have up on my screen here, it is a net income of about $380,000. But then when I add back some kind of obvious add backs, like auto expenses, legal meals and entertainment, office expenses that happen in the month of December, parking tolls, rent your payroll out single owner salary. And then some cases some people make estimated income tax payments out of their business, make sure you do an add back for that. In this case, it’s a $90,000 add back. There’s a total of $113,900 in this simple add back schedule. And I just read through each of those lines.
And remember, there’s in the book, the entrepreneurs playbook in chapter 12, it details, three different levels of add backs, and six different types of add backs under each of those levels for a total of 18. That’s still not fully complete. I could I could have written a whole book on Add backs. But that’s what you see. So in this particular p&l that I’ve got up on my screen here that some people listening can’t see 308 in net income plus the 113. That’s $422,000 Now, so instead of 300,000 is net income and a multiple of that, let’s call it three 900,000. Now we’re looking at 420,000. And basically 1.2 6 million for the list price of the business. And as always, for you ecommerce physical product business owners. The multiple applies to the discretionary earnings and excludes inventory. So if you own inventory separately, it’s sold separately. So you’re running the business, you get net income or discretionary earnings of 300,000, or 3 million, just add or subtract zeros depending upon your comfort. You apply the multiple to that number. And then the listing is going to say plus the landed cost of good sellable inventory on hand at the time of closing. The exception to that rule is incredibly large businesses 5060 $100 million, and we may include the inventory and the purchase price, or website closers no matter what size of the business they included in the list price, the business that’s not right or wrong. It’s just different everyone else in this niche in the sub $50 million range generally excludes inventory. If it’s included, it makes the multiple look a little bit higher, which may be good to attract clients but makes it you know buyers looking good. Wow, that’s a high multiple. It’s all the math at the end of the day. You just need to make sure you’re speaking the same language if a buddy of yours says hey, I sold my business for four and a half times. Okay, say four and a half times a what? Hopefully they’ll say sellers discretionary earnings. Which means they knew what they were talking about, and knew what they were doing. And then say, did that include or exclude your inventory? That’s when they’re going to have a confused look on their face, I pretty much guarantee inventory. If we’re going to talk about the multiple and what it adds, generally, it’s about half a point, right? So if you’re selling your business for four and a half, the inventory value on average across all businesses might be worth another half. So it’d be at five. So if they say five, and it included inventory, probably quick math, they sold it for four and a half. Okay. All right.
So jumping down into the three different levels of ad backs. Level one is a fairly obvious type of ad back, you should know what these are, they should come to your mind naturally, that’s that owners salary. And I should I say, it should come to mind naturally, but I was at a mastermind event, I won’t say which one, and someone doing 5 million a year in revenue. I met him a few times he came up to me said just hey, look, it’s my, this, my salary is my payroll and add back. So it, it’s natural to me, I guess, because this is what I do. If he wanted to, if I wanted to talk about Facebook advertising, that’s natural to him, but not to me. So my role is, is to help with things. And it’s more natural to me, but your payroll as a single owner operator is an add back. Now I say the word single owner operator, because that’s the critical component here. If you have two owners of the business, and you’re both working 40 hours a week, and both taking a salary of $100,000. Only one is an add back, because most buyers of the business are single owner operators of the business and will be running it and can’t and won’t choose to work 80 hours a week. So it’s a reasonable amount of time and a reasonable payroll. The other exception is that if you have a non transferable skill, meaning if you’re a developer, and part of your businesses, that you’re in the grind everyday doing development behind the scenes, I don’t have that skill set, your buyer is going to be probably a jack of all trades. And that’s a skill set that they have to hire out for. So that’s going to be a new expense on the books for them. So the best thing you can do is replace yourself with a developer that of your choosing at your cost. If you wait and say well I have to do is hire a developer that cost an average, you can go to the Philippines