Resources for Buying and Selling Online Businesses

Meet the Brokers: QLB’s Jason Yelowitz Shares Three Things all Buyers and Sellers Should Know

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Jason is more or less responsible for the Quiet Light Business model of only hiring seasoned entrepreneurs as brokers. He sold a business through QLB and then begged to join the then 2-member team. Mark said no, and then no again. And again a few days later. Mark finally (and fortunately) relented and Jason has, ever-since been helping online entrepreneurs successfully exit and purchase web based businesses.

Jason is our de-facto legal disclaimer and naysayer expert. Have an idea? Jason will poke massive holes in it that we never saw. Want to sell a business that is tanking? Jason will structure the offer that will appeal to just the right buyer, and close a transaction that is sage and satisfying for both the buyer and seller.

Do you want a broker that has started a total of seven businesses in his lifetime? That’s what Jason did. One was an epic failure during the bust ($10,000,000 poof!). And one was a grandslam that will change the lives of Yelowitz’s for generations to come. Jason shares his life and business experiences everyday in his work as a Business Broker/Advisor for Quiet Light Brokerage.

And during the next 30 minutes he shares some “golden nuggets” that can only be found with real, true, hard fought, failed and won entrepreneurial life experiences.

Episode Highlights:

  • Jason shares his success and failures over 7 entrepreneurial ventures.
  • One lost 10 million in 12 months. The other made 15 million with $300 in startup costs.
  • What 2-things should be the “laser focus” of every entrepreneur.
  • Is “one big payday” the right path or is selling sooner the wiser decision?
  • Why listing for too high of a multiple increases negotiations and reduces the final price.
  • How to price a listing to sell for a higher value, even if at a lower multiple than other brokers suggest.
  • How helping buyers see the “big picture” is a big part of what he does.
  • Learn the top 3 things every seller should know.
  • Learn the top three things every buyer should know.


Jason: Every small business, including internet businesses, is risky. I would put it in a high-rick category. Now it’s one thing to bet a portion of your money, but once you start leveraging that and you take out a loan for five times more than you’re worth, that’s a much bigger risk.

Speaker 4: Welcome to the Quiet Light Podcast with Joe Valley and Mark Daoust. Since 2007, Quiet Light Brokerage has been helping thousands of online entrepreneurs realize their dream of buying and selling online businesses. And now, we’re bringing all the knowledge our team has acquired straight to you. No matter your niche or industry, these lessons, tips and strategies will help you build, grow, acquire, or sell your online businesses better. And now, here’s Joe and Mark.

Mark: Hey, Joe, how are you?

Joe: I’m good, Mark. You look like crap today. What’s going on?

Mark: For those that are just tuning in, I just told Joe that I look like crap today and so he decided to lead in with that. All right, let’s talk about today’s podcast. No one what’s to hear about how I look. If you’re thinking about watching this on YouTube, don’t. Just listen to it.

Joe: At least go to YouTube and tell Mark he looks great so he feels better.

Mark: That’s okay. All right, so usually with these podcasts we’re bringing in people, previous clients, experts, people that can really shed some light on buying and selling online businesses because of their expertise, either having been clients or just going through a process or what have you. Today we’ve got a little bit of a different interview. And it’s with Jason Yelowitz. Most of our listeners, or some of our listeners, might know that Jason is one of our brokers. He’s actually the most senior broker with Quiet Light Brokerage. And, Joe, you have a special relationship with him as well, outside of obviously working with him. Why don’t you share that?

Joe: Yeah, Jason was my broker back in 2010. I first talked to you in the Spring of 2010, we went over the numbers and you basically said, “Joe, it’s in your best interest to go away, let these trailing three months on your P&L fall off, you’ll make more money.” You’re the only guy, by the way, that told me to go away and focus on my self-interests instead of yours. You had me hook, line and sinker right then and there. For other brokers that are our competitors, listen to that because that is so important to help other first and foremost. And that’s what you did for me, Mark. You’re still a jackass though, just so you know.

Mark: This is firmly established.

