321: The EXITpreneur's Playbook – Maximizing Your Profits When Selling a Business with Joe Valley

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Hello, hello, hello, this is Bjork Ostrom, and this is the Food Blogger Pro podcast. Today I'm chatting with Joe Vallee, and Joe Vallee is the author behind the ExitPreneurs playbook. The tagline here is how to sell your online business for top dollar by reverse engineering your pathway to success. And the thing that I love about this book, and I talk about this actually in the podcast, is I think the best businesses to run are the businesses that are the best businesses to buy. And in the extrapreneur's Playbook, Joe talks about not only here's how you can prepare your business to be sold for the maximum amount of money and how to get there, but he also talks about all of the different variables that go into that. So we talk about that on this podcast, but the book dives deep into it and we're going to cover a lot of great stuff back in 2016, which is crazy. I actually interviewed Mark Doust, who's a partner at Quiet Light, and we talk about that interview a little bit in this podcast. And this is a great update, kind of a 2021 version of really talking about what does it look like to run your business in a way that it could be acquired and how do we think about our business as an investment. I actually talk about working with our personal finance advisor and how we're starting to think about our businesses as investments in the same way that we would if we're investing into the stock market. And Joe's going to be talking about how you can actually go into the details about kind of the valuation process with that. So it's great interview. It's important framework for thinking about how you're running your business. And even if you think, wait a minute, I'm not an exopreneur as the point, as Joe makes a point early in the podcast, everybody eventually is going to have to think about transitioning their business. There is no forever and in business. And so regardless of where you're at with it, it's gonna be an important conversation with Joe from Quiet Light. So let's go ahead and welcome Joe to the podcast.

Good to be here. Thank you for having me.

Yeah. So you are a voice that I have. Sometimes people will say this. I will do a podcast with them and they're like, hey, it's like having a conversation because I've listened to you. I gotta say that's you. Because I've listened to the Quiet Light podcast. So talk a little bit about what? Quiet Light is the background there. And Then we can talk about this book. For anybody watching the video, I'm holding it. Exopreneur's Playbook. But what is Quiet Light and what do you do day to day?

Well, first of all, I appreciate that you feel like you know me, even though we've never actually talked like this before, because I feel the same. Because you've been on our podcast with Mark hosting, and he and I talked about you and Food Blogger Pro for years. So it's kind of weird, this world that we live in. Sometimes we feel like we know each other. Even though I had no idea what you look like, I had no idea what the sound of your voice was and that kind of stuff. So it's pretty cool. Pretty cool. Quiet Light is an online business brokerage firm specializing in online sell side only. And I would dare say, Bjork, that we are the leading or one of the leading brands selling online business brokerages in the world.

Mm. It's interesting. I remember sitting at my computer like six or seven years ago and browsing Twitter, and I was like, I came across some Quiet Light stuff and I was like, oh, here's the CEO, Mark.

Yeah.

Looked up and I was like, wait, St. Paul, Minnesota. Like, he's. He's like, we could be neighbors. And I remember this moment of like, oh, this is so awesome. And I shot him an email or something like that, connected with him. And now you are a partner at Quiet Light. That happened. You said 2018.

That came out 2018. Yeah. I joined the company after I sold my own business and through Quiet Light. Yeah, I sold this through Quiet Light. Yeah.

Yep. Nice. And it's. We were talking about the transition of Quiet Light going from, you know, selling significant businesses, hundreds of thousands of dollars. And I just checked the other day, and it's like, now, like multiple millions of dollars. These businesses that you're selling are these businesses that, like, for people who listen to this podcast, Food Blogger Pro Podcast, are these businesses like, we're working on, that we could build and sell these businesses someday? What kind of businesses is Quiet Light Sell? And how realistic is it for a food blog or food creator to build a business that they eventually sell?

Yeah, absolutely. The audience members are potential clients of Quiet Light or the material that we share, which we. We give everything away for free because we educate. We consider ourselves in many ways just an education firm. And we educate and help, help, help. And then that eventually grows our business as well, because people choose us to do business with and help them exit their business. But absolutely, a client of mine Victor. His first business that he sold was a content site. It wasn't specific to food, but he sold it for like $7,000. Bjork. And then, you know, 18 months later, he had another one that he sold for 20,000.

Yeah.

Climbing up the food chain. And then he. He didn't sell those first two through us, but then he sold one through Amanda here on the team for about 220,000. And then he came back again another 24 months later. And this is one that he'd been working on for a while.