and get one for XYZ or Estonia and get one for XYZ or whatever. They’re gonna come back and say, Oh, well, no, I totally understand that. But I only hire you know, us developers, and they cost $150,000. If you do the add back yourself, you’ll be in control. Okay, going on. We’ve got owners health insurance, retirement contributions, amortization, depreciation, charitable contributions, that’s number five, on the level six, level six to different obvious add backs here. The exception to the charitable contributions is if it’s part of your marketing campaign, meaning you’re going to plant a tree for every thing that is sold, or you’re giving away a free pair of socks for every pair of socks that you sell, like bombas, right? That’s part of the marketing campaign and your mate, you’re donating charity, so you’re writing it off on your taxes. But you cannot, you can’t do an add back for it. Right? It’s a tax benefit, but you can’t do an add back in your add back schedule. And then the last one, number six is interest expenses. If you have a loan, that you took out to buy inventory for the business, where you originally bought the business with an SBA loan, that loan does not transfer in the sale, I’m buying the assets of your business and the assets of the business will transfer in the sale, and then you are responsible for the debt on that loan. None of that’s going to carry forward to me, you’re gonna have to pay that off at closing. And that is why interest expense is definitely an add back. Let’s jump on to number two. What level two the not so obvious. Remember, we said owner payroll? Well, what about the payroll tax expense and estimated income taxes, payroll tax expenses of the things that most people forget and don’t put on an add back schedule? Pretty obvious that estimated income tax expenses that $22,000 Every quarter that was on the previous slide. That’s something where it’s rare, but some people pay it through their business and then go to sell their business on their own and forget to do an ad back for it. So make sure you do an ad back for that. And then we’ve got some one time expenses, trademarks, copyrights, patents, Logos designs, those things are fairly obvious. But they’re one time expenses. So if they happen in the trailing 12 months, you want to do an ad back for it. Again, your ad x is going to be low the net income line and your p&l After you export it to Excel net income plus add backs equals sellers discretionary earnings. What if So you file for a trade back two years ago or a patent, you know, two years ago. Do you want to do an add back for that? Yes, you do. Why? Because you want to have your sellers discretionary earnings be representative year over year. So you want to do an add back for all of these things in the month that it occurred in. So if you spent, you know, the final $10,000, on that patent design in March of 2019, and it’s 2021. And I’ve got a p&l that goes back to 2018, you’re going to do an add back in the month of March of $10,000. For that patent, that way, the discretionary earnings is truly representative of of the business itself, year over year, month over month, that kind of thing.
Alright, legal expenses is number three in the list of number six of level two. Generally, this is where it’s a one time expense could be that patent stuff, but oftentimes it’s when apart one partner bought out another or there was some lawsuit or something that may have happened in the trailing 12 months, you’re going to do an add back for that. If it happens every year, because you’re making some crazy claims. It’s not an add back, you have to look at the history of the business for sure. Number four here is a new bookkeeper, which seems kind of strange. Why would that be an add back? Let me see if I can explain it here. Let’s say that you’ve been outsourcing. No, you’ve been you’ve been having your bookkeeping done in house, and you’re paying an in house bookkeeper, $36,000 a year or $3,000 a month to do the bookkeeping for you. And that person is just doing everything your CPA is telling you to tell them to do and is probably done wrong. They’re probably not even doing accrual accounting. So you’re going to fire that bookkeeper, six months into the trailing 12 months. So there’s a $3,000 expense each month for January through June, but July through June, through December, you’ve outsourced this bookkeeping to a really high quality ecommerce bookkeeper for a whopping $1,000 a month. So you’ve reduced your expenses there, and it carries forward to the new owner of the business. Not to mention the books are done right. And there’s no internal politics inside the company. So you’ve got an add back there of $2,000 a month for the first six months of the year. $2,000 a month, right $3,000. For that bookkeeper, the new carry for an expense is $1,000. So you do an adjustment of $2,000. That’s a $12,000 add back, your business sells for 14 Multiple you just added 48,000 