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The Biggest Tax Mistakes People Make — and Much More
Tim Nelson is the CEO at AVASK Accounting & Business Associates, an international firm of accountants and tax experts with a well-reputed specialism in global e-commerce expansion, international taxation, accountancy, and business consultancy and advisory services. He previously worked as a Certified Public Accountant for Schmelkin & Schmelkin. Tim is a distinguished Certified Public Accountant with profound knowledge in tax preparation, accounting, and IRS audits and has helped businesses of many sizes.
Here’s a glimpse of what you’ll learn:
- [06:42] Tim Nelson explains filing and registering for sales tax in a foreign marketplace
- [10:11] Why recording the correct revenue is crucial to avoid additional tax on your products
- [14:10] How to handle the common challenge of tracking inventory
- [19:25] Tim talks about understanding landed costs and add-backs to maximize your exit
- [23:35] Understanding the value-added tax with overseas products
- [28:27] Tim discusses the tax difference between Shopify, Walmart, and Amazon
- [32:18] Why unkempt business books disrupt the valuation of your business
- [38:14] Why Tim recommends examining the potential value of your brand
In this episode…
As an entrepreneur, how can you avoid common mistakes brands make before selling and marketing overseas? Are you looking to maximize your add-backs and achieve a greater exit? If so, you’re in the right place.
While you’re growing overseas or preparing for an exit, Tim Nelson recommends a solid bookkeeping strategy to avoid the pitfalls of owing taxes. Knowing the weaknesses in your brand can make or break an exit, especially when you’re expanding. Tim says that expansion can be a good thing — and that it may not be as complicated as it seems. Understanding the valuation of your brand is crucial for any entrepreneur growing or exiting their brand. Are you ready to find out what your business is worth?
In this episode of the Quiet Light Podcast, Joe Valley sits down with Tim Nelson, CEO at AVASK Accounting & Business Consulting, to discuss the importance of proper accounting for reaching your exit goals. Tim talks about how to avoid common tax mistakes when selling overseas, the influence of proper bookkeeping, and why every entrepreneur should know the valuation of their brand. Stay tuned!
Resources Mentioned in this episode
- Tim Nelson on LinkedIn
- Tim Nelson’s email: [email protected]
- AVASK Accounting & Business Consultants
- AVASK phone number: 914-664-1900
- 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
- Free Copy of The EXITpreneur’s Playbook
- Sell Your Saas, Ecommerce or Online Business With Quiet Light
- Jamie McDonald on the Quiet Light Podcast
- Chelsea Cohen on the Quiet Light Podcast
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 0:29
Hey, folks, Joe Valley here. Thanks for joining me for another episode of the Quiet Light Podcast. Today I’ve got Tim Nelson from account AVASK accounting online talking about a variety of subjects, I made sure that we didn’t stick to anything too long. So we didn’t get too deep into the weeds. But one of the things we talked about was a foreign entity, whether it needs to open up a US entity in order to sell on Amazon and on Shopify, and what form it is, you need to fill out as a foreign entity to avoid that. We also talked about what it’s like to move from selling in the US to internationally, you notice I didn’t say overseas, selling internationally, and where people tend to go to first and where they get the most bang for their buck. And spoiler alert, the answer is not Canada, and it is not Mexico. So it is actually overseas. Another thing we talked about was the benefit and cost of setting up your books in arrears, meaning that if you’re running a business, and you’re not using proper accounting, now, you know that when you go to sell the business, your buyer is going to have a problem with that, or your advisor at Quiet Light is going to shake you by the shoulders and say, Come on, let’s get this right. So that that the value of your business is higher, and so that the buyers trust you. So, you know, I gave a scenario to Tim, in terms of this is the size of the business. This is how old it is. The books are kind of a mess. There’s no accrual accounting, and a screwed up in this area in this area in this area, how much is it going to cost? How long is it gonna take to set this up in arrears? And how many years back should we go. So we gave some good answers on that we went back and forth a little bit on it all together. And then we talked about how important it is to get a valuation for your business, and how to reverse engineer a path to that. So I’m just gonna say right now out loud, folks, if you’re listening to this podcast, and you own an online business, and you’ve never gotten a valuation for your business, what the hell was wrong with you Come on, your business is your most valuable asset, get a valuation for it. So you’ll understand how close or how far you are from your goals. If you haven’t set exit goals, come on, let’s set them and reverse engineer a path to them starting with a valuation. So you can go to quietlight.com/sell and fill out the valuation forum, you’ll end up talking to one of the entrepreneurs turned advisors here a Quiet Light, and all of them are going to help you with good advice. There’s no trying to get hooks into you for a commission. Most conversations lead with, I would push this lever pull that one so that in six 912 18 months, your business is going to be worth X amount more. Of course, if you’re just emotionally burnt out tired and ready to sell and you must we’re going to help you. That’s what we’re here for. If you’re not ready to have a conversation with a human, go to exitpreneur.io/QLPod and get a free digital version of the EXITpreneur’s Playbook. It’s a valuation in a box in a book, in this case would be the digital version. If you do it from your mobile device, you can download it onto your Kindle, your iBook, your Nook, whatever it is that you read, it’s free digital version full copy of the book. So go to QL I’m sorry, exitpreneur.io/QLPod and get a digital version of the book if you’re not ready to talk to one of the advisors here in the team. Okay, I’ve rambled on enough at the beginning of this intro. Let’s jump to talking to Tim Nelson from AVASK Accounting about all these interesting things. Here we go. Hey, Tim, how you doing today? Good. Joe, how are you? Man? I appreciate you joining me on the podcast. Can you give the folks a little bit of background on yourself and AVASK Accounting?