Sure.

And we listed it for $5 million, and we actually sold it for just under 9 million because of the growth of the company and things of that nature. But, yeah, no doubt we prefer working with people when they're not at the end of their business life cycle, but more in the middle so that we can help make sure they're doing the things that are going to help get them maximum value when they eventually exit.

Yeah. Which is one of the things that I love. It's one of the reasons why I love listening to the Quiet Life podcast is because we don't. I think some people come in and they operate as people who say, you know, I'm going to take this. And I know in three, four, five years, I want to sell this. And I think at first glance, you'd think Extrapreneur's playbook, those are people who are coming in, they say, I want to buy something, build it, or I want to start something, build it, and then sell it. But what about people who are like, wait, this is something that I am building and I want to build it forever. I'm people who would say, like, I'm not an exitpreneur. I'm a business owner and I'm building my thing, and I just want to continue to run that forever. Is it. Do you have to opt in to be an exopreneur? What about people who are a little bit cautious about it? And really, what is an exitpreneur?

Well, define forever. Right. Let's do that first. I'm on this forever. It's not something that exists in our lives. Right. We're not going to live forever.

Yeah.

So eventually you are going to move on from your business or your business is going to move on from you. Right. You're going to die. It's going to just part of life. You might get divorced. 50% of people might. You might have a falling out with your business partner. It happens, unfortunately. Or the business may get to the point where it's a Grind because it's gotten so big and now you have to hire all sorts of people, and that's just not your thing. It's outgrown what fills your cup and makes you happy. And then you think like I did back in 2010, I woke up one day and decided, oh, man, I got. I want to sell this business. I'm out.

Yeah.

Yeah, right. So, you know, an exitpreneur is somebody that has done it already. They're an entrepreneur, and they've sold their business, and now they understand that the most of the value you get from the business does come the day that you sell it. And so they're running the business with a mindset of. The reality is that at some point, I am going to exit this business. It may be to my children, but I'm still going to run this business the best I can to build a great business for a great buyer, to take over to great price, even if that is my children. Or like the email I got today where somebody is hoping to sell his shares to his business partner, it will help you, first and foremost. Well, the book, the extrapreneur mindset, I guess, if you will, will help you understand the true value of what you have. And more often than not, Bjork, it's your greatest asset in terms of your portfolio of assets.

Yeah. And it's interesting. We work with a personal finance guy and we were putting together. He's like, we should probably be tracking your net worth. I was like, okay, yeah, that sounds good. For a long time, you use mint and it syncs up with your bank accounts and you can do investment account. He's like, we should probably include your businesses in this. And it's like, oh, yeah, like that makes sense. Like, there's value in these things that we've created. And then create a little pie chart. And it's like, oh, like, I guess our businesses are the most significant investment that we have, and we should probably treat them as such. Like, if you think about it as something that similar to an investment in a different company, like a mutual fund or a stock or like crypto or a savings account, all of those are investments. But for people who are building a business, that is an investment as well. And that's one of my favorite things about books like this, why I love listening to Quiet Life podcasts, why I love reading a book like Entrepreneur's Playbook, is because even if right now we're not in the mindset, we're not people who are like, hey, we're going to acquire Build and exit. What it does is it helps you create a business that somebody would want to buy. And usually a business that somebody would want to buy is a business that's generally better to run.

Would you agree with that? Absolutely. I've seen this happen so many times. And by the way, exitpreneur is a new word and it's hard to get it right when you say the name of the book because you just said the Entrepreneur's Playbook. It's the exoprener's Playbook. And just, I just want to let.

People know that I was looking at the title as I was saying it, but I said Entrepreneur's Playbook.

I get it, I get it. And I wrote the book, but I still bought exitpreneur.com and I was so proud of myself. Right. That doesn't make sense. Joe, you bought exitpreneur.com I spelled it wrong. Bjork. I was so proud of myself when.

You, when you were buying the domain. Yeah, yeah, yeah, yeah.

So it's the. The domain is now exitpreneur IO because somebody else actually owns the dot com only wants a quarter of a million dollars for it. Oh, well, yes. So your book, I mean, your business is your greatest asset yet. You have no idea what it's really worth and you're just running it to grow top line revenue and take some cash flow out and maybe more and more and more each year. But the real value, as you said, is tracking your net worth. And it's net worth is nice. On paper it's nice, but you can't do anything with net worth. You can only do something with cash flow. So the business is producing cash flow. But my mindset was I need to write this to help people understand how to manage the value of what they have so that when they're ready to exit, they'll be prepared to make sure they do get maximum value. Because, Bjork, I've talked to thousands and thousands of entrepreneurs over the last decade and the sad part of it is that most of them are not prepared and they don't call until they're exhausted, emotionally worn down, and just need to move on. And by that time it's too late to have a great exit.