legitimate dollars black and white math and logic to the list price of the business. Okay, number five, here is equipment purchases. What most of these businesses don’t have equipment, except in December, maybe November of this year, because the supply chain issues. What am I talking about? I’m talking about Christmas presents that you buy for your family, you bought a new TV, that’s not a real office expense, it’s going to stay in your man cave, or woman cave or whatever is that you have your laptop is a business expense, your new monitors your double your triple monitors, it’s a business expense, it’s a true one. But that type of equipment doesn’t transfer with the sale, you’re selling the assets of the business that drive revenue. But if I’m buying your business, I already have a laptop already have multiple monitors, those things don’t carry forward. So those equipment purchases in the last 12 months that are not going to transfer with the sale are add backs. If they’re a one time expense, like a new mold on a new product design that you have a patent on, if that was a $15,000 cost to do the mold. That’s a one time expense, because that molds gonna last for a very, very long time. That same expense is not going to carry forward to next year. That’s the equipment expense. The personal miscellaneous usually gets buried throughout the p&l. This is where you’ve got to dig deep right up. Everybody that’s going to buy an online business has a mobile phone, otherwise they should not be buying your business. My mobile phone is a business expense. But it’s not being sold with a business. So my 300 bucks a month that I stay spend on my mobile phone is not a new expense that the buyer will carry for that will carry forward to the buyer. They already have one, it’s an expensive deal to be able to write off. So stuff like that you can put in an add back schedule as well. Again, though, black and white math and logic, nothing gray can’t be tricky here. You’ve just got to be black and white with it.
All right, level three is where most people lose their shirt. Okay? When they sell a business on their own, they’re getting hit up by one of these really intelligent charming aggregators that will buy their business for all cash close in 30 days to avoid the broker fee. They’re not going to talk to you about Add backs. They’re gonna laugh and chuckle at the enormous ignorance discount that you’re giving them when you sell them your business because you didn’t read chapter 11 Chapter 11. I said 12 Before chapter 11 of the Exitpreneurs Playbook, or you didn’t dig deep and do your own add back schedule after reading it. Number one on this slip list of level three, website redesign. What that is a real business expense. Mr. Valley, how could that possibly be an add back? Well, let me tell you how you don’t redesign your website every year. So therefore, at the very least, it’s a partial add back, I sold a company called Junebug weddings to a great guy named Matt Howard years ago that now owns profound commerce and aggregator that just raised 53 million bucks. After he bought five Amazon businesses from us, Junebug had nothing to do with it, it was this first business, the owners of that business, redesigned Junebug, in the trailing 12 months prior to selling it, it was a $20,000 website redesign. Historically, they it was an older company, they didn’t do a redesign every year, they did it every five years. And so logic was that they were not going to do it again, the new owner for another five years. So in that case, we did 100% add back of that business bought by Matt absolutely no arguments whatsoever. If you do a redesign of your website, every two years, for instance, on average, just look at your p&l, then at the website redesign is at least a 50% add back. At least a 50% I’d like to get into the math here. You do it every three years. It’s it’s an adjustment 33% add back every five years 100% add back. So website redesigns can be an add back. Next number two here is masterminds masterminds, but that’s a business expense, Joe? Yes, it is. It’s a business expense that you choose to have. And it’s for you, the owner of the business, it’s an expense that actually doesn’t carry forward if you’re a member of E commerce fuel, or Blue Ribbon mastermind, or econ crew premium, that expenses for you. Not for me, if I’m buying your business, I may choose to join those or they may not let me in because I have multiple brands or I compete with their biggest member member membership person, I don’t know. But it’s a it’s something that’s in your head goes to you and it does not carry forward to the new owner of the business. The exception to this is when you have a membership for your CMO. Let’s say it’s to whatever whichever one it might be, right? Well, let’s call it blue ribbon. So you have access to smart marketer stuff your CMO is that’s an expense, and you’re seeing those going to carry forward with the business that