Tim Nelson 4:23
Sure. So again, my name is Tim Nelson. I’m a CPA here in the United States. I’m also CEO of AVASK USA. AVASK being a global accounting firm that helps e-commerce sellers with any kind of tax or accounting needs, along with expansion. A lot of e-commerce sellers are always looking to sell in certain countries and grow their business and we can help guide them along the way.
Joe Valley 4:49
Now AVASK was originally a UK company. Is that correct? It was founded over there by Melanie or other folks?
Tim Nelson 4:56
Yes, no. It was founded by Melanie in the UK, UK About a few years ago, and then the company has now expanded through many countries, including the US here.
Joe Valley 5:06
So is the US part of it? Startup entity where it was like, Hey, we should have a location in the US? Or did you previously own an accounting firm that got absorbed by AVASK?
Tim Nelson 5:21
Right. I previously owned an accounting firm that got absorbed by AVASK I had my own practice for about six years that was focusing on e-commerce on sales tax when that was a huge, huge issue, and was providing resources and answers for our clients. And as that company grew of ask, reached out and absorbed me so that we can have a global presence to help sellers with any tax needs they have throughout the globe.
Joe Valley 5:47
Okay, so we’re going to just do random topics here, because we’ve had what I would call bookkeepers on the podcast before and everybody that’s listening, knows that I’m a preacher, when it comes to, you know, outsourcing your bookkeeping, so y’all can go to AVASK accounting and check that out, we’re not going to harp too much on that. First first subject I want to talk about is foreign entities that think that they need to open a business in the United States in order to sell on Amazon, and to get an EIN number talk. Talk to us about that aspect of it. So you live in the UK, and you’re expanding from selling on into Shopify, in Europe and Amazon in Europe. Now you want to go to the US? Do they have to open an entity in the US in order to
Tim Nelson 6:36
do it? No, they don’t actually, it’s, it’s pretty simple. Actually. What we can do for people like that is get them the EIN number they need. So they can get themselves set up on Amazon Seller Central. register them for a couple of states for sales tax that we can file for them, they probably have to fill out the W eight e n e, which tells Amazon not to withhold 30%, for taxes for that company. Really, that form kind of says, Hey, don’t worry, we’re going to take care of the tax ourselves so that when you sell in the US get all your money from Amazon. And then really just file an informational return at the end of the year to say, Hey, listen, we had sales here in the US, but we’re not paying tax here. We’re gonna pick it up here over in the UK. And really, that takes care of everything on the US side.
Joe Valley 7:26
So it’s a foreign entity, getting an EIN, they absolutely don’t have to open up a US entity.
Tim Nelson 7:33
That’s correct. And that’s why there’s that informational return saying, Hey, listen, we’re a foreign entity. We had sales here in the US, I know you the IRS are gonna be looking for some kind of return so they can get some tax. We’re gonna file this informative protective return saying, Yep, we did have the sales, but per our tax treaty with the US. We’re not gonna pick it up here.
Joe Valley 7:53
All right, that’s big news. First news to come to the audience. I didn’t know this. We’ve always we’ve always looked at, you know, people starting in the US when they when they when they’re overseas, and then want to open up in the US didn’t know that they could get an EIN. And now, why is it important? Why is it necessary for a foreign entity to even get an EIN to sell in the US? Or is it not?
Tim Nelson 8:20
It’s important because we have to register you for sales tax, you can’t register in the States for sales tax without an EIN number. So as you mentioned before, in the type of platforms that someone may be selling on, especially Shopify, you’re going to need an EIN number, you’re going to need to register for sales tax, because the biggest difference between Shopify and Amazon is a lot of especially no matter where in the globe, you are you everyone knows about marketplace facilitator, meaning Amazon’s going to take care of the sales tax, they’ll remit it, you don’t have to do anything. Shopify is not a marketplace. And so go back to now our old laws with sales tax, if you have inventory somewhere, you got to register for sales tax. If you have a certain amount of sales in each state, you may have to register for sales tax. So that Shopify side will probably trigger quite a number of sales tax registrations, which you then need an EIN number for to register for sales tax.