That's what I was going to ask at that point. Is it too late? And if it wasn't too late, when those people call, what would the things that they would. What would be the things that you'd tell them to do?

Yeah, often it's too late to have the exit that they Want, right? So, you know, why is that? Well, there's a story in the book because they've got a certain dollar amount in mind, right? They're just like, okay, I'm going to sell this. And there's a story in the book. And I think on all the epic failures in the book, I change names completely. Let's just say the guy's name is Steve, right? So he came to me and he wanted to exit his business for, I think it was $10 million. He gave me the details over the phone, and I made the mistake of saying yes because he was about to sign an engagement letter to someone else, and he's like, look, I just didn't like it here. I heard great things about you from a guy named Bjork. It wasn't you at that time. But I said, okay, let's go ahead. And I signed an engagement letter. And then, and only then, did I look at his financials, which is absolutely wrong. I shouldn't have done that. I should have firmed up the value of his business first. Because once I got the financials, I was on a call like this, and. And we're looking, and I'm, like, scrolling through it, and we're talking about the numbers, and he goes, whoa, whoa, hold on, hold on. What's that figure in July? I'm like, well, it says, you know, $1.3 million. She goes, there's no way I did 1.3 million in revenue. I'm like, steve, this is your P and L. You gave this to me. It's wrong. So that's the first thing that most people do wrong, and that is the financials are not right. They're not clear. They. They're not. I can't dissect them, or they don't even use QuickBooks or Xero. But in Steve's case, his $10 million exit, his goal was unachievable because he thought his discretionary earnings were much, much higher based upon his conversation with the other firm and their light view of the financials. And when I dug into them, his business, unfortunately, was only. And I say only, but in his case, it was only worth about $4 million, which was 6 million shy of his exit goal. So he couldn't exit for the goal that he wanted to, and he couldn't exit it for $1 million because he had debt on the business, and it wasn't enough to give him that freedom that he needed.

So at what point do you start to pay attention to that? Like, get QuickBooks set up, use a bookkeeper use a CPA. I mean, is that kind of the 101 of what that looks like to do to have your financials in order?

Yes, but let me clarify the difference between when somebody tells me, I say, who, who's doing your book, doing it in house? And they say, no, no, no, no, my CPA is doing it. And I immediately know that's a problem because the CPA does their books primarily for the tax returns, whereas a bookkeeper does it so that you can analyze your business and it's easy to hand the correct financials to your CPA to then file your taxes.

Yeah.

So there's a clear distinction in my view. A CPA and is for tax mitigation, tax filing and tax mitigation purposes. A bookkeeper is simply to get your books in great shape so that you can understand the value of what you have, so that advisors can help you understand the value of what you have. And yes, so that you can give them to your CPA to file taxes. But anytime I see a CPA doing the books for somebody, generally they're done on a quarterly basis. They're not on an accrual basis. They're not right in terms of trying to exit the business.

And it's amazing how much of a difference that makes if you have a monthly rhythm of looking at the numbers in your business. We use a company called Pilot, which, it's relatively expensive, but it's an outsourced bookkeeping company. They kind of have a focus on startups. And then we work with somebody as like a fractional cfo. And that combination has been super helpful for us to see, like, okay, on a spreadsheet, I can look at it and see here are the trends here, where things look month to month. This should be happening, this shouldn't be happening. Wait, why are we spending $3,000 on, you know, whatever it might be odd expense that you otherwise wouldn't have noticed. So is, is that the benefit of like the monthly bookkeeping is kind of like financial hygiene?