Joe: Okay, good. Jason was my broker, took it on. I was one of his newer clients I think at the time, but he did a great job. I think I had an offer in three weeks, we had three or four calls and an offer in three weeks. And the guy that bought my business, the husband and wife that bought my business actually, it was the shortest conversation, the shortest conference call that we had. And I hung up going, “They’re really nice but they didn’t ask any good questions.” They opened with, “Thank you, Joe. Thank you for creating the type of product that you did. I really appreciate it.” It was a digestive health product. And this particular person had digestive health issues and they solved it naturally, ended up running the Chicago marathon and he loved the product because of that. So you never know who you’re going to connect with buyer wise.

Joe: But this isn’t about me and my process. Jason was a great broker. And he’s actually all of those things that you talked about with all of our guests. He’s a very successful entrepreneur. I think he probably, well, he’s written about … I don’t want to talk about his net worth, but it’s huge, okay? And I make fun of him all the time for a variety of different factors. That’s my other special relationship with Jason, we’re rivals in many ways and friends and colleagues at the same time. He wrote a book on his affiliate’s experience and story. He’s built seven companies over his lifetime. Made millions, lost millions, and brings a ton of experience to the Quiet Light process and is part of the reason we do things the way we do here, right?

Mark: Absolutely. I’ve often mentioned that Quiet Light Brokerage has been built really because of the talent of the people that are working with Quiet Light Brokerage. I would love to be able to say that I’m smart enough to build a company like this, but the fact is, people like Jason, people like you Joe, Amanda, coming in and offering really good tips. And honestly, just being good people and looking out for the interests of our clients has been what’s built this company. I just want to share real quick.

Mark: When I brought Jason on, this was years ago now, but when I brought Jason on, I actually didn’t want to hire him. I didn’t want to hire anybody. I had already gone through that process. I had hired a bunch of people, no one really worked out. One person sort of worked out but everyone really struggled. That wasn’t fun for me, it wasn’t fun for them and so I thought, “Well, maybe other people can’t do this.” So Jason, I had sold his business about six months prior, came to me and said, “Hey, I’d like to try this brokering thing out.” I said, “No, I’m not hiring. Thanks. Flattering but, no.” And then he came back again a couple days later and said, “You know, I know you said no but I think you should really consider it.” And I said, “Really appreciate it but no, Jason.” He came back a third time and I thought, “Well maybe I’ll just scare him away.” And so I took him on and I gave him really difficult listings and kind of didn’t give him any training at all.

Mark: And that’s when I gave him your business, Joe. No, I’m just kidding. No, it was only a couple of months, it was only a few months after he came on board that my eyes were completely open and I was like, “Holy cow, this guy is killing it. He’s really good. People love him. He gives great advice.” And then it was in that summer that we started to form this philosophy of only working or bringing on people that have bought, sold and started their own online businesses. This was really the recipe that we found to success, working with people who are entrepreneurs and who have bought businesses before. And Jason, out of everyone at Quiet Light Brokerage, he might have the most success out of anybody. He’s done a lot and is a super smart guy.

Joe: He really is. Anybody that’s working with him I think is lucky. And he’s really a mentor to all of us at Quiet Light and he’s also our defacto disclaimer. Anytime we have an idea he’ll punch holes in it. Anytime that there’s a legal question he’ll go on a very, very conservative side. He’s a good guy to have on the team. And anybody that’s working with him be lucky to have him as a broker.

Mark: All right. Enough of us talking. I’m sure we’re building up his ego like crazy if he’s listening to this. We got to watch that ego. So let’s go ahead and let him talk a little bit and introduce Jason to everybody listening.

Joe: Mr. Jason Yelowitz. Welcome to your very own Quiet Light podcast. How are you?

Jason: Good, Joe, thanks. Nice to be here.

Joe: For everybody listening, Jason Yelowitz was my broker back in 2010 when I sold my business through Quiet Light, as most of the people that are with Quiet Light have either … we’ve all built, bought, sold our own sites, but I think you sold one through Quiet Light. Bought one through Quiet Light and then joined the company as well, right?

Jason: Indeed. Yeah, Quiet Light’s founder, Mark Daoust, acted as my broker and then I acted as yours.

Joe: What’s his name? Mark what?

Jason: Yeah. [crosstalk 00:07:04] prosperity.

Joe: Look, man, you are the most senior broker. You’ve been at Quiet Light the longest. A lot of people know you and your name recognition’s pretty good in the industry. But, still, I think they’d like to hear a little bit of background on who you are, your experience and things of that nature. Can you just give us sort of a three thousand foot view of your business experience and what brought you into being a broker with Quiet Light?