Joe Valley 9:17
Gotcha. What sales tax software do you recommend these days? Is it you know, if you have nexus tax jar, what’s your what’s your favorite
AVASK has its own sales tax software that you do need to file? Yes, absolutely. So as clients do not not to give a sales pitch, but as clients do sign up with AVASK we take care of we try to take care of everything under one roof, bookkeeping, tax return, sales tax, all done in house, we don’t outsource anything. We take care of it ourselves.
Tim Nelson 9:25
So you’ve been exposed to a lot of e-commerce entrepreneurs over the last decade what exactly is like the biggest mistake they make tax wise? Let’s just call them a you know if it’s a US entity, what are the what are the things that they If they screw up, and it’s so easy for them not to screw up with that you’re like, What the hell? Why did you do that? Yeah, two things. The first is recording the correct revenue, I find that a lot of people will contact us here at AVASK saying, Hey, I recorded all my sales on a on AVASK. And I recorded all my sales for Amazon. And, you know, whatever was deposited into my bank account I picked up as my revenue, I filed my return at the end of the year, and the IRS sent me a letter saying I owe additional tax that they don’t agree with my return. And what it is, is that they just don’t record the revenue correctly. They don’t realize that, you know, Amazon first takes their sales, and then takes their fees out, and then you get sent your money. But then Amazon will report to the IRS, hey, here’s what your sales are, which is before Amazon takes their fees. And so IRS says, okay, just pay us the tax on the difference, which isn’t really fair to the seller, because they’re missing out on a ton of expenses. So I’d say just revenue recognition is the first big mistake. Yep. The second,
Joe Valley 11:07
let me, let me let me address that and just say that I’m guilty of it as well, in my last e-commerce business that I sold to Quiet Light a decade ago, almost actually, 12 years ago, now, man, I’m getting old. I did the same thing. I recorded deposits to my account, because it was easy. And I was being lazy. And I didn’t have any commerce bookkeeper. And then I was surprised by you know, additional taxes that I owed at the end of the year.
Tim Nelson 11:34
Sure. And that’s a fine mistake. Because really, almost in every other profession that you record your revenue in, that’s the right way to record it, whatever gets deposited into your bank, that’s your sales. That’s how it’s taught in school. Also, it’s just that e-commerce is so it’s different. And that being one of the biggest reasons how it’s different is how you record your revenue. And I mean, even this tax season up till April 15, I would say we’ve gotten about, let’s say, 15 to 20 clients who contacted us saying, Hey, we got a letter from the IRS. I don’t know what it means. It they’re asking for a lot of money. For tax, how do we respond? And it’s a simple resolution, because we’ve seen it so many times. And it’s just a matter of recording your revenue correctly.
Joe Valley 12:17
So I just had Jamie from a to x accounting on the podcast, actually, I shouldn’t say just it was probably two or three months ago. And if got a full understanding of that software, I’m going to guess that AVASK has similar software? Or do you recommend a 2x.
Tim Nelson 12:34
We have a similar software and recommend a 2x. A 2x does a great job in making sure that revenue numbers from let’s say, Amazon get put onto either QuickBooks or whatever bookkeeping software you’re using. So yeah, it’s a very good software.
Joe Valley 12:49
Yeah, I totally get. So for those in the audience. It’s a small monthly subscription. And what happens is that it’s tied to your seller account, and it automatically pulls in all of the revenue minus all of the fees into QuickBooks, or Xero, whatever accounting software you’re using, and then you’ve got to do your normal, you know, general expenses that you’ve got as well. So good stuff. Alright, tip number two, there were two things that you said people make big, big mistakes tax wise.
Tim Nelson 13:17
Yeah. Second thing is inventory. Being able to track and, you know, book, your inventory correctly, is the second and probably even more common mistake or error that people make. And tracking inventory, I’m sure isn’t easy, there’s tons of software out there, but making sure that your books are accurate. So you can, you know, track your cost of goods sold and stuff like that is so important, because it’s easy to turn around and go buy inventory, Hey, I just ordered X amount of inventory. And great I can be often selling but keeping track of it is a tricky thing, especially if everything’s not set sitting in Amazon, let’s say you’ve got some in your garage or some under your bed or something like that, or some is in transit on the way and trying to keep track of that all can be a bit challenging, but very important when it when it comes to your books, especially if you’re trying to analyze your financials every month, you want to see how profitable you are you want to see how much inventory you are, you’re gonna base base your decisions on those numbers and keeping track of those numbers and those values is very important. I know there’s a a bunch of software’s out there that can help and it seems to be a common challenge for a lot of the clients that we’ve dealt with to keep track of the inventory, whether they’re using an Excel spreadsheet or they’re using something like inventory lab or another inventory software solution. I find that yes, sellers have have have a job of it to try to keep track of their inventory.