Well, yes. So we do the same thing at Quiet Light. Right. Because I'm an exitpreneur and I advise people how to grow their business to make sure they're getting maximum value. So I can talk the talk without walking the walk. So I'm always thinking about the eventual exit. I'm 55 years old. I'm not going to work forever. I'm not going to live forever. So sometime at some point, my business is going to exit me or I'm going to exit the business. So we have the same thing. Outsourced bookkeeper outsourced or fractional cfo. And we look at the go over the books every month in your case in that situation, and you said $3,000 of odd expenses. So the way to start thinking like an exopreneur is, okay, my business, let's just say it's worth four times. Four times what? Four times seller's discretionary earnings, which is net income plus add backs, which is owner benefits and one time expenses. Okay, that's a lot of information right there. But you get to that point of you found a $3,000 expense that just didn't make sense and you're just blowing money, right? Well, that $3,000, if you do that in the 12 months prior to selling your business, you're not just losing. And let's say you do that every month, that's $36,000. I'm sorry, that's what's wrong with my math. $39,000 a year, right?

Sure. Yep. 12. 3.

12 times 3 is 36.

Yeah.

I do this for a living.

Yeah.

All right, so $36,000 a year is not just what you're losing. If you're just blowing through money in your business, it's actually 36,000 times four. So you're really, you know, closer to 160,000, 150, $160,000 in the loss of the list price or value of your business because you're not paying attention to the bottom line. One of the things that most people miss. Bjork, I don't know. In your business, do you use credit cards for cashback money much or reward points?

Yep. We didn't for a long time and we just transitioned to doing that like a year and a half ago.

Why did you transition to doing that? Because of the perks and benefits or do you get the cash?

Yeah, cash. So did a calculation, it's like, well, we could make like, I don't remember what it was. Multiple thousands of dollars just by switching to credit cards.

Okay, let's call it $10,000 a year.

Sure.

Okay, so you're not just making $10,000 a year in cash back. You are. That's real money in your pocket. And really what it is, it's a discount off of spending advertising, whatever it might be. And the IRS doesn't know how to tax it. So even if you're using that money going over to your personal bank account, what you want to do is put it in an add back schedule on your P and L because you're not just getting 10,000, because if your business sells for four times discretionary earnings, that 10,000 adds $40,000 to the list price of the business, because that is an owner benefit. It's a perk of running the business. And the new owner of the business is going to get that same perk, you know, when they use a credit card. So little details like that, that extrapreneur mindset, understanding the value of what you have and making sure that you're getting maximum value when you do eventually exit will help people reach that goal that they're setting a little sooner. Or be so comfortable and happy running. As you said, if you build a great business for a great buyer, someday you're going to enjoy running the business. And you may hit that exit goal, but then say, I'm having fun, and then just move the goalposts.

Right. Point being with both of those is the expense isn't just the expense. Like, you shouldn't think of it as just the expense. But even if you're. Even if you're not thinking of selling right away, eventually you will. And if you're thinking of your business as like, what is the value of this? The more that you are spending, the less value it's going to become. Because there's a multiple. Use four as an example. It's that kind of like a number that you use for where the market is right now. Based on sites.

Yeah. Content sites.

Yeah.

Anywhere from. Let's say it depends on the size. There's so many variables. I can't give you a multiple and have it apply to everybody's businesses. That's kind of dangerous. Call me that.

That was one of the things when we were saying, like, how do we figure out how much is worth? I was like, I don't know, like three to four. Like, I didn't want to be too aggressive. Where you have this idea of like, hey, it's going to be worth a lot, and then if you do it.

You'Re doing that with your financial advisor.

Yeah, exactly.

So this is what kills me. Right. And this is part of the reason I had to write the book, Bjork. Because you know Mark and I really, really well. But you didn't even feel comfortable saying, hey, Mark. Hey, Joe. What's the value of what I have here? I'm not selling anytime soon, but I really want to know what the value is. We could say it a million times over and people still don't feel comfortable taking advantage of the service that we provide, which is, you want to know what the Value of your business is we're here to help with that. We don't talk you into anything. We want to help you. And that comes back around to us eventually. If you choose to sell and choose to work with Quiet Light or you would be like, I had evaluation done. Mark is brilliant. I love that guy. Wow. I am so much closer to my goals. Everybody in the audience, you've got to just at least get evaluation from these guys at Quiet Life. It's what we do. But even you didn't pick up the.

Phone and call just somebody who, like, I've had lunch with many times.

For a lot of people, they're not comfortable with that. So the everything that, you know, anybody on my team would do or Mark would do is, you know, in terms of the valuation is in the book. Right. I go through the whole process. So you should get a really good understanding of the value of your business in terms of a range. I even put ranges in there and I say they're subject to change, but you'll be able to firm up that most important thing, which is sellers discretionary earnings, with the details in the book. And then you've kind of got a blue belt. You don't have a black belt yet. Mark's got the black belt. So you should call Mark for the real expert opinion or somebody on the team.