mastermind expense may carry forward. But for you as an owner it doesn’t carry forward. Number three here is cashback or converted rewards. This is the situation where this person had $50,000 a month in cashback, would you love to have that that’s amazing $50,000 a month in cashback, a lot of people actually take the reward points, Jeremy from E commerce fuel, he loves the reward points, that that’s okay, he can still get the value of those reward points and an add back schedule. What you got to do is create a separate tab with a column for each month start January 2018. All right up to the month that you’re selling a 2021. And then on row one or row two, I guess it would be right row one is the month row two, you would put in the total amount of reward points gained for that month. Row three you do the cash value. Let’s say it’s American Express, it’s at 1%. And then you have the cash value of those reward points that you’ve gained, and that gets pulled over into the add back schedule. This alone can add 10s of 1000s if not hundreds of 1000s of value to your business depending upon the size of your business. Most often missed add back when selling on your own or to an aggregator speaking of aggregators. This one is not on the list. It didn’t make the 18 but let me ask you a simple question that you can’t answer because I’m the only one with the microphone. If you’re selling exclusively to an FBA aggregator, they call you for instance, they snail mail you they knock on your door. I love your brand I want to buy your business will pay all cash and close in 30 days. Show me your p&l. Can you do an ad back for Jungle Scout and helium? 10?
QUESTION Right, huh? No, those are true business expenses. Are they business expenses that will carry forward to that aggregator that reached out to you? No, they’re not because they already subscribe to those. So if you’re selling exclusively to an aggregator maybe you go Alright, Mister aggregator look, black and white math and logic. Yes, I subscribed to Jungle Scout and helium 10. Yes, I spend you know $500 And That’s $6,000 a year. I’m putting that in my back schedule. And here’s the logic to the far right of the schedule, you already have the subscriptions, this expense does not carry forward. They can’t really argue that. And I know this because I was on a LinkedIn live session ama with an aggregator, and he was the host, and I was trying to thread the needle with this one. It was really awkward, but he kind of had to shake his head and swear on his breath, and admit that it’s truly an expensive doesn’t carry for it. Okay, Joe’s on a tangent there. What about number four overpaid relatives or bookkeepers? The overpaid relative is a true story. I was selling a business in the in the weapons space. Yeah, I was trying to find the right way to say that really cool business. And actually the guy that bought it lives not too far from here in, in North Carolina, great guy still runs it today. Growing it like crazy. The guy that ran the business, paid his brother $20 an hour to do customer service for 30 hours a week. So $600 a week. As we dug deeper into the valuation of the business turned out his brother did all canned responses for customer service is very organized, set up SOPs, canned responses. And it really worked out to be about five hours a week. So he’s getting very overpaid, to do customer service. And he’s not really working 30 hours a week, he’s working five. So my advice to that business owner guy’s name was Kevin. I said, Kevin, I know you love your brother, I think you should fire him. And this was just before Christmas, like that was the total grudge, like fire your brother, fire him and hire a VA and we’re going to add, I don’t know, that was it was 600 bucks a week is $30,000 a year, if we’re going to add at least $20,000 a year in bottom line discretionary earnings. And the list price of his business, let’s say was three and a half. You know, that’s adding $70,000 to list price and his business. His brother was simply overpaid. He didn’t want to fire his brother, but it was so obvious. And now man is such a clear picture math and logic that I did an ad back for it anyway. And Kevin was so sincere and honest. And the buyer the business did end up letting his brother go and put his 15 year old son in charge of customer service and didn’t pay him. That was just his chores. His allowance was maybe he got paid a little bit, but he did it in five hours a week for many, many months before he decided to outsource it separately to have the yet I think $5 an hour. So math and logic, overpaid rule relatives, the bookkeepers as part of it, I told you that before, if you hire that bookkeeper, that’s in house paid 3000 bucks a month and hire one for 1000 bucks a month, it’s more qualified. It’s an add back for that for that time period in the trailing 12 months. Number five is reduced cost of goods sold in the trailing 12 months. And this is a true story. situation.