Joe Valley 14:48
Yeah, I guess I’m going to just keep every time you mentioned something I’m just going to talk about past guests on the podcast so we had the founder of so stock inventory management software Chelsea Cohen on the podcast, probably six or seven months ago, but and she’s somebody that came from the e-commerce space and had this problem. And her business partner seemed to have solved it with software as a service called so stocked. But Tim, it, it’s only one piece of it, like inventory is critical, you know, first First, I would guess that 99% of the entrepreneurs are and I’ll say, 95, I’ll be I’ll be generous, listening to this podcast that have e-commerce businesses, meaning physical products, that they don’t have an inventory aging report, which is kind of critical when you sell your business or when you’re going to order more inventory, or determine what inventory to order. And number two, if they’re doing any kind of accounting on their own and bookkeeping on their own, they’re not doing inventory on an accrual basis in their accounting software. How painful? Is it to set up accrual accounting? Especially for the inventory? Because it always changes in the accounting software like QuickBooks or Xero. To
Tim Nelson 16:10
it’s not too painful at all, I mean, really, all you have to do is make a decision saying, Okay, I’ve got to start recording my inventory on an accrual basis. And you just start doing that instead of expensing it, you start capitalizing it not to go into too many accounting terms. But really, that’s it, and then you just really get to write off your inventory as you sell it. And so instead of expensing everything at once, you get to expense everything when you sell it. And that’s really just how you move over to the accrual accounting for
Joe Valley 16:38
all what about the inbound freight, oftentimes, I see the freight in on a cash basis where in my view should be on an accrual basis because you get this big lump sum, and then zeros. Meanwhile, your inventory might be in there on an accrual basis, do you do freight as well as part of that inventory cost? maybe call it landed cost of goods sold?
Tim Nelson 16:59
So a lot of people do ask that question about landed costs, we expense the landed cost as freight just a freight expense, but the invit because it doesn’t really, it’s yes, some people can look at it as hey, that’s part of the cost of getting your inventory. But really the unit, whatever that is, is you know, it’s just the cost of that unit, not the freight that should be capitalized on for inventory. Now, some, some clients may disagree and say, hey, I want the landed cost to be included in there. And that’s fine, if they want that way. But we can, you can definitely expense it.
Joe Valley 17:33
Yeah, so if you’re going to sell your business, and you run a profit loss statement, then you’ve got Cost of Goods Sold in there on an accrual basis, but your freight is lumpy, it’s going to affect the value of your business based on the timing of that exit. So let’s say you order inventory every four months, and that your freight cost is $10,000. Every time you do that. So you’re going to have a $10,000 expense, and then no expense for three months. So if you go to sell at the end of that three month period at the beginning of that three month period, or just after that $10,000 expense, let’s say that’s in January, but you’re listing your business for sale in February, that $10,000. Really, if it’s, you know, four months worth of inventory in the future, it should be 2500. In my view, the math 10 is pretty simple. If you’re selling your business for a four time multiple, now you’ve got $7,500 of expenses on the books, that is really for, you know, inventory, inbound freight, that’s going to happen in the next three months, not in the past three months. And that 7500 times four is $28,000 off the list price of your business. Now, a good qualified advisor will make that adjustment in the add back schedule, I would highly recommend that they do that. And this is the challenge guys, when you go to sell your business on your own, is that you don’t get these little nuances. Unless you listen to this podcast with Joe Valley and Tim Nelson. From AVASK Accounting, you’ve got to make these adjustments. Otherwise, little tiny mistakes like this are gonna add up to hundreds of 1000s of dollars when you’re a great team. I see you making notes there. I love I love your feedback on that.