Yep, yep. But the idea is, I think you start to think of running how you run your business differently and reading through something like this, listening to Quiet Light podcasts, like, all of those are different frameworks for how you think about running your business. And there's other pieces that I feel like are really valuable, like kind of the pillars of what makes a successful business that also make a business just solid in general, like a good business to run. And you talk about those as risk growth, transferability and documentation. Can you do a quick breakdown of each one of those and why those are important factors not only in an exit, but also just general best practice for business.

I love that you're asking that question, mainly because people always want to ask the question, so what multiple are things selling for these days? And they don't know how to calculate sellers discretionary earnings, which is the most important thing to figure out yet when it comes to the valuation, calculating sellers discretionary earnings is like 10% of the whole process. The 90% is the art. Right. There's math, which is calculating discretionary earnings. The 90% is art. And that's the four pillars. Risk transferability, documentation, and growth. I call them what buyers want or fear. Right. And they've come out of a decade's worth of experience in talking to buyers and they always seem to focus first on risk. Right. They're making an investment and if they buy your business at a three time multiple, they expect to make their money back in three years. And so they're going to look at the risk of the business and a lot of factors underneath there to determine how high or how low the risk is and how quickly they're going to get a return on their investment. Some things might be, you know, in your business, how, how tied to the brand is you? Are you right? Are you the name and face of your business and what kind of risk, if that's the case, does that, you know, pose for the buyer? Yeah, right. I sold a, I sold a prepper site a few years ago. You know what a prepper site is?

Yeah, totally. Like, hey, doomsday scenario. Do you have the food in your bunker that you'll need to live?

Exactly, exactly. And they're just, they're just loving the last couple of years because they're totally kind of right. But it was owned by a 70 year old woman who was the name and face of the business and she's wanting to sell it and that proposed, you know, a bit of a challenge because she wanted to sell it and be done and walk away.

Yet every voice of everything, she's the.

Voice, every email that goes out, she's her pictures on the website, people knew and trusted her. So we had to go through, you know, we had to mitigate that risk by having a longer training and transition period. So she had to stick around for 12 months afterwards. Normally when you sell a business, you're done in 90 days and even when you're done, I mean, the day after closing, you're really kind of done because then you're only going to spend 20 to 40 hours with the buyer of that business over the next three months. But in her case, she had to remain the name and face of the brand for 12 months because the buyer was concerned of the risk of replacing her with somebody else. To top that off, she's a prepper, so she's really paranoid and she, you know, she's like, well, what if I don't like the content that they're writing? What if they say something that it's got my name on it and I don't like it?

Yeah.

So she had to pre approve every little bit of content that was tied to her name or her face every time. And then you have to back that up. And go. Okay, now what if she has vacations?

Yes.

Can she go away for three weeks? What if you publish on a weekly basis? So it was very complex and it just was riskier for the buyer. So the higher the risk, the lower the multiple. The lower the risk, the higher the multiple. And there's a number of different points in there that could be considered risk. Traffic could be a risk. If you have one single source of traffic. Let's say you've got 300 articles on your website, but only one is on page one. Yeah, yeah, yeah. That's a risk.

And it's getting 90% of the traffic.

Exactly, exactly. That's a huge risk.

Yeah.

I bought a business in 2000. Let's see how good your, your, your history is here. I bought it march, I closed on it on, I think March 30, 2012.

Okay.

And I had, let's call it 42amazing days I had there. It was a small site, but six pages. Six pages were on page one of Google. Yep. And then on the April 12, 2012, they all fell to page two, three, four, five, six. And I lost a quarter million bucks.

In about six months because of a Google update.

Which one?

Yeah. I don't know the updates that well. You do, I'm sure. I'm sure.

This one I do. This one I do. Yeah. The Penguin update.

Sure.

Yeah. And I didn't, I didn't know I sold a business in 2010 that was a great business. It had good quality content that I produced over, you know, a five year period. And Google rewarded me. I didn't cheat. I didn't know what blackhead SEO was or even gray. So I sold the wonderful site and then I bought a crappy one and I got punished for it. Yeah.

And the site, the site that you sold probably wasn't hit as bad.

Oh, no, it wasn't hit at all. It actually went up because other people in that space, it was in the nutritional, digestive, wellness space, and other people that competed against that site or had sites competing against that cheated, so they got punished. And my ranking, the rankings on the site that I sold went up and therefore the revenue and everything went up as well.