Jason: Absolutely. So I identify myself as a serial entrepreneur first and foremost. I’ve started seven companies. I grew up in Silicon Valley and came of age during the dot com bubble. So my first company I raised about $10 million of venture capital and a year later I saw that company crash into the ground. And that really taught me a lot of lessons about lean startups, keeping costs down, focusing on profitability and that kind of thing. And the businesses got progressively more successful, including one home run that I had with an online lead gen business.

Jason: But the way that I got into brokering was, around the time of the great recession I had bought some e-commerce sites from one of Quiet Light’s competitors and the experience was bad. I just felt like there were a lot of things that should have been disclosed to me that weren’t and I felt like it just wasn’t a smooth experience. When I went to sell, as mentioned, I contacted Mark, the founder of Quiet Light, and said, “Can you help me sell these businesses?” And the experience was so much better, so much more transparent. I could figuratively look my buyer in the eye. I knew that I was telling him the good, the bad, everything about the business. And despite that, Mark got me multiple offers and got the deal done.

Jason: At that point I said, “Wow, I really like the way Quiet Light does things, I want to get involved.” Now I’ve been here for I think about eight years.

Joe: Look, we all know Mark is awesome. Let’s not talk about him on this, let’s talk about you.

Jason: Joe, you’re awesome.

Joe: Thank you. And the bathrobe millionaire, right? You skipped over that part. You’re a big success and you have a book that I, everybody, I make fun of often because I never got a piece of the bathrobe. Did you save any of it?

Jason: I could go put on a bathrobe if it’d make you feel better, but, yeah, The Bathrobe Millionaire is a book I wrote in 2011. It basically outlines my story and really it’s meant to be sort of a cautionary tale because I screwed up a lot. I’ve made a ton of mistakes but I’ve also had some really big successes. And the idea is to tell my story in a way that can potentially help entrepreneurs, especially first time entrepreneurs, focus on what matters. For instance, I see a lot of people putting a lot of time into what kind of office should I get? How many people should I hire? This, that and the other. And really what I find is if you focus in an ethical way on revenue and profitability, everything else kind of takes care of itself. So I kind of laser focus on stuff that works, stuff that’s making money. And that’s one of the reasons I like the kind of businesses that we sell because in virtually every case they’re already profitable, they’re already established, so that takes out one of the big unknowns that people have when they go out to start a business.

Joe: Absolutely. And, again, we’re going to focus in a little bit more on your experience, you know, life experience because you talked about seven companies that you’ve started. You talked about that first one you raised $10 million in venture capital and it was dead in a year. I know you’ve had one very large successful affiliate business. So that’s two of the seven. One failed and then we’ve got the affiliate business. What about the other five? What’s the success rate? How many failed out of the seven?

Jason: Okay. I had three that I considered failures and those were my first three. It was the one where I raised the venture capital money. Personally I came out fine from that but you never feel good when investors don’t get their return. The next one was a pickup and delivery dry cleaning service that I had the bad timing to launch on September 11, 2001. And as some of our younger viewers may not have such a visceral memory, but anyone my age remembers that day was not a day to start a business. The next … I can’t even remember at this point. The next one was a door-to-door sales company that it was marginally okay but it wasn’t good enough for my partners so we shut it down. So at that point I had three failures in a row and I was ready to go home and cry.

Jason: The fourth one is the one that made it big. This one was an online lead generation affiliate business and, like you said, it was very successful. I started with 300 bucks and the thing made $15 million in revenue and it was very profitable.

Joe: And you ran that super lean if I recall from the book and the conversations we’ve had, right?

Jason: It was so lean. It wasn’t until the business made the first one million in profit that I let myself buy a calculator. Before that I had a free one that I’d gotten at the bank and it was really small and I could barely see the numbers. And I said, “Well, the business made a million bucks, I’ll spend 10 bucks and get a calculator.” And then a year later I got business cards. So I really went over the top with the lean startup concept after the debacle of losing 10 million of other people’s money. And once I adopted that mindset, profit, profit, profit, all the businesses after that have been successful to one degree or another. There was another internet business, there was a couple of real estate businesses. I’d have to think it through. Somehow or other it adds up to seven.

