E248: Preparing for the ColorIt Sale with Joe Valley – Part 2
Hey guys! We’re back with Joe Valley for part two of talking about the process involved in selling one of our brands ColorIt.com.
In 247, you found Joe and me at that point prior to putting the business up for sale. By the end of the episode, we had gotten a deposit and a signed LOI (letter of intent) from the two wonderful guys who are now the new owners of ColorIt.
A signed LOI is similar to a “gentleman’s handshake”. We now see the beginnings of a deal at this stage, but not at a point where it is set in stone. Getting from this point to where the deal is actually finalized is what we will be recovering in this particular episode.
You’ll hear Joe and myself discuss terms like purchase agreement, due diligence and all the minute things done before finalizing a sale and getting that money in the bank.
The last episode in this 4-part series will be an interview with Nirav, one of ColorIt’s new owners and the team members themselves so stay tuned for that one.
If you’re interested in getting onsite advice from Mike and have your business featured on a podcast, sign up for the EcomCrew Roadshow today!
Catch the latest episodes of the 5 Minute Pitch on YouTube. Join season two by filling out and submitting the application form.
Finally, if you enjoyed listening and think this episode has been useful to you, please take a moment to leave us a review on iTunes.
If you have any questions or comments, feel free to leave them below. Happy selling!
Full Audio Transcript
Intro: Hey guys, this is Mike and welcome to episode number 248 of the EcomCrew Podcast. Today we're back with part three of our continuing saga, the journey of selling ColorIt. And today on episode 248, I’m back with my good friend Joe Valley. We are now fast forwarding a few months from the last episode. We recorded an episode here about due diligence, the asset purchase agreement, getting the letter of intent done, selling the business and all that stuff so you can see what kind of transpired behind the scenes with Joe in this episode.
Again, this is episode 248. If you want to go back to episode 246 or 247, you can kind of get the background on this. If you're new to the EcomCrew Podcast, I recommend going back and listening to those two parts of this series first. All right, without further ado, let's hop into today's episode with Joe Valley from Quiet Light Brokerage.
Mike: Hey Joe, welcome back to the EcomCrew Podcast and our series on selling a business through Quiet Light Brokerage.
Joe: Good to be here yet again.
Mike: Yeah, so a lot has happened since the last time we recorded. We left off the series at the point that we had a signed LOI which is a letter of intent. As you would say it's a non-binding legal agreement. It's kind of a gentleman's handshake at that point. I think pretty much once you sign that, what would you say like 95% of deals happen at that point.
Joe: At least. I cannot remember the last time I personally had one fall out of a letter of intent. And it's funny; it is a gentleman's handshake. I think it literally says the LOI is non-binding and fully contingent on due diligence and a further detailed asset purchase agreement. So there's lots of ways to get up.
Mike: But I mean, again, I mean by that point, someone is putting down a deposit, they've gone through several phone calls with you. They're pretty committed. So unless they are a squirrelly unethical individual, or they're just trying to get competitive data from you, or they just have cold feet for some other reason in their life, I mean, the vast majority of these things are going to go through at that point.
Joe: Yeah, yeah. And the level of detail that they're provided with after signing a non-disclosure agreement, they've got to go through the NDA. They've got to go through me and then like you said, several calls, or at least one call with you. And the buyers get very comfortable. You got very comfortable with that after the first phone call I think. We did a video call.
Mike: Yeah. I mean, we really hit it off. We did. Yeah, we hit it off. I mean, nothing has changed my opinion of him since that call. The guy and his partner Nirav have been awesome to work with. I'm excited to have a good group of people own the business. And, yeah, I mean, I think that it doesn't always go that way. I mean, Dave sold a business through you where it wasn't quite that easy. And so it doesn't always mean that you're going to find something like that. I just happened to get lucky.
Joe: Yeah, yeah, no doubt. It’s a great guy, the fourth business that he's bought from me personally and Quiet Light Brokerage, the third Amazon FBA business in the last eight months. And he says yours is going to be the best investment yet.
Mike: Yeah, I mean, I hope it works out that way. I mean, I certainly if I had to pick how things would go from there, it would be that he's successful with it and that he's happy with what we did, and how things went. That's how I like to live my life. So if I could pick the outcome that happens over the next couple years, it would be that for sure.
Joe: Well, I think we kind of wrapped up the last episode with the good human part, that Matt is a good human, you're a good human. And I think I read something that you wrote, thanking him after signing the letter of intent. And you acted in good faith in due diligence and all the way through closing and now in training and transition. So I think it's going to work out incredibly well.
Mike: Yeah cool. So let's talk about getting from LOI to the day that everyone wants, which is the money in your bank account. That's, I think the biggest part when you're selling your business. And it's not an easy journey, just because you signed the LOI, things are not by any stretch of the imagination done. So the two big hurdles to get over from that are the APA, which is the asset purchase agreement, and due diligence, which is a stage where a third party is going to go through and look at your business with a fine tooth comb, or the person who's buying is going to do that on their own and start asking tons of questions. So what do you think we should talk about first?