Tim Nelson 19:19
Yeah, Joe, you make a great point because yes, the landed costs in the ship again, you’d want to do add backs and that’s a big part of selling your business. And having somebody that either could represent you or know what your numbers are is so important to know what those add backs are, whether it be right those those landed costs, whether it be officers compensation, the pay you’re taking, or a number of other things, making sure when you’re talking to let’s say an aggregator or a broker of some kind to, to know your numbers or to have somebody who understand your numbers in your business so that when you go to sell the business you want the biggest bottom line number you can obviously Then times some multiple to be able to maximize the value of, of the business when you try to exit. So yeah, just agreeing with you that right knowing those add backs and understanding your numbers is it goes a long way when you when you want to exit,
Joe Valley 20:13
this is a perfect time to jump to our live commercial break we’re doing now with giving away the free digital copy of the exit printers playbook. There is a chapter on ad backs, it covers 18 different types of ad backs, including when your cost of goods sold, goes down and how to do an ad back for that period that’s going to carry forward and benefit you financially. If you’re going to sell your business on your own, please, please download the free digital copy of the Exitpreneur’s Playbook. If you do it on your mobile device, you can read it on your Kindle on your Nook on your iBook whatever it is just go to exitpreneur.io/QLPod like Quiet Light podcast QLPod, if you are a buyer of a business, and you’re out there hunting for the your next business to buy, and you want to get a better understanding of how foolish somebody is when they say I got this, and they’re selling the business on their own without reading the book. And without representation, you’re going to see a whole bunch of ad backs that they missed. And you’re just going to say, Yeah, sure, I’ll pay your price. Because you know, you’re getting what I call an ignorance discount when that person is selling the business on their own without getting some sort of training that they would get from a book like the Exitpreneur’s Playbook. So fantastic. Go to Exitpreneur.io/QLPod and get your free digital copy of the Exitpreneur’s Playbook. Alright, Tim, when it comes to expanding overseas, lots of folks listening are in the US. They’re hoping to expand overseas. And you know what, let me just say internationally, let me pull that back. I’m gonna say internationally, because how they may go north or south at this point. Where where are your clients that are US based clients that are expanding internationally? Where are they jumping to first, what countries, what locations, what continents are most effective, where they’re getting the potential most bang for their buck with the fewest complications?
Tim Nelson 22:14
I think the Europe is the country that we’re confident that they’re going to first and you know, knowing which countries to start putting your inventory in goes a long way. Having the team over in the UK and our offices throughout Europe, help sellers make the right decisions when first getting set up. overseas. I think a lot of it has a where they put inventory in my understanding, it has a lot to do with how the VAT and other taxes work. And I know that it’s constantly changing over there with the type of taxes that are going along. And so having someone kind of hold your hand and guide you on the right way to get set up, especially with inventory goes a long way.
Joe Valley 23:05
I’m going to have Melanie on the podcast in a few weeks. And she’s going to do a deep dive on inventory locations to minimize taxes and things of that nature. But let’s just go with the acronym V A T that you just used. First, tell us what VAT stands for. And why it’s really important for people that sell in the US that are expanding over to Europe to
Tim Nelson 23:26
understand data. And being a US tax person, my VAT knowledge is a bit limited, but I know I know the basics. So VAT is Value Added Tax, that’s basically our sales tax over there. But the one biggest difference that you have to realize is that VAT is added already, it should already be included in the price of your product. Where here in the US we buy something, you add sales tax to it, you have your final price. Overseas VAT is already edited. So you want to put your price of your product to include or cover VAT before you sell it.
Joe Valley 24:02
Very good. How many people make the mistake of going overseas on their own and think okay, well I sell it for $39 Here, I’ll sell it for 39 euros there. And don’t even think about VAT is it? Is it a big mistake you see people make often
Tim Nelson 24:15
it’s a mistake, I wouldn’t say it’s a big mistake, I think a lot realize that, hey, there’s something going on there that I’m not understanding too well and seek out the guidance beforehand. But any of the other nuances that you know trying to expand to the overseas is what really people don’t realize before they make that decision on right inventory placement as you said you’re gonna speak with Melanie about and stuff like that. I think that’s really where people’s headaches begin and trying to get get the getting those answers before you actually do expand I think is critical. Let’s
Joe Valley 24:49
jump topics here and talk about the business owners or acquisition entrepreneurs in the audience that are either opera Getting on Amazon or buying an Amazon business, but they they really want to push and expand on Shopify. But all of the inventories at Amazon, I understand that Shopify and Amazon have worked something out so that you can do Fulfilled by Amazon. on Shopify stores that right, yep. Joe? That’s correct.
Tim Nelson 25:19
So Shopify is really great, and how they integrate with so many other places. Amazon being one great example. And so so many sellers, at least here in the US are taking advantage of that, since Shopify, you know, offers such cheaper fees than Amazon. So when you make your set sail through Shopify, they’re realizing more of a profit. And their their partnership with Amazon is that hey, great. I can make my sale on Shopify, but have Amazon shipped from their warehouses to wherever the customer is located, which is so such it’s such an advantage. But from a tax perspective, it could cause quite a challenge. Because Shopify is not marketplace facilitator, Amazon being the marketplace facilitator, generally, you don’t have to worry about sales tax. Shopify you do, because it’s not covered by MOQ. Marketplace facilitator laws. And in theory, having inventory shipped through Shopify from Amazon would cause you to have nexus I hate that word. But nexus in all the states that Amazon has warehouses, since you’re using that inventory to fulfill your Shopify orders.