Jason: But the point is, it was more learning about the process of what makes a business successful that helped me where now I feel like, if I start another business it’s going to be successful by definition because I’m not going to waste my focus on something that doesn’t show the early signs of a good probability of success.

Joe: Now A lot of what you do in your role at Quiet Light Brokerage is talk to entrepreneurs, young and old guys like me and you, and you get to share that experience though and those failures that you’ve had and what you’ve learned from them. Do you find yourself, I mean you’re doing valuations, but do you say, “Look, go away, fix this, that, and the other thing and then come back and you’ll have a much higher value with your business.”

Jason: Yeah. A lot of times I’ll do that with sellers where I’ll help them identify one, two or three things that aren’t working great. I’ll also give them a sense of the market conditions. And then one of the interesting things I’ve been talking to people about lately, we’ve seen a lot of bigger listings that are seven figures or even mid seven figures than we used to a few years ago. One of the suggestions that I give to potential sellers is, your decision to sell could in some part be based on what I call, have you made your money yet? What I mean by that is, most people, whether you’re an entrepreneur or a line cook at a restaurant, most people have a dream of, “I want to make one big payday.” A millions bucks, two million, half a million, 300 grand, whatever is big to that particular person. Once you’ve had a big payday, I feel that you can take more risk and wait longer on your next business.

Jason: But if you’ve never had a big payday, I just bring them back to my own experience with the business where I raised the venture capital money. You can bet that I had dollar signs in my eyes. I thought I was going to have a big payday. I thought I was going to have a billion dollar dot com. And inevitably it crumbled into nothing. And when you get to that situation, you spend a lot of time thinking about what went wrong. One thing that comes back is, gee, if I had an opportunity to sell earlier, even if I wasn’t maximizing my whole potential on the first one, I kind of wish I would have done it. And then you can hang on longer and take more risk on the next one. But if you don’t get that first payday, that first payday is what can give you a certain quality of life that you’re after.

Jason: So the short answer is, yeah, often I’ll advise people to wait but it is situational. It really depends on their own business, their own experience, where the market is in the market cycle, and it’s a very personalized kind of discussion based on what seems like it really makes sense for that particular client.

Joe: Well, you know, I think personalized is the key word there. I know that when I worked with you in selling my own business back in 2010, you were hands-on the entire time. You were really just starting with Quiet Light back in 2010, I think I was one of your first 10 clients. Are you still, and I know the answer to this, everyone, I know the answer to this, Jason. But we’re all hands-on. You’re still hands-on from the initial evaluation call to helping them with calculating discretionary earnings, and educating them what it is, all the way to the very end in closing, right?

Jason: Correct. Now one thing people are often surprised about is, of all the people at Quiet Light, I’m probably the least technological. Despite growing up in Silicon Valley, I mean I can’t even code a basic website. I have somewhat of a grasp of financial statements but I’m not an accountant. There’s a lot of things where, you know, I’ve got enough knowledge to be helpful but I’m not the expert. I think where the value comes in is, I like to think of myself as a student of markets and economics. I majored in economics. I’ve read probably a hundred personal finance and business books, and it’s really more helping people see the big picture. Helping a buyer figure out, is this the right amount of risk to take at this point in your life? Did you just have a baby? Did you just get a divorce? You know, there’s really personal things that go on that can make a difference.

Jason: For a seller, same thing. Are you 65 years old and looking to retire or are you 25 years old and you struck gold on your first attempt and you’ve got bigger, better ideas. I feel like I have a really good sort of depth and breadth of experience hanging around entrepreneurs for the last 25 years where I can help people sometimes see the forest through the trees that they may not be seeing on their own as much.

Joe: It’s interesting because you talk about both buyers and sellers there. So let’s talk about both because I know you take good care of both of them. But what would the top, let’s say three things that you would, if you’re talking to a room full of sellers, people that are building an internet-based business, possibly with the eye of selling it someday. What would be the top three things you’d want them to focus on to get maximum value and a clean transition?

Jason: Okay. Excellent question. The top three are probably going to be pick something which is sustainable. If it’s a flash in the pan kind of a trend, you’re likely not going to get top dollar. That may be a great business to run for cash flow and you can just keep running it until it stops producing, but you have to put yourself in the shoes of the buyer. The buyer’s spending money, they may be taking out a loan that’s going to last 10 years, you got to have something that they’ve got a reasonable belief is going to exist in 10 years. So that’s probably number one, pick a concept that’s got legs.