Joe: Yeah, let's talk due diligence first, because we've got to get a little bit through due diligence, and get the buyer comfortable before they invest the money in the attorney to draft the asset purchase agreement. And in this case, Matt decided to hire Centurica. And we've talked about Centurica on our podcast quite a bit. They're terrific at due diligence and helping buyers make good investments and make sense of the numbers and things of that nature. So you had to go through quite a bit. So I really want to hear about the pain that you went through because we signed the letter of intent the 5th of May.
We wanted an extended closing for two reasons because A, Matt was buying another business and closing in March. But also because you had to move some stuff out of the seller account that he was taking over. But I counted the total number of folders that we put in the Google Drive folder; we put them up in Google Drive and get them organized very well. But they were a total of 12 folders, anything from bank statements, vendor invoices, things of that nature. And within those folders, there's probably anywhere from 12 to 36 individual documents, each representing a month in the last 24 to 36 months.
And then on top of the folders that you had to put in the documents in it and working with Centurica, Brian I think at Centurica, with his due diligence, you also had to give Matt and his team seller account access. So how painful was all of that for you?
Mike: A lot worse than I thought it would be, quite frankly. And not because of the volume of work but because there was some things that they found that didn't match what we had presented, which really upset me at a core level. I just take stuff like that really personally, worry about the perception of that. And it was really stressful. So I mean, I knew going into it kind of like what was going to happen, right, I knew that like all the things you just explained. I knew that I was going to have to furnish credit card statements, bank statements, seller reports, and just basically every little thing.
And so I mean, I went into it with a very open mind and an attitude of “I need to provide everything” and just be like not just willing, but like overly willing to just make sure that I give them everything and not take this as a “this is a pain in the butt” or just be irritated by the questions because I think that that can put you in a bad frame of mind. I mean, you have to look at things as if you were buying a business. And if you're buying a business and you don't hire a company like Centurica, I think you're crazy, because there's all kinds of things that could be hidden under the rug, and especially in a business like ours that was commingled. That makes it even more difficult to really uncover everything. So I expected a lot of questions. And what I didn't expect was for them to be better at accounting for my business than I was at my own business. That was the part that upset me.
Joe: Well, if I recall, you found an error, and let them know that you found it, and how upset you were about it, which just goes back into one of the most important things in transactions like this, whether it's between the buyer and seller, the seller and the broker, the broker and the buyer, it doesn't matter. And the word is trust, there has to be trust there because no one is perfect. And things like that happen in your business, especially when you've got four brands going on and all commingled and bookkeepers that are doing it one way different than you thought they were. No one is perfect and mistakes happen. And the trust was established early on.
So when that came up, it wasn't a major red flag, especially because you said hey, look, guys, I found this and let them know instead of going oh, I hope they don't find that which is just the wrong way to do it. I know you never would but those things are found. Someone that has the ability to stroke a check for the amount of money that this business was sold for has the ability to dig into the numbers as well. And like you said, almost be better at the accounting than you were yourself.
Mike: Yeah. I mean, Centurica is amazing. I respected them before because Chris Yates, that guy that owns it is a mutual friend of ours. We've been in his conference before, just super good dude. But I just didn't realize how good they are. And as you mentioned, when you're doing it, it just goes to show you when it's – I have this saying, if you chase two rabbits both will get away. I've been feeling like that in our own business for quite a while. And it goes to show you with details like this. I'm a numbers guy; I'm passionate about accounting, always been prideful that we have our numbers done really quick and early. But I do rely on a bookkeeper to do it.
And as much as I review the financials and make sure that they're correct, there are things that — the things that we discovered were things that require some digging before you would actually realize that they're a problem. And I want to go over them real quick just so people can understand what can go wrong, the things that may be happening in your own business. But the first thing that happened was our bookkeeper was using a pivot table to establish cost of goods sold for each month but not adjusting the price that we were paying for each invoice. So she would put on the pivot table like widget one we buy for $10, but if we started buying it for $10 and 50 cents, she never changed that.
And this is one of the things that Centurica uncovered. And so what was happening was very, very slowly, a nickel or a dime at a time, our cogs were being understated, which means that we were showing a higher net profit than we thought we were making. And on any individual month, it wasn't a big number, right? It might be $1,000 or something. But over time, it adds up to a lot. I mean, if you were to put up 36 month multiple on something, it ends up being a pretty sizable number. And I was pretty frustrated with that because the relationship with our bookkeeper, I mean, she's someone that I've trained, she's been an employee of ours for a long time.