Joe Valley 26:34
Yeah, but if you’re selling on Amazon, already, you already have nexus. So the important or important thing here is being able to expand your Shopify store in this case, while not having to deal with the headache of setting up a new three PL or god forbid, shipping product out of your garage, because you never get to go on vacation. And business is always there. Not to mention that you have to carry the groceries in in the rain, and you can’t park in your garage. So it seems to me like a good good deal in a good situation. What other platforms other than Shopify allow you to fulfill by Amazon that you know of?
Tim Nelson 27:14
I believe WooCommerce does the same thing. I’m not sure if wish does as well. But it’s really Shopify that most people are focusing on. And when you when you just look at the numbers and do the research, it’s why Shopify is I think, the largest growing platform right now, or the quickest growing platform right now. People seem to be turning to that. And looking to expand that that marketplace more than any other.
Joe Valley 27:38
Good, good, good. Let’s jump topics. Again, you have a lot of clients that you have access to, and you see their numbers, and you see what platforms they’re selling on. So right now, if you were one of them, would you sell or expand to let’s say you’re selling on Shopify, you’re selling on Amazon, and you want to you want to jump to a new channel? And that the options that are Walmart, or target? Which one are you going to first,
Tim Nelson 28:07
I would go to Walmart first. But let me just first say, don’t stop selling on Amazon. And I would say 95% of sellers who sell on multiple marketplaces, 95% of their sales still come from Amazon. It’s great that they’re trying these other marketplaces. But it still seems that Amazon is just carrying everything for each business that we deal with. But I think I think Walmart is just really trying to get themselves together and understand how it all works. And a lot of people are trying Walmart, yeah, maybe the sales aren’t there yet. But I think that would be the platform that I would choose over target. Joe, Have you have you had a lot of experience with either selling on either of them or? So when you see back whether,
Joe Valley 28:55
yeah, we’ve sold businesses that have revenues from all three channels or for their own website, Amazon, Walmart, and target. Yeah. And I would lean the same way. Walmart as well, based upon experience in the transferability of the account, I’ll say right now that anybody that has an Etsy store and sells on Etsy, and you’re really excited about that platform, and you’re pushing to expand it and grow it, it’s incredibly hard to transfer it above board. And that’s the way we act is aboveboard, we’re gonna do it the right way by, you know, Terms of Service and guidelines. Once upon a time, everybody said you couldn’t transfer an Amazon account, but the terms of service, you know, said generally, and we got written permission from Amazon to do it. And, you know, this was back in 2016. I think, Tim, when I published 10 steps to selling your Amazon business. I had all of their written communications, right there. In fact, we actually had a letter from legal that was Explain why people were afraid, or Amazon was concerned and they put you can’t transfer. It’s really because if somebody was banned from Amazon, that they couldn’t buy an Amazon business, that was their primary concern that that person would not be allowed back on a PAP platform. But Etsy stores, you just simply can’t do it. Have you had Have you had any experience with clients and sell on Etsy? Not at all. Not at all. That’s for good. It’s for good reason, in my view. All right, let’s, let’s talk about just that dreaded subject that I think everybody should love. But generally, they avoid as much as possible. And that’s bookkeeping. How, how complex is it to set up? Let’s say that I’ve got a business where I’m doing 3 million a year in revenue, and I’ve been doing all on my own. And it’s a mess, right? I haven’t, I haven’t done it properly. I haven’t done cruel accounting, I haven’t deposited, I just been recording deposits instead of, you know, total revenue minus expenses. But I want to exit, and I want to go ahead to sell my business. And I’m gonna work with that amazing guy, Joe Valley over a Quiet Light. And he’s telling me, I gotta get my books in order that it’s cash accounting, and that everything’s just set up improperly. And I refer them to you $3 million a year in revenue. And no cruel accounting. How difficult is it going to be for you to flip it from cash to accrual? And how long will it take? And really ballpark dates and ranges here? And numbers? How, how much would something like that cost? Is just just just just to get it done right? retroactively?
Tim Nelson 31:49
And you hit the nail on the head with dates? Like it goes, Hey, how far back? Are we going? Like, especially if you’re selling your business? They’re gonna want to look at at least a few years. Yep.
Joe Valley 32:01
Let’s say 24 months, let’s go back. 24. Exactly.