Jason: Number two is probably run it in a way that’s transferrable. If your personal contacts or your personality or something is too ingrained in the business, it’s going to be really hard to extricate yourself unless you’re willing to stick around and be a partner with the new owner, which sometimes that’s the right solution. For instance, if I had Jason Yelowitz dot com and it was a blog about everything I believe, that’s probably not a very transferrable business because if someone steps in they’re not going to have the credibility with the readers that I would, unless we go to great lengths to make sure that there’s a transition.

Jason: So concept is number one, transferability is number two, and then probably number three is clean bookkeeping. So it only costs maybe 40 bucks an hour, on average, to get a bookkeeper to take all your bank statements, put everything into QuickBooks. Buyers really focus on the financials. They want to see something clean. They want to know that you’re keeping good records. It’s not uncommon that sellers will, or business owners will, I’ll call it fudge a little on what’s a business expense. It’s pretty common that I’ll see things that rightly could be called personal expenses paid for out of the business. To a small degree, that’s okay. But if a business owner overdoes it or their tax returns look nothing like their profit and loss statements or, this is a cardinal sin, I’ve seen a few where they understate their revenue on their tax returns thinking they’re going to save a buck.

Jason: You’ve got to understand, a buyer is going to look at the tax return and say, “Well, geez, the revenue on the tax return says X and on the P&L it says 2X, why am I supposed to believe the P&L?” So you really create a credibility issue. And then similarly, it’s important to realize a lot of buyers now days are getting a loan from the Small Business Administration, the SBA, and the SBA is basically a government organization. It’s really hard to go to a government organization and say, “Oh, I cheated on my taxes with another government organization.” So, again, this is one of those forest through the trees kind of things, if you want to sell your business in a year or two or three, is it really worth trying to save a couple grand on your taxes versus actually being able to sell a business in three years versus not being able to sell it?

Joe: Gotcha. So longevity, number one, build something that’s going to last so that the person that’s taking it over, putting their life savings on the line, it’s going to be there for them in another decade.

Jason: Exactly.

Joe: Good, clean financials. I guess that was number three. Good, clean financials. And let me just say, make sure that we define that. That doesn’t mean not write off your car. That’s not what you’re saying. We’re just saying document things, don’t cheat. Tax returns, if it’s not an SBA loan, that top number needs to match. Not every buyer is going to even look at the tax returns but I guarantee you that SBA is going to, that lenders going to, and if it’s a bigger business, a buyer that’s more savvy, maybe is coming from the corporate world with accounting experience, they’re going to look at balance sheets and tax returns and that nature.

Joe: And transferability. Without a doubt you’ve got to make sure that the business is transferable. Name and face and likeness. I’ve sold them that way, you’ve sold them that way, but it becomes a bit more entangled. And, most people when they’re selling a business are looking for an exit. There’s a transfer and training period and then they want to move on to their next adventure.

Joe: Tell me about the buy side. When you are working with the buyers, they’re coming and they’re looking at your listings, what would the top three things you advise buyers to do as they’re preparing to buy a business and as they try to buy a business?

Jason: Okay. So it’s a great question. One thing that’s really important for buyers to recognize is that us, you, me and pretty much any broker are competitors that are doing what we do, we legally represent the seller. So you need to understand that our job is to get the seller a fair market price and proceed accordingly. We abide by a code of ethics. We’re not going to lie to you, we’re not going to do sort of underhanded things. But it is important to recognize, legally we do represent the seller. Now that said, with buyers …

Joe: Just so everybody listening, Jason, on these conference calls that we have as a team, he is the disclaimer king. He’s always throwing a disclaimer like that in. Very good point and I have to say, anybody else listening, Jason’s always busting my chops, so if I cut in and bust his chops, that’s why. Just getting back at him.

Jason: I mean it’s really important, I mean this goes back to sellers, you got to disclose, disclose, disclose. That’s my mantra.

Joe: Full disclosure.

Jason: Yup. Anything that’s even remotely gray area about your business, say it up front because, not only is it the right thing to do, not only is it the legal thing to do, the buyer’s going to discover it eventually anyway. And if you tell buyers up front, “Hey, there’s something that’s a little bit gray area,” some buyers can deal with it, some buyers can’t. But if you don’t mention it, once they discover it on their own, they’re out because they’re not going to trust you anymore.