And she basically does what I tell her to do, and just replicates it. But I expected her to have some logic behind what she's doing and understanding. And that's one thing that I would have expected her to realize that things change as we're paying different manufacturers and to look at that at some point and update it. So that was frustrating. And that was actually now that I think about it was one of three different problems that they found.
Joe: What were the other two?
Mike: So yeah, so the other one was international currency issues, which was another thing that Centurica found, which was I was really pissed at the bookkeeper for this one. This one I thought was just unforgivable, but she was putting in the amounts from UK seller accounts and Canadian seller accounts and just taking the number that was reported there and putting them in as US dollars and not adjusting for currency. And like I said, that I just was like, I don't want to mention her name here but whatever. I mean, like I was just like that's really not forgivable. I mean, you have to realize that that's not US dollars coming in from the UK. And that's not US dollars coming in from Canada.
As it turned out, that ended up balancing out like almost to the penny. It's kind of crazy, because obviously the UK currency is worth more to the dollar and Canada is worth less to the dollar. And we actually sell more in Canada than we do in the UK. So as it turned out it was basically a wash but it was embarrassing.
Joe: That is probably fairly common to — well, the bookkeeping is the most important thing and very difficult, especially when you're dealing with international sales and currency exchanges. But what was number three?
Mike: Just one last thing on that real quick because this was the same bookkeeper we've used for other business when we were doing online poker stuff. And that wasn't — the entire business was multi-currency, which is why I was even more frustrated with her history there. So yeah. So anyway, so the third thing was the thing that I discovered, which was refunds not being attributed properly. So I mean anybody that is on Shopify, you try to download the Shopify report, it is a rat's nest of complication. And this one, I blame myself and the bookkeeper for because again, I'm the one that told her what to do in terms of how to process the reports and put them into a clearing account.
So the way that we do it, we're on accrual accounting, we set up an on deposit of funds basically account so we sell stuff in its own deposited funds. So because like the credit card payments that come through the Shopify credit card payments come through a few days later. So you just got to make sure you’re attributing things to the correct month. And so the month that we set it up, it's never going to bounce out to zero, because you're always waiting for money to come in from the credit card payments. And it looked right, because I mean, it was within a couple of hundred bucks, and which is exactly what we expected.
But what we realized was that returns were not being processed as a part of the report the way that she was capturing it. So if we had a return, let's say we give someone $100 refund, that's obviously $100 less in income we should have been reporting. And I realized this when we were going through because of the inventory clearing account that we have for — not clearing account, inventory asset account was starting to balloon because the cogs weren't proper. I went through and looked at our balance sheet line by line and saw this relatively large clearing accounting thing that should always be balancing close to zero, not at close to zero. And I started digging into it more and realized what happened. And that was the thing that I threw myself under the bus for and told Centurica about.
I asked you, what's the right way to do this? I'm like I felt like I had to tell them and you just like texted back, just tell them, this is just what you got to do.
Joe: Told you, you can do.
Mike: Yeah, that was…
Joe: There's no other option except to tell them. And so the way that these things impact due diligence and the ultimate value of the business should always be dealt with simply. And that's using logic and math. So let's say that all of these adjustments totaled $10,000 less in discretionary earnings. And I'm just making up numbers now, folks. So let's just say that you were off by 10,000 and let's say we were at a three time multiple, it simply means logic and math 10,000 three times, we reduce the price by 30,000 and that's it. It's not — it shouldn't be emotional, shouldn't be complicated especially when that trust is built early on.
One thing I want to just quickly suggest is the most important thing I think that comes out of something like this that people listening should learn is that bookkeeping is one of the absolute most important things that you should be hiring somebody to do. You shouldn't be necessarily doing it yourself; I think you should be focused on the bigger picture, but having a really great bookkeeper in-house, or a really good bookkeeping firm to tackle this stuff. And then you look at monthly, quarterly, and annual reports, verifying and making sure that your details and data are correct. CapForge, MuseMinded and Catching Clouds are three of the ones that I see come through most often that do really, really well.
The other thing I want to ask you Mike is a simple question. Now that you've gone through this, when do you think is the right time to prepare your business for sale?
Mike: I mean, I would say 18 months ahead of time probably.
Joe: It's a bit of a trick question.
Mike: Yeah, I mean, probably always, but I mean, because you just never know when that moments going to be that you're going to want to do that. I mean, for me, I had one plan in mind, and we just kind of pivoted. We've talked a lot about that over the last year why we did that. And yeah, so I mean, having been thinking about that from day one would have been better. But I mean, I've thought a lot about this. I had a lot of drive time the last couple of months as I've been driving around the country doing this road show stuff, and I'm not sure that it would have been realistic for us to actually do things differently.