But let me ask you the question. If you’re in due diligence, and the buyer of your business notices that your cost of goods sold, went up $1 A unit in the last six months on a unit that sells a SKU that sells 1000 units a month. And they’re going to be cool with that. Are they going to go? Wait a minute, Mr. Seller, the cost of goods sold is up $1 A unit that’s $6,000 Extra in cogs in the last six months. That carries forward to me from the first six months and in the trailing 12 We need to do an adjustment to the purchase price of the business. Would they be right? Hell yes, they would be right. It’s math and it’s logic. Therefore the reverse is true. If you have reduced your cost of goods sold, or reduce packaging fees, and this is combining number five and six in level three together, if you reduced those in the trailing 12 months, it’s a reduction that carries forward just like that bookkeeper, so you do an adjustment. So I sold ColorIt for a guy named Mike Jackness from ecomcrew. And I sold it to Matt how it down at profound commerce. Everybody’s very interconnected these days. Mike had renegotiated cost of goods sold on his top selling SKU, and I think was like by $1 at the SKU was pretty substantial. And in the trailing 12 months, there were four full months on the books where there was that reduction in the cost of goods sold. So therefore they’re eight months prior where that increase with that prior higher price of $1.80 per unit was on the books. So we took the total number of units sold in the first eight months of that year, times $1 ad. So 1000 times $1 at $1,800 ad back 2000 times $1 at $3,600 ad and so on and so forth. Bottom line is that ended up adding $54,000. Back to the add back schedule times the multiple of the business, let’s just say that one, so for somewhere between three and four times, so we’re talking about 150 to $200,000, added on to the list price of the business, clear math and logic, multiple offers legitimate black and white. And if the reverse was true, if cogs went up, the buyer would have an issue. So therefore cars went down, you can do an add back with it. All of these folks are legit, legitimate black and white math and logic add backs. And I know I’ve said that probably 20 times Chuck’s probably gonna listen to this and count them and then post something about it. Thank you, chuck, chuck Mullins, Chucky from Quiet Light. He’s one of the best advisors we have any likes to bust my chops about math and logic. Let’s go to go to Amazon and see the number one review. He did it. And he Yeah, it’s there. It’s it’s me. And it’s my voice. A he’s making fun of me. Cuz I think I said it 19 times in the book or something like that. Anyway, it’s all from this is all from chapter 11. On the exit printers playbook.
Don’t make this mistake. I was a guest on a podcast, probably 30 days ago. And after we wrapped up the podcast, the podcaster, who runs an agency said that, you know, he was getting an offer for his business. And I gave him a copy of the book in advance of recording, because that’s what I always do. I make sure they’ve got it. So we could talk about real things. I said, well as it comes through, reach out and be happy to help. So he reached out. And he sent me the letter of intent to review just as a favor, which I did. And then we got on a call. And I pointed out some really obvious things. One of them there was a working capital peg in there, that was going to be quote unquote, determined in due diligence, which was really just an opportunity for the buyer to renegotiate, never ever do that. That’s in chapter 15 of the experience playbook. No working capital picks. As we’re talking, he talked about, you know, doing his advect schedule and and I started poking around asking questions. And it got to the point where like, Did you Did you even read the book? Did you read chapter 11? No, I didn’t, like, what are you doing? You were giving away so much money. And I probably identified $300,000 In our backs that he completely missed. And he’d already shared his p&l with his buyer. And they already made an offer. Like, it’s right there. It’s in the book, I wrote it thinking that everybody would buy it and do the work. But don’t make that mistake in that situation he has it’s on his desk, but he didn’t take the time to thumb through chapter 11. And do a proper add back schedule and instantly was losing $300,000 on the offer that they made across the offer was too low, and he needed to make it higher, and he needed to remove certain things from the letter of intent. Don’t make those mistakes in anything with regards to your business, your business is very likely your most valuable asset when you sell your business or exit your business. And eventually we’re all going to exit our businesses one way or another. If you want to do it on your terms, the odds are that at least 50% of all the money you will ever make from your business comes the day that you sell it. So pay attention to the details. X hire an E commerce bookkeeper. Even if you’re running a SaaS business, don’t do it in house, get the numbers right, so that you’ve got good reports to analyze every single month, Ezra Firestone get up and talk about a presentation analyzing his p&l at an event that was at once and he found a whole bunch of money that was being overcharged in fulfilling charges to the tune of seven numbers, seven zeros and number in six zeros is very large. When he went to sell the business if he hadn’t found that it would have cost him millions of dollars. So having proper pianos to look at, and reports to look at every month will help you quickly review them and analyze them and catch trends. So definitely focus in on your p&l.