Joe: That’s right.

Jason: Getting back to the question though, how do I advise buyers. One big common thing I see with buyers is too much focus on multiples. So the way a deal’s typically priced is we calculate what’s called sellers discretionary earnings. That’s basically if the seller wanted to maximum profit, what would they have … how much would they have kept. And then we apply a multiple to it. The multiples range anywhere from about two and a half times seller’s discretionary earnings up to about seven times on certain deal, like a growing fast deal. I think buyers often obsess on that one number, the multiple. My opinion is, focus more on the longevity of the business. If a business is going to be around for 10 or 15 years, it really doesn’t matter that much, in my opinion, if you pay three times or three and a half times or four, it’s still a really good cash-on-cash return. But, if a business is much more likely to be a flash in the pan and be gone in a year or two, there’s almost no price you could pay that would make it worthwhile.

Joe: Would you take on a listing like that, that you think is only going to be around for a couple of years?

Jason: So here’s the interesting thing. I’ve actually discovered I’m horrible at handicapping what’s going to be around for longer. But if I perceived risks, again sometimes I’ll take it on but I will disclose, disclose, disclose. I will try to make sure the buyer truly understands the risk and that we’re not dealing with an … I want to make sure we’re dealing with a sophisticated buyer that can understand and accept the risk and I’m going to price it low, although multiple, so that the buyer has a good chance of getting a good return on their investment, even if the business is risky. But I definitely prefer longer term, more sustainable kind of listings.

Joe: Okay. So focus on longevity instead of multiples. Understand that you technically, legally, represent the seller. Any other things that they should focus on when buying a business?

Jason: So here’s one of those places where it’s important to recognize that we represent the seller because there’s a little bit of a conflict of thought here. My personal belief is, again having started seven businesses and have the first three do lousy and being fortunate enough to rise from those ashes and find success, I don’t think people should bet the farm on a business. I mean every small business, including internet businesses, is risky. I would put it in a high-risk category. Now it’s one thing to bet a portion of your money, but once you start leveraging that and you take out a loan for five times more than you’re worth, that’s a much bigger risk. And that’s my true belief.

Jason: Here’s where it comes in. Because I represent the seller, I’m supposed to get them the highest offer that the market will bear. So if you come to me privately as a buyer and just want to have a discussion about my beliefs, I’m going to say, “Absolutely don’t bet the farm.” But in a bidding situation, my job is to get the seller a higher amount and sometimes I see buyers over-leveraging themselves a lot and it’s their choice. They’re big boys and girls, they can make adult decisions. Personally I’m not a huge fan of leverage and for people that do take out a big SBA loan, I hope that your goal in the first couple years is pay it down quicker than the pay down schedule because it’s just not fun to have a lot of debt hanging over your head.

Joe: Absolutely. Well that goes back to the longevity of the business that they’d be buying. Make sure that it has that so it’s going to be around for a long time. Any particular types, not necessarily niche of business, but, look, we want to get to know Jason Yelowitz. Do you have any particular policies on anybody that comes to you that you simply would say, “Yeah, look, my plate’s full,” when it’s really not, where you get to make that choice, in the position you’re in, where you won’t take a listing on? Who are those people and how are they rubbing you the wrong way where you just know it’s never going to get sold?

Jason: Okay. So there’s a couple things. If a seller has unrealistic price expectations, that’s a red flag. I mean you and I have been doing this long enough, we know what the market will bear. And one thing I’ve discovered is, in the last probably three years, people that call themselves online business brokers have popped up like mushrooms. And a lot of them are so hungry for listings that they’ll start naming prices that have no bearing on reality. So then a potential seller calls me and says, “Broker X told me that I can get five times my earnings on my one-year-old Amazon business and you need to tell me the same thing.” And I’m going to say no because it’s simply not true. And you don’t have to believe me. Go ahead and list with the other broker and you’re going to discover pretty soon that what I’m telling you is reality.