At the time that we made the decisions and did what we did with the number of people and resources that we had and the rate that we were growing, it would have been pretty difficult to have done things a little bit differently. I mean, let's just say like the multiple account issues with Amazon, where yes, obviously right now, I wish I had everything split out from day one in multiple accounts, but that would have meant just four times the accounting work. And we had employees that were shared across different businesses and just the efficiencies that we gained while we were in this 100% per year growth mode, the way that we were able to get cash because of all this, and just like a whole bunch of other things that I've thought about, our business never would have got to the same level.
But we went down a path that most entrepreneurs or most businesses don't go down and probably don't want to go down because it definitely will burn you out. I mean, trying to do that 100% growth in four companies. I mean, the other way that I've looked at it is maybe it would have just been better to have one company and stick with just that one thing, who knows what would have transpired there, would that have ended up with one company that was worth more than what we had the day that we sold one of these businesses? That's all so hard to say.
Joe: Yeah, for sure. Hindsight’s clearly 20/20. There's a cost associated with having in this case, four LLCs, four seller accounts. You wouldn't have had to have necessarily different staff, they just would have been tracking their time by brand, which I think would be difficult, of course, and then you're talking about four tax returns and so on and so forth. Yet, you may have been able to sell all four or at least the top two and be done and move on. You also might have had — not might have, we definitely would have had a broader pool of buyers, cast a broader net if we had one LLC with its own tax returns, because your business would have been SBA eligible.
We got a good multiple, but I think if things had been cleaner, we would have had other buyers that could have pulled the trigger and may have — don’t you like that could have and may have and how cautious I’m being here. It might have pushed the multiple up a bit. So quick math, if you're paying a company like MuseMinded $599 a month to do absolutely everything for you, including filing your taxes and you've got three additional brands, it's about $22,000 a year. And then some other expenses along the way, I think you would have made that up very, very quickly in less headaches that you've had, probably some loss in terms of moving the other three brands over to three new seller accounts.
Mike: Oh, it's cost us a lot, dude. It's been brutal yeah.
Joe: I think — I'm not running your business obviously, and don't run your brands. I’ve been in your shoes, but I only did one at a time. But there's value in the cleanliness of a transaction. It's just buyers will pay more for a cleaner business. And in this case, we had two offers, Matt and Robert. Matt’s offer was the ideal one and it's been great. But it was kind of a trick question just saying, when is the ideal time. I think the time to start preparing your business for sale is right now. I saw somebody do a presentation at the Prosper Show. And when is the time and it was Judge Judy up on the screen tapping a wristwatch, right now. It really is.
Even if you don't plan to sell for three, five or 10 years or ever, life changes, right? It just creeps up on you, you wake up one day, and you're like, yeah, I'm kind of done, I'm going to move on to something else. So you'll make a lot more if you have first and foremost clean books. And then the headaches that you go through in due diligence just – I won't go too deep into it. But those 12 folders, if somebody was organized enough, or if they had an employee or VA that was doing it for them to save the monthly information that they need, just like I save everything for my annual tax returns in my — it's going to be my 2019 folder now.
But your bank statements by month, by year, your credit card processing statements, and different seller accounts, Etsy, eBay, Amazon, different statements like that on a monthly basis, Groupon, whatever it might be, PayPal statements, vendor invoices, all of those saved to PDF by month, by year, in a folder that might be called the cash in folder or whatever you want to call it. I think that's rare that somebody will do it but boy, it would have been much easier for you along the way in due diligence if you've been doing it.
Mike: Yeah, yeah, no doubt. I mean, definitely the way that we're going to run things moving forward. We're kind of forced into that now, because we have made those different LLCs and different Amazon accounts. And it's just, that's definitely the way we're going to do things moving forward.
Joe: Yeah. So let's touch on the number one thing during due diligence that anyone should do is keep their foot on the gas on running the business, and you did exactly that. You were completely distracted with having to put all this together and work with Centurica and Rob and Matt. But your numbers were amazing. We went under LOI there again, the 5th of February and it took us purposely 60 days to close. And I think during those two months, your numbers were up something like 80% over the prior year's month, which just gets the buyer that much more excited and they just want to close. They're just like, okay, let's hurry up.
And actually you know what, I think in this case, I'm actually just remembering right now, your letter of intent with Matt was actually binding. He's the only one that does a binding Letter of Intent because he lost a deal last year that was an amazing opportunity. And the seller changed his mind and pulled back and then ended up selling it for almost $3 million more, $4 million more.
Joe: The seller was right. But yeah, Matt put that binding part in the letter of intent.
Mike: Yeah. I think that the fact that we had that continued growth was also the reason why we didn't have to make an adjustment after the stuff that came out of due diligence, which was a stress point for me, because like I had told you because we're growing, I'm not willing to lower the price. Now, I do realize that things aren't as good as they were from that perspective but we also have two months here now that were way better than before. And if were to relist the business, we can probably, effectively get a higher price. So that did help as well I think by having those numbers.