Tim Nelson 32:03
Yep. So then we’re going back 24 months, and starting from the beginning, we’re going to redo all the bookkeeping, because as much as we know that it’s not cruel. And let’s say we’re not recording revenue correctly, and stuff like that, what else is not being done correctly, especially if it’s going to be financials that we’re going to present, we’re going to want to do it from the beginning. And so what we’d start everything over from there. And so really what you have, you’ve got 24 months of bookkeeping, for a $3 million client. And let’s say it’s going to be about 600 a month, just doing some quick math. Let’s say it’s gonna be about $14,000. Just to get two years worth sets of books, financially ready for presentation. Again, you’ll have to, you’ll have to amend your tax returns as well, from what was filed, and to get it all up to date, and have everybody had to amend the tax returns. While you’re changing, you’re changing your numbers, especially if your revenue numbers aren’t correct. You’re gonna have to amend your tax return to but all I’m
Joe Valley 33:03
doing was all I’m doing is getting this right so that when I present my business for sale to buyers, it’s done with accuracy and confidence to the buyers. And not not refiling tax returns for the IRS purposes. I’m just trying to exit my business.
Tim Nelson 33:20
Sure. So the first thing that we do here at AVASK especially if we’re reviewing financials for a buyer is compare with the financials, they present to the tax return that was filed. And if there are large discrepancies, there’s, that’s a huge red flag. What Why Why do you have financials saying one thing and a tax return saying the other somebody can say, Listen, it’s for tax purposes, this that the other thing? That’s to me, that’s a red flag, we want everything to match be as clean as possible, so that the buyer has most comfort when they want to make their decision.
Joe Valley 33:51
Okay, so let’s just play around with that number that seems so big to so many people, but we’re doing 3 million in revenue. And you’re quoting $14,000, just to get the books updated and correct. So first of all, people, don’t wait until you’re emotionally tired, worn out and just exhausted from the grind, to get a valuation for your business and understand what it’s worth, because you need to exit now, right? On dawn, I need to move on. Don’t do that. Because you want to, you want to understand the value of business today so that you can march towards your exit goal. And when you understand the value of your business today, part of that is going to be an education on what buyers are looking for. And that is accurate p&l And so if you just bootstrapped it. That’s everybody bootstraps if you just wing it, you know, because it’s only you and you never thought you’d sell your business. And you’re worn out and tired and exhausted. The last thing you want to hear is yeah, you got to redo all of your accounting, and you know, and spend $14,000 doing this in this particular case, but If you can get through that, what you’re going to do, tell me if you agree or not, but you’re going to instill a lot more confidence in your buyers, and confidence and trust, will pay for that $14,000 expense multiple times over, multiple times over.
Tim Nelson 35:19
That’s completely correct. And a get having that trust and confidence from the buyer, I think goes a long way. And even if it’s 24 months of bookkeeping, you know, we could we could turn that around in a month, and a month, as a developer, as long as some Yeah, is, for a lot of people who have been selling for a long time, it’s not that long of a time. But for those clean, accurate numbers to to instill that trust in the buyer, as you said, it’s just gonna pay for itself. So many times over it, we’re working on that for two clients right now who are having us do that for that exact same reason that they know they’ve been doing their own books, they know it’s not 100% accurate. They, they feel that it’s just gonna cause issues once they present it to whomever buyer is looking into them. And they just want a nice clean set of books so that it already answers all the questions that they may have before even giving the numbers so like, here’s the numbers. We’re not expecting to Obviously there’s going to be questions, but they’re not going to be too many questions. And that I think goes a long way to help a buyer feel comfortable in what they’re looking at.
Joe Valley 36:24
Good. So let me just address the question that I can hear people asking, which is why 24 months? Joe? Why don’t go back 24 months? The answer for me is because if I’ve got, you know, 24 months worth of correct accrual based accounting on your inventory, which is the biggest thing that sways your value up and down, if you’re on a cash basis, I can then extrapolate out the previous 2436 48 months, however long you’ve been in business, that’s easy for me to do. And I can make a note in the p&l that the adjustments were made to, you know, 2018 prior cost of goods sold or estimated, based upon the most recent, you know, 24 months, it’s the most recent 24 months that are going to be most important to buyers. Because so much changes in this online world that we live in, with a blink of an eye or an iOS update or Facebook changing the algorithms for advertising and things of that nature. How do you feel about the 24 month mark, Tim, from somebody that’s seen a lot of deals happen? Yeah, Joe,
Tim Nelson 37:31
what they focus on those 24 months right away and getting those clean and accurate. So you can give them month by month comparison goes a long way in helping the helping the buyer.
Joe Valley 37:43
Alright. Alright, so just a broad general question. What are some of the smartest things you’ve seen e-commerce entrepreneur entrepreneurs do in terms of, you know, working with AVASK counting and any any, any preparation they can do to make their business look and feel more valuable to themselves or to a potential exit?