Jason: So in those cases, I don’t take the listing. If a seller says anything that implies fraud, I will not take the listing. You know, if they start trying to ask me, “How do we fool a buyer into doing this or that?”, I will not work with them, period. It’s just unethical and it’s going to bite them in the tail at some point. And then the final thing is personality. It’s really important that sellers have a degree of humility. It’s natural as an entrepreneur and business owner that you love your business and you think it’s great. The reality is, even when we get multiple offers on businesses, which occurs, you know, with reasonable frequency, buyers are usually not going to be in love with the business the way that the owner is. To them it’s more of a quantitative math equation. They’re looking at what’s going to be the debt service if I buy this business? How much cash flow does the business make? What’s the recent trend? What’s the worse month and can I cover my debt service if I have another bad month? They’re going to be a lot more logical and quantitative about it.

Jason: If the seller has a my-way-or-the-highway attitude, more often than not a deal is going to unravel. So it’s important to me to work with sellers who are realistic about the market, motivated to sell, have a good attitude, nice to work with and, really, it’s got to be someone that I would enjoy sitting down and having a beer with.

Joe: Then why did you take me on as a client? I don’t understand. You took me on. That was back in the early days.

Jason: Back then I was new, I didn’t know any better. But now I would never, ever work with you.

Joe: Check that off my list. Okay. We have team emails and what not going on, back and forth. You said something the other day. I’m going to see if you can remember, so everybody listen, who is it that determines the value of an internet-based business? Is it you? Is it the seller of the business? Is it all the brokers out there in brokerland or is it somebody else?

Jason: Okay, so in my opinion, it’s a hundred percent the market. So much like a stock market is hundreds of millions of people trading, trying to establish value, I consider Quiet Light to be a market maker. We bring together thousands and thousands and thousands of interested buyers with sellers. And most of the buyers are pretty savvy and most of them are financially qualified for certain type business, so when I list something, I’ll get feedback pretty quickly from the market. Sometimes I make a mistake. Sometimes my price is too high, sometimes my price is too low. Regardless, the market tends to find its own level. If my price is too low, there’s a bidding war and the price goes up. If the price is too high, I’ll either hear crickets, where buyers go on strike, or I’ll hear from a number of buyers who know me personally who say, “Look, Jason, I like the listing but you didn’t notice this flaw or that flaw and for that reason it’s overpriced by 25%.”

Jason: And it’s really up to the seller. Are you going to listen to what the market says or not? The seller and I can sit there all day long and talk about how great a business it is. The seller can definitely call 10 other business brokers and have them tell him how great the business is because they’re trying to get his listing. It doesn’t matter what my opinion is. It doesn’t matter what the other broker’s opinion is. The only opinion s that matter are willing and capable, qualified buyers and what they’re willing to pay. And if a seller’s not willing to listen to that, because that’s the market speaking, then you’re not going to be able to make a sale, period.

Joe: Right. You do what you do based upon the experience that you have, the eight plus years as an advisor with Quiet Light and everybody’s closed transactions and what the market’s doing to, the best you can, pick that price. But at the end of the day, it’s the buyer that makes that decision.

Jason: And that’s one of the things I look for with my clients. Sometimes they’ll want me to go a little more aggressive on the initial ask. And I’ll say, if it’s within reason, I’ll say, “Sure, we can try. But you have to understand that if I get feedback that the market is not agreeing with this higher price, you’re going to need to be flexible because we’re taking a shot. Sometimes we can get you more by aiming higher but, more often than not, it we aim where we think the market is, we end up doing better.” And actually, can I tell you a quick case study?

Joe: Please do.

Jason: Okay. So this was also back in 2010. Back then the multiples were a bit lower. It was two and a half to three times the sellers discretionary. There was a listing where I had met the client, they were listing it for sale themselves on BizBuySell. And I contacted them and said, “Hey, if it doesn’t go well, I’m a broker, let me list it.” And they agreed. So again, I was newer back then and I was more apt to let the sellers determine what was what. So they got me to list it at five times earnings, which was way higher than the market was bearing. So it was on the market. The only offer I got was one-half of the asking price. Obviously they turned that down. But then I encouraged them to listen to the market and we lowered the price to three times earnings, which was at that point the high end of the range. We got a full price offer. So there’s the irony and the paradox, is when we lowered the price we got more. When we went unrealistically high, the offer was less.

Jason: And the reason is, when you go unrealistically high you often scare away the reasonable buyers and all that’s left are people that are going to hurl in low ball offers. It makes sense. I did that myself. When I bought the house that I live in, they were asking too much and there were no offers so I felt good coming in and making a low ball, and I got the house. So the seller ended up hurting themselves by aiming too high.