Joe: Yeah, Matt also knew that you were running the business in a great and efficient way. And as I told you, he's told me that he's bought three FBA businesses in the last eight months from me, and that he feels like ColorIt is going to be his absolute best purchase today. Yeah he’s excited about it.
Mike: I mean, you were saying like, it was great that I was able to keep the foot on the gas and XYZ, but realistically, I was able to continue to go through due diligence and do all that stuff because I really, like legitimately spend just a few hours a week on ColorIt. I did. I mean, I wasn't really spending much time on that stuff, which I mean, could be good and bad, right? I mean, like, you could say, if you spent more time on it, what could it actually done, but because we had so much stuff going on, I mean, I've been spending way more time on the EcomCrew stuff lately, because I just gravitate towards what I enjoy more. It isn't what makes more; it's just what I enjoy more. And so I've spent less time on ColorIt, I spend more time talking about ColorIt than I did actually work on ColorIt it seems like these days.
Joe: You certainly spent a lot more time selling ColorIt than you did actually running it in the last few months too.
Mike: That's for sure. Yeah, I mean, that was definitely a job. I mean, there was definitely about three weeks there where I felt like I had a full time job, that I was working for someone else again for that time. And again, I kind of knew that going into it so I wasn't super surprised by it. But it doesn't make it any less frustrating, or just the amount of work that went into it. It wasn't even really that frustrating.
Joe: It’s just that your life was too busy; everything else didn't stop just because you were on a letter of intent. You took on more, not less. I tell everyone, I sold my e-commerce site in 2000, November 2010. And I remember specifically saying to my wife, I am working harder selling this business in due diligence, getting it ready, working on this asset purchase agreement than I'm actually running it. I was putting in more hours than I was actually operating the business. And it's just part of the process. But there's a payday at the end. And it feels like it is taking forever when you're in the midst of it. But it comes quickly towards the end.
So we got through due diligence, there were challenges, but we got through it. And the challenge is just as you said was because of the level of detail. How was your experience with the asset purchase agreement?
Mike: Amazing. And I even I don't know if I texted you or messaged you or CC’d you I guess I should say on the note that I wrote to Matt about this. But after the APA was done, I wrote him a letter or just a note and said, look man, I really appreciate what you sent over in terms of the APA, because I've done a lot of business deals in the past. And typically, I get unnerved when the other party is the one dropping the document, because that means that then you have to have your lawyer start doing push back to get things to a middle ground. And this can get expensive and time consuming. And also, that was the part that I thought was going to be more emotionally draining just I was kind of prepared for that.
And what ended up happening was that Matt’s document, his asset purchase agreement was already basically right in the middle of the road. It was equally protective of him and for me. It's what the end result would be if you had spent a bunch of money battling back and forth with lawyers to begin with. And I really appreciated that. So I actually wrote him a note, after we signed it, I was like I just want to let you know I really appreciate that. And his response basically was this is the same document that we've used to purchase the other businesses and it's already been fought with lawyers, and I didn't want to start with the egregious version and work the way to the middle again, and just, let's just make this easy.
And again, I just super appreciate that because I hate dealing with lawyers when it comes to stuff like this, because I've been through this. There was an agreement that I did back in the poker days where I was dealing with a lawyer on the other side that was just like all about the other party. And I realize now in retrospect, their strategy was to push me until I was ready to walk away. And then like basically they realize that that was the most that they were going to get. And they probably would have just given — had their part to get less if I wasn't basically such a pushover. And it was just — I didn't want to go through stuff like that again. And I just appreciate the fact that I sent my lawyer the APA and she's like, I have these changes. And it was like five things that were like fill in this blank before we sign the document.
Joe: That’s a great change.
Mike: Yeah, it was like really simple. And I mean I really appreciated that.
Joe: They should have said ColorIt on this blank.
Mike: Yeah, that would have been pretty funny.
Joe: So yeah, this is again the third agreement I have done with Matt and his attorney for the last several years. It was so clean, and they're so good to work with that we now have them on our attorney referral sheet. It's Jones & Spross with I think it's an ampersand, Jones&spross.com. They're great. The attorneys in this situation, any asset purchase agreement negotiation, they should be — they work for you first and foremost, they should be guiding you and helping you, but they need to listen to you.
I have had deals fall apart because attorneys, they dig their heels in and it's an illogical thing and there's a one tenth or 1% chance of it ever happening. Whether or not the right attorney because they're used to dealing on $100 million transactions and here we are looking at something much, much smaller. So I think it was a great experience as well. I tell people straight up, this is a big part of it. The attorneys and I generally have conversations up front with them if I don't know them and haven't been working with them over the last 12 to 18 months and getting their business ready for sale.
I tell them point blank who's your attorney? If it's your mother, brother, father, sister, cousin, uncle, girlfriend, husband or fiancé, whatever it might be, I am not taking you on because it won't close, simple as that. When it's a relative or someone doing you a favor, they fight like rabid dogs and the deals fall apart. So hire a professional attorney, spend the money, get it done, do it right. It's worth the investment, worth the peace of mind afterwards as well.