Interesting.

Yeah.

So the point being, and I think bloggers can relate to this, that there's an inherent level of risk in any business, but probably more so in certain businesses with some with like a Google update, you can't really predict those. So how do you assess risk and how do you even know within your own business how much risk there is?

Well, in Your own business. You got to look at the six components of risk. Not all of them are going to apply, but you know, if you're the name and face, you've got to assess that. You've got to look at how much traffic is single channel traffic. Do you have a single channel traffic risk? Is there one product that you know of all the products that you may be marketing on your site or books that you're selling or whatever, you know, whatever it might be, is it producing the majority of your revenue and is it to Amazon and are they, you can't predict if they're going to cut the affiliate fees again, but you just have to assess the revenue balance, the transferability of the business in terms of you being the name and face and all of those different factors. But you've also got to look at that next pillar. So risk is the first one. Growth is really the next one that buyers look at. Again, we call them the four pillars of value, but they're really what buyers want. They want a business that's low risk and they want a business that's growing. So a business that is growing year over year is more valuable, not in dollars, but if you think multiple, you're going to get a higher multiple for a business that is consistently growing year over year. And even if you had a bad year and you came back from a bad year, I kind of, you know, I show that as a business that's resilient and it tells a story. So that's actually an okay thing, not a good thing because you had a bad year, but it doesn't hurt your value if you're back up in the last 12 months. But you know, there's. Have you done built in paths to growth, as I like to call them? Have you done work that's going to allow me as the buyer to benefit in the year after I buy the business? If you think about if you just launched, I don't know if you typically launch two articles a month, but in the six months prior to listing the business, you launched four articles a month. Maybe it didn't cost you much, but those are starting to rank and starting to, you know, drive traffic and eventually convert revenue as well. That's a built in path to growth because you've done some work for me. Buyers definitely love that. But if the business is declining slightly, you know, and I'm talking, I'm not talking about from May to June, I'm talking about from May of this year to May of last year on a year over year basis, you don't want to wait until that happens. You don't want to wake up and be really tired and exhausted and not pay as much attention to the business and have it start to decline. Because not only are you losing revenue in the business now, but the value, that same multiplier effect, the value is going to go down pretty dramatically. So instead of a four time multiple, maybe you're only getting a three and a half. Okay, well let's talk about that. Extrapolate that out. Let's say you just have simple math. 100,000 in discretionary earnings and the business is worth 400,000. Now it's only worth 350,000 because you're getting three and a half. You just lost $50,000 in addition to the revenue that you're losing in operating the business because you're tired of it.

Yeah, yeah, yeah.

Having that extra preneur mindset is really important to get over those bad days and make sure you don't burn out in the business.

Yeah. And then I think you're continuing to move along.

Yeah, two more, two more and then we'll be done with this part. So it's risk growth, transferability and documentation. It should go without saying that if the assets that drive revenue of the business are not transferable, you do not have a sellable business. So in the case of my prepper site, if she absolutely refused to allow her name and face to be associated with the business the day after closing, she probably wasn't going to have a sellable business. Nobody would buy it. It's too much of a risk. Or buyers would have said, okay, I'm willing to take the risk. I'll give you this much just because there's organic traffic. But the rest I'm going to have to give you an earn out. And she would have said no in that case again because she was a prepper. So she was very paranoid. So the assets of the business have to transfer in order for it to be a sellable business. Bottom line. And then the last part is documentation. And that goes back to not just profit and loss statements, but SOPs and contracts and things of that nature. You know, I want to buy a business that you've built that is well organized, that you can look at, you know, financial statements on a monthly basis, on accrual basis that I can export to Excel Digest and look at where you're wasting money. Where I've got a business and I've got a guy that can do that at half the price and where I can get instant equity all of that instills confidence in the buyer. It builds trust. And your processes, your contracts, all make it easier to transfer the business and you don't have to stick around for as long afterwards as well. So growth, risk, growth, transferability and documentation are what we call the four pillars. And I always say there's a fifth one, but Mark says there is no fifth pillar. So we argue about this lightheartedly all the time. So I'll say that the pillars, you know, in today's world, you know, in historic times they would just take giant stones and plop them on top of each other. They'd be wealth card and they wouldn't have any mortar holding them together. Today there's brick and you know, pillars might be made of brick and they're held together with mortar. You, the owner of the business, are the mortar that holds those four pillars together. So you, you actually have to behave like a good person. Shockingly. Right.