Joe: That’s a great story because a lot of the newer brokers at these agencies that are popping up like mushrooms, as you say, they’ll shoot for that high multiple just to get the business and they over promise and under deliver on that. And ultimately …

Jason: They hurt themselves.

Joe: Yeah. They’re getting less than market value offers whereas in your situation, you got a higher than market value offer. So listen, when it comes to, one last question. We’re running a little short on time. One last question. When it comes to multiple offers on a listing, and I don’t know what your answer is going to be to this. I mean the seller always says, “Hey, look, what do you think, Jason?” Do you say, “Look, take the highest cash or take this particular buyer over here. It’s not the highest offer but it’s different.” What do you advise? Best buyer or best dollar amount?

Jason: It’s interesting. What I’m generally looking at is, what is going to put the most after-tax cash in the sellers pocket as soon as possible. That’s not always the highest price. Sometimes if we have two buyers and one of them is more likely to be able to close the deal. For instance, he’s a cash buyer versus the other buyer needs to qualify for a loan, the cash buyer might be a safer bet. There may be a higher probability of more after tax money in the sellers pocket. There might be a higher price where the cash component is lower and then there’s an earn out on the end. Okay, that could work or it may not work out for the seller. But the reality is, most of the sellers, the reason they’re selling with us is they’re ready to move on to something else so do they really want to be kind of tied to the business for the next five years, both emotionally and financially.

Joe: Which is very rare, by the way. Any kind of seller note like that, I think I might have had one in the last six years. How about you?

Jason: Yeah, I mean, it’s become less common recently. The offers have been more cash based and kind of short term payouts to the seller. But there is another consideration, which is the asset out allocation. So what some people don’t know is, you’re selling the assets of your business. When tax time comes, you need to fill out a form that says how the purchase or the sale was allocated. Certain types of allocation can cause the seller to pay long term capital gains tax, which is lower, versus ordinary income tax. So that’s another consideration. So we try to look at it wholistical;y. What’s going to get you the most after tax cash as quick as possible. Generally, that’s what sellers want.

Joe: Excellent. Excellent. That’s funny because it’s not the exact answer I would have given because I would have gone with a little different approach. They’re both right though, you know. You’re talking about bottom line dollar value for that person after closing, which we do talk about. But the other part of it is, it’s picking the right buyer so that you get to where you’re talking about. It’s not just pick the biggest dollar amount, it’s picking the buyer that’s going to get you from letter of intent through due diligence and into closing. I think someone with your experience, the experience that everybody at Quiet Light has, we’ve all built, bought and sold our own sites, is every deal gets emotional. Tell me if you disagree with this. At some point or another, every deal gets emotional. In due diligence, the asset purchase agreement stage, and near closing. Your job is to set proper expectations and keep emotions in check. Most important job, right?

Jason: Yeah, I absolutely … that’s where choosing the right buyer can make a difference. I mean if we’ve got two offers, one of them is a little better but it’s a first time buyer with no entrepreneurial experience versus a repeat buyer who has a history of closing deals quickly, is reasonable during due diligence, and has been ethical in negotiations, I might try to steer my client towards that buyer because, again, there’s a better probability that it’s actually going to close. And the thing I find is, because it’s so emotional, if you’re a seller, I mean you could be living on pins and needles for weeks or months while a business is in the process of closing. So if we can get you a better probability of closing, it can make your quality of life better.

Jason: So these are all things I’ll talk about with the seller. When we’re comparing multiple offers we’ll talk about the pros and cons that we perceive for each buyer and try to make, again, a wholistic decision, not one that’s … just like I advise buyers don’t focus just on that multiple, I advise sellers don’t focus just on that top line price that’s in the letter of intent.

Joe: Right. Well awesome, man. We’re running out of time, we got to go. But, listen, you are the most seasoned broker at Quiet Light. I appreciate your wisdom. Anybody that works with you I think is in great hands. You’ve been my mentor over the years. You’d better stick around for another decade. I don’t know what we’re going to do if you leave. So stick around. Guys, reach out to Jason if you want to chat. All the contact information will be in the show notes. Thanks, Jason. Appreciate your time.

Jason: Excellent. Thank you, Joe.

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