Joe: So we went from deep due diligence dive to asset purchase agreement. And then we — I think we had dinner in Vegas for what 17, 18 hours it felt like because I was saying so well, right?
Mike: You were falling asleep at the table because it was late and you were also on East Coast time. And you were trying to have this dinner in Vegas at like 11 o'clock at night and still try to stay awake.
Joe: And I wasn't really part of the conversation because it was about products and launches and things of this nature that you guys were planning. And I’d just spent three days on my feet at the Prosper Show.
Mike: It's actually funny; my take away from that dinner was different than you because my takeaway was that all he wanted to talk about was buying the next business. So I thought that you actually were talking a lot more than you remember.
Joe: Okay. Well, I didn't — I only had one drink and I didn't even drink it because you weren't drinking.
Mike: I was not drinking. I've been doing good on my no drinking thing. Yeah.
Joe: It's good for you. Did you lose any weight yet?
Mike: I think so; I've had two people tell me I look slimmer. But I haven't…
Joe: Any time I don't have a drink, I lose a few pounds because I eat better too. But that's not what we're talking about here today, is it?
Mike: It isn’t no.
Joe: But we're human and tangents are normal.
Mike: Especially with me.
Joe: So we got through that. And then there were times that you were like, okay, are we going to prepare for this closing at all? What's going to happen here? I feel like it's just coming so quickly. What are we doing Joe? Right, you remember that?
Mike: That was definitely weird to me. I got — like I definitely thought that there would be, especially with these guys because I kind of, got to know them a little bit. And they seemed really structured and just like have their stuff really together, super professional. But the closing stuff kind of was a little bit winged. And I think I have to think that a lot of that was for two things. Number one, I think that they just gained a level of trust with me that they weren't really worried about it and until I had committed to coming to visit them in person for a couple of days to help with this. So I think that did help.
But yeah, we were like getting down to the last minute and I was like, when are we going to change passwords? Do you want to give me your credit card number to change billing on accounts? And there's just a bunch of things that I just expected was going to be like a very long few hours, or maybe an entire day of going through and doing all that and it was more just a little bit more winged, I guess, for lack of a better term. I mean, they didn't really seem concerned about it. And I have to imagine that it was just a relationship based thing at that point more than anything.
Joe: And it was also that they've done it before. So they knew what the asset transfer list was going to be. And I was just poking around in the asset purchase agreement to see if there was a complete list of the assets, what they would transfer. For less experienced buyers and sellers, we’ll put together, it's in the asset purchase agreement normally, and if it's not – and actually even if it is, we'll put together a separate Google Sheet with all of the assets that transfer. And in some cases, if it's not done in person, the seller will just change usernames and passwords and put them in the sheet and then the buyer will login with those new username and passwords and change them.
But yeah, it was very casual with them simply because they had just done 130 days before and also capacity right? Nirav was just joining, and Matt had and still has a full time job and he works at least 60 hours a week doing it. So he dealt with each issue as it came without needing to plan and prepare, which was a bit stressful for you, especially for your team. He wanted your team to be taken care of and instill confidence in them that the new owner who's going to be taking care of them and that their lives wouldn't change. Which you guys eventually had that phone call with him I believe, right?
Mike: Yeah, I mean, everything has worked out great. And I mean, I was less stressed about it because I was more stressed for them, like the things that I would be thinking if I was in their shoes, and there was just some big things that they didn't seem to be as concerned about, like transferring the domain name, or like me paying off the Amazon loan and our account before they could take it over and a bunch of other stuff that I just thought for them they would be more concerned about. But yeah, it probably was a capacity thing.
They probably were just overwhelmed because they took over another business, they have their other jobs, maybe because they just kind of trusted me that at that point and they weren't as worried about it. But yeah, there was a few things I'm like, okay, like, I mean, I know I'm not going to screw you. But like if I wanted to right now I could. And I certainly would never do that. But there was just a few a few times I'm like, man, maybe they just — but I really do think that it was all relationship.
Joe: Yeah, a lot of it. And one of the things that you may not even recall it, but shortly, I mean, right after closing, signing the letter of intent, you sent a style guide that basically broke down every ColorIt, everything that you have, and just showed how organized you were with SOPs. And it was just I mean, it's — I don't remember, it was a 25 pages or whatever it was, but it just showed them the level of detail that they're going to get in the future from you. And I think that again instilled trust. And again, they've got some experience doing it. So it worked out, you closed, you sat with them for two days, you got some money that hit your account and now you're still just as busy, right?