Reverse engineer your pathway to your goal, which means first you’ve got to set a goal. You’ve got to set a goal with dollars, date and feelings. Yes, I know touchy feely Thank you David Wood. David Wood is a great mentor and coach to business owners reach out to him that focus.CEO but David got me that feelings part right? It goes like this. I will sell my business for $5 million in q1 of 2024. And when I do, I will feel unburdened because I’ll be out of debt. My kids college tuition is paid for. I’ve got money in the bank and I can spend more time with my family. There were four feelings in there. Those feelings will help you get Over those tough days as entrepreneurs, it’ll help you get over those hurdles, roadblocks, potholes, and everything that we have, as entrepreneurs that some times come in, you know, a morning, sometimes for the whole day, sometimes the whole week is bad. And sometimes a month or a year is bad. I’ve had years where I’m excited, because I have carry forward losses on my tax return. That’s not something we strive for and want to be excited about. But it happens if you’ve been an entrepreneur long enough, odds are, you’re going to have a situation like that. So without a goal, you can’t march towards that and get beyond those tough days that you have write it down, it’s proven statistically, you’re 42% more likely to succeed. If you write down your goals, if you look at them regularly, that goes up by 10 times. It’s all there. It’s It’s proven its history, but 80% of people don’t do it. Entrepreneurs should all be doing it. And then once you set those goals, reverse engineer path to it, by knowing how much your business is worth today, and that’s what we’re here for at Quiet Light, we’re here to help. It’s free, the valuation is free, just like when I first called Quiet Light, back in 2010. Mark spent two calls with me. Second Call was after analyzing my p&l and having a good conversation, when he said, Joe, go away. Basically, that’s what he said. He said, Go, I think it’s in your best interest to wait another six months, because your trends are coming up strong. After the Great Recession, you wait six months, you’re gonna make a heck of a lot more money. The other firms that I talked to just wanted to get their hooks into me for a commission, it would have been less of a commission, if they told me if I’d signed it, if they had told me away, then what was one of them, they would have earned more money, and I earn more money because of it. But have that conversation with somebody on the team. Do y’all know they’re all entrepreneurs, they’ve all built bots sold their own online business, and they’re here to help. First and foremost, they’ve all had great successes before and they will help you with your eventual exit. Some of you will learn that you’re not ready to sell your business, some would learn that you are pretty far away from your goals. Some will learn that your business is much more valuable than you thought it was, and that you’re much more closer to your goals than you thought you were. So reach out. Have a happy Thanksgiving. Enjoy this wonderful world of entrepreneurship that we’re in and pick up the Exitpreneurs playbook if you’ve not done so, already. Thanks again for joining me on a solo episode of the Quiet Light Podcast. We’ll talk to you soon.
Today’s podcast was produced by Rise25 and the Quiet Light content team. If you have a suggestion for a future podcast subject or guest email us at podcast at quietlightbrokerage.com. Be sure to follow us on YouTube, Facebook, LinkedIn, Twitter and Instagram and subscribe to the show wherever you get your podcasts. Thanks for listening. We’ll see you next week.