Tim Nelson 38:06
Sure. To go to the potential exit is, it’s amazing how many clients don’t know what the potential value of their company is? Yeah, they know that they’re doing well. They have great sales, they have a good profit. But you know, what, if you ask them, hey, what do you think you can exit for? They don’t know. They don’t know what valuation they can go for? What expenses on their books, as you said, add backs can be taken off so that they can improve their bottom line number. And really just kind of getting an idea of what value your company can have is something I don’t I feel like a lot of sellers don’t know. And as you said, it could take one or two good years to really boost the value of your company. And you know, knowing the right time to sell and striking while the iron is hot, I think is a big thing that I think sellers should be aware of. Yeah,
Joe Valley 39:00
I couldn’t agree. 1000 times more. So guys listening out there, just go to quietlight.com/sell and fill out the evaluation form. It’s free, you’re gonna talk to an entrepreneur that’s turned into an advisor, and they’re gonna give you honest advice. Here’s an example. We we had a client approached us that is in an Eastern Bloc country that runs a cosmetic business that ships product. airfreight from China directly to the customer. It’s 18 months old doing five and a half million dollars in revenue with about a million dollars in discretionary earnings. You’d think that would be jumping all over that to get it sold. The real answer to you know what’s my business worth? It was answered but it also included luck. If I were in your shoes, I’d hold off. Your company’s young it’s only 18 months old. It hasn’t really built a moat around it. Number two, your recurring revenue is non existent, you’ve got repeat customers that’s hard to track, but you should have a subscriber based program so that buyers can see that 1020 Now 30. Now 40% of revenue is from repeat customers from a subscriber autoshipment program, there’s lots of things that we’ll look at and see that we can help you improve the overall value of your business. If you want to hang on course, we’re going to be there with you, for you. If you say, No, I’m out, I gotta sell now. But the experienced entrepreneur and advisor is going to give you real advice that’s going to help you. And it’s not to quickly sign an engagement letter and get our hooks into you for a commission, it’s to help you build a better business, because selfishly, in the long run, your better business is going to sell for more. And that’s going to help our business as well. But it’s in your best interest to do that. So go to quietlight.com/sell. Or if you’re not ready to talk to a human about the value of your business, go to exitpreneur.io/QLPod and get a copy of the Exitpreneur’s Playbook. Alright, Tim, we’re Oh, good. You know, I got some thoughts here. Go ahead.
Tim Nelson 41:15
Yeah, you just made up, you’d made a great point that, hey, as much as we say, knowing the value of your business, and whether exiting is the right strategy, yes, it may not be the right strategy at the time. But you know, you may hear the number, and it’s a great number on what we may value your business at. But as I’ve had a few clients before, guys, now’s not the right time, you’re just growing, you’re just getting started, things look bright in the future, for various reasons. Depending on the company, you know, you may hear that number and just be excited, but it still may not be the right time. So even get that valuation, you’ll get an having an idea of what your business is worth, I think still also goes a long way. So you can plan accordingly.
Joe Valley 41:56
Yeah, and the unspoken thing about valuations are that they’re incredibly motivating, right? So it gives you an idea of what your business is worth today, what the weaknesses are in the business and how to shore them up, and what a difference it’s going to make and the sell ability and the value of the business. So it’s, it’s sounds odd, but getting a clearer understanding of the value of what is likely your greatest asset is incredibly motivating, inspiring, it’s gonna get get over those tough days and weeks and months. And sometimes years, we all have as entrepreneurs, so I would say definitely get evaluation. Second, is that well, I forgot my second point already, Tim, because sometimes I just ramble on. So I’m gonna move on to Tim, we’re running out of time. Do you have any last minute thoughts or advice for the entrepreneurs or potential acquisition entrepreneurs that are listening to the podcast?
Tim Nelson 42:54
Sure, I think one of the biggest things I can suggest is that expansion is a good thing. looking to expand to sell into other marketplaces, but also other countries is not as complicated as it may seem. I think a lot of sellers are sometimes afraid of the unknown, and what’s it like to sell over Europe or in the UK and stuff like that, but that there’s people out there that can help guide them and hold their hand and, you know, expanding your business and growing your business is always the goal. And then hopefully, with that expansion and growth, you can get to your exit and get the maximum dollar for exiting your business.
Joe Valley 43:30
It sounds great. Sounds great. Good advice. Thank you, Tim, for coming on the podcast. How do people reach you? How do they connect with you? How do they learn more about what to do over the best accounting?
Tim Nelson 43:40
You could find us at avaskgroup.com or you can email me at [email protected] Or feel free to give us a call here in New York, where we’re located now. 914-664-1900
Joe Valley 43:55
awesome. I’ll put all that in the show notes as well. Tim, thanks for your time today.
Tim Nelson 43:57
Really appreciate it. Thanks, Joe. Appreciate it.
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 [email protected] 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.