Mike: Yeah, its kind of crazy. I was telling you that right before I think we started recording, we still got a lot going on. And we're going to continue to work to correct that and most importantly, be doing things that I enjoy most. I got a little glimpse of that right before closing as I've been doing this RV trip and doing the EcomCrew roadshow stuff, which I love. I mean, it's just — for me, it's way more enjoyable talking about this stuff for people that are struggling in their businesses and seeing the way that their eyes light up when you talk to them about stuff that they just need reassurance on or help with.
And so I enjoy doing those things and looking forward to doing more of that and slowly working towards getting to that point because you can't do that overnight. It's just not fair to everyone around you. You got responsibilities and things to make sure that you're fulfilling. And so this will be over the next year or two will continue to work towards our long term goal.
Joe: Just in recapping the timelines for those that are listening, we launched, I think it was about five months from launch to close. I think it took a little bit longer. We launched in late — I forget if we did it, I think we did it after Thanksgiving. I think it was in…
Mike: It was late December. And I mean, yeah, I mean, in my mind, like I knew it wasn't going to sell at that point. I know this was against your advice, but I was kind of pushing you a little bit. But I was just like, let's get the listing out there even at the higher multiple, just to expose people to it so they're aware that it's out there. And so when January comes and we post this December number that I already knew was going to be strong, that we would have more interest. And you didn't think that was the best of ideas. But that was like the one thing that you kind of acquiesced on I felt like because I thought that that was the best way to go. And I don't think — it worked out.
Joe: It worked. It brought the multiple down, made it more attractive for folks. But yeah, we launched it in December.
Mike: Closed April 5th.
Joe: April 5, intentionally made the closing 60 days because you had to move some stuff out of the seller account. Otherwise and if we say, look, really we relaunched it at first full week of January, it's more like three months. And then gosh 60 days, it could have been 30, which the other one was. So it's pretty quick, the engagement letters are 90 days for a reason. Looking for what I always say three to five conference calls in the first 30 to 45 days and at least one acceptable offer. And I mean, we had at least I think we had five altogether, didn't we I remember? Again, I remember looking back, going through the security at the airport on one of the calls.
Mike: Right, right. I remember you telling that story. I don't remember exactly but I know that we talked about that in part one. So we definitely covered that. But it was around five. And as you said, we could definitely close this thing in at least 15 or 20 days sooner. I was the one that kind of pushed it to extend closing. And I actually wanted to give it even a little bit more time. But we just obviously needed to get it done at some point.
Joe: Yeah. Well, I think the most important thing to learn from this process that you've gone through and for the folks that you work with is if at all possible, separate out brands that you want to sell off in the future, and just assume that you're going to someday and prepare for it. The time to start preparing for a sale is now even if you don't intend to sell so that you've got the cleanest possible books, so that you can get a higher value because I think your business could have gotten a higher value, how much more I don't know, if things had been separated. And like you always say, don't chase too many rabbits, because you're not going to catch any. If you focus on one thing, focus on it, and keep your focus on it, and keep your focus on it even when you're under letter of intent. And get all the way through to closing and do the right thing, be a good human being and things are going to work out great, just like they have for you here.
Mike: Yeah, I think that's all fair.
Joe: Well, it's been a great experience Mike, I'm glad we did it. I was a little nervous I’m not going to tell you anything different. I was a little nervous because of the way things were coming and the pressure you were putting on me man. You're so soft spoken and chill, and get it up there, Joe, get it listed down, come on, come on, come on. I couldn't fail. I couldn't fail you because I knew we were going to be doing this podcast and I knew that you were going to ECF and had to get it done. I'm glad we did it. I'm glad we got it done the way we did with who we did. So it's a good feather in both of our caps I think to get this done this way, so congrats to you.
Mike: I'm definitely happy, I'm excited. I mean, it's definitely good to have it in the rearview mirror, be done with it. And you were awesome to work with. We got lucky with the buyer. I kind of have a feeling of just like what's going to be is going to be. If there was a buyer out there at the price we were looking for it was going to happen. And if it wasn't we were, as we had talked before, we were just going to continue along the path that we were on. We were going to break things up into different businesses no matter what, because we're kind of at that stage. And so that stuff was set in motion no matter what. And yeah, I'm glad it worked out. I'm definitely happy to have some less stuff on my plate.
We used the money basically to pay off the Amazon loan that we had, so we have no business debt of any kind anymore. So the pressure is just a lot lower. And we can live just a little bit different life in terms of our business life without that pressure of the things that we had going on. Plus, I think that the things that we have left work. I mean, we still have the same size staff. So we're going to focus on three things instead of four. And I think that we’ll do a better job with those three things than we have to this point, which I'm also happy about.
Joe: Yeah, I think being able to narrow that focus on those three instead of four is going to get you a bigger exit down the road. And that kind of debt that you had, a business debt, any business debt is stressful, and it's off your mind now. It's off your plate, out of your bank account, and you're free in a sense, so happy for you.
Mike: Yeah. Yeah, it's definitely good stuff.
Mike: Cool. Thank you Joe, appreciate everything. And if you guys are out there looking to buy or sell a business, there's a reason why I went with Joe at Quiet Light, definitely give them a holler. I mean, when you're buying a business, I don't know that it's as critical like who you're buying it through. It obviously is critical, because there are brokers out there that will list any old thing and obviously Quiet Light is not that way. But even probably more critical, when you're selling your business that you have someone that's in your corner that you trust that you just have a good relationship with that can help talk you off the ledge inevitably throughout the process.
There's going to be things that are going to come up that they're just reputable and etc. And I think that that's super important. I couldn't imagine I’ve sold this through anybody else quite frankly. I'm not even sure — if I didn't know you, I don't even know what I would have done quite frankly. I just really don't even know how I would have approached it. I would have definitely been a lot more uneasy. It was nice the entire way knowing that I just didn't have to worry about something squirrelly going on, and that you were always looking out for my best interest. I think it's super important. So Joe, what's the way to get ahold of you if people are looking to either buy an e-commerce business or sell an e-commerce business?
Joe: First thing they can do is just go to Quietlight.com and check out the listings that we do have. You can sign up for new listing alerts so that you get an email every time we launch one or you can fill out the valuation form. If you want to do it, Judge Judy says and start planning now for an exit even if it's going to be in another year two, fill out the valuation form and just hit enter. One of the brokers — everybody here is an entrepreneur, we've all built, bought, sold our own online businesses. So we've walked in your shoes as a seller, as a buyer, and as a business owner.
So you're going to get real honest advice from experienced people that are going to put absolutely no pressure on you. And in many, many situations, and even with you Mike, I was like, you might want to wait, separate them all out and give it another 12 to 18 months. And we give you advice that we got from the founder of the company, Mark Daoust, when we sold our own businesses. I sold mine through Quiet Light in 2010. And he's the only broker that said, you know what, if you wait another six months, you're going to get x more dollars based upon the trends and based upon the economy. And that's exactly what I did. Everybody else just tried to get their hooks into me for a commission and it just didn't feel right. So doing the right thing is really important.
Mike: I agree, man, it's just good business man. If you have a broker, I mean, if you're thinking about delayed gratification as a broker, it's definitely the better way to go. It also helps you build a better reputation, helps with conversations like this. I mean, when you have a squirrelly conversation with somebody, you're not talking about all those other brokers that we're looking at right now, like the one that you're talking about is the one that was looking out for you for the long term. And that's definitely Quiet Light.
Joe: And it's, I mean, just to wrap it up, you should know what the value of your business is. It is very likely your most valuable asset. And odds are you know what your retirement account is worth, your condo, your house, your car, and all that good stuff and you're pretty solid on that. But you have no idea what your business is worth. I am doing a launching listing next week Mike, and it's somebody from ECF and a friend of yours. And when we really dug into it, there was discretionary earnings was probably about $150,000 higher than the initial valuation call. And that's just by doing proper math and add back schedules and adjustments, and things of that nature.
So I think it's critically important to dig deep in the valuation, just don't have a conversation. Just don't talk to friends and what they sold it for because it's not apples to apples conversations. Dig deep do it and then wait a year if you have to or two or three, it doesn't matter. Just take care of the most valuable asset because if you take your time with it and let it grow, hopefully someday you get a lifetime event sale out of it.
Mike: Yeah, good advice. Awesome man, well I certainly appreciate it and I'm sure our paths will cross again soon. And until then, as we always say, happy selling and we'll talk to you then.
All right guys, that is a wrap of the 248th episode of the EcomCrew Podcast. So glad to have had you guys along with me today for this journey. If you want to get to the show notes for this episode, that's going to be EcomCrew.com/248. I really hope to hear some comments from you guys. And again, if you want to go back and listen to episode 246 or 247, you can go back and do that and find those two episodes. We’ll link to them in the show notes as well as always. So if you do get a moment to leave a review over at iTunes, it does mean a lot to Dave and I.
That's over at iTunes. You can probably do that I've found out easier from your desktop app. If you have the iTunes App on your computer, it's easier to leave the review there. I've been told that we need to make a little guide on how to do this easier, which we're going to probably put together earlier this year. It turns out is kind of a pain in the rear end to leave iTunes reviews, which I don't know why they make it so difficult, but it does help us and we really sincerely appreciate it. So thank you guys for doing that in advance. All right, guys, that's going to wrap it up for this episode. And until the next one, happy selling and we'll talk to you soon.
Outro: Thanks for listening to the EcomCrew Podcast. Follow us on Facebook at Facebook.com/EcomCrew for weekly live recordings of the EcomCrew Podcast every Monday. And please, do us a favor, and leave an honest review on iTunes, it would really help us out. Again, thanks for listening, and until next week, happy selling.