Yeah.

It's amazing in today's climate, whatever you want to call it, let's just call it climate, how unkind people can be behind the keyboard and social media and they make their stance loud and clear and you could be so offensive that you're eliminating 50% of your buyers because they disagree with your stance on whatever subject it is you're spouting off at the mouth at.

Yeah.

And everything's available on social media, just like we tell our kids. Right. Don't do that, don't post, don't say that. The buyers are going to look at everything about you they can find on social media. So put a shirt on, put the keg down or whatever you're doing and just be a mature professional adult that that builds trust and that buyers want to buy your business and they will pay you more for it. That's the bottom line. They will pay you more for it when they trust, respect you.

Yeah. This is somebody who I want to interact with. It's going to be a serious interaction, maybe one of the most significant in somebody's life. I want to do that with somebody that I trust, that I know will be professional and the image that you are creating and projecting online and realistically just who you are goes a long way in a successful business transaction. Is that what I hear you saying? Yeah.

And that all goes back to the first pillar risk. Yeah.

Yeah. Interesting.

Do I want to give my money to a 22 year old frat boy that's doing all sorts of things online and sputnoff at the mouth about it or do I only give to You a professional that seems to care about the world and care about their business. I know that you're running a better business, and I can trust you more. I'll verify still. But you're running it well. You've put the details of the business together. Well, it all builds trust. And because of that, I'm willing to pay you more for the exact same business than I am the frat boy. Happens every day.

You have examples of. People have come to you and said, I need to be done or I want to be done, or I'm on to the next thing. And you said, you can do that. Here's what it will look like. If you do, or if you go away and change some of these things and then come back, it's probably going to be a little bit better. What does that kind of before and after story look like?

Yeah, I'm going to use. I'm going to use a real person here. His name is actually Joe as well. Joe. I think he told me his. He became a father two days after his 17th birthday. Wow. Not a good start, right. In life when he was. He graduated high school, but only because his girlfriend at the time did all of his homework for him because he was working full time to support her and his newborn baby. Tough way to start life. Had a drug addiction at one point, came full circle, was clean, and launched an Amazon business. It was in the, in the, in the, in the gun holster space. I can't even think of how to describe it right now. Concealed carry space. That's what it is. Right. So he's a. He's a hunter, obviously, and whatever likes to carry these. But he created this and he came to me, was referred to me and. And wanted to exit his business for a million dollars. That was like the magic number. And that was his goal. And we went over his numbers together. And as he says it now, he's like, joe, you stomped on my heart that day.

You're like, thanks.

First I couldn't breathe. Yeah. And then, you know, I was invigorated and excited because I had to tell him, look, you're not there. Your business is not worth a million dollars. But in order to get there, here are the things that you need to do. And he was invigorated with that. And some of it was, you know, just doubling down and putting. Getting over his emotional challenge that he was having in the business, like we all do. Right. Sometimes your business is just hard to run. And in his case, he didn't have any goal other than, I want to sell my business for a million dollars. And that's, that's not a specific enough goal. It should be, I want to sell my business for a million dollars in the third quarter of 2023. And I want to feel amazing because I'm out of debt, my kids college is paid for and I could spend more time with my family. That's a goal. That's a goal. So we went through that. We did that with him or I did that with him. And, and then we looked at some of the weaknesses in his business. He had some SKUs that weren't actually profitable.

Yeah. Can you explain SKUs for people who aren't in the e commerce world?

Yeah, yeah, yeah. So a SKU is a stock keeping unit. Pretty impressive that I actually know what that is. When I'm doing a podcast and they give me acronyms all the time, I'm always saying, well, what does that stand for? And nobody can seem to get it, but it's just identifies a unit, a product that they would sell. So they may have, you know, three or four different variations of a product and each one would be a skew. So a couple of them were not really profitable. But he was, his business was growing, just not at the pace that he had hoped for or not enough to get the business worth a million bucks. So we went through some goal setting exercises and then we reverse engineer a path to that. So he had a goal set the million dollars. I showed him where he was today, which was only about $700,000. And then, you know, with the growth that he had in the business, charted out how quickly he was going to get there and it wasn't that long, it was only about a year. But he also could do some other things to accelerate that, which was get rid of some SKUs, you know, spend, do some better spending on advertising and things of that nature. Because we could see his advertising spend as a percentage of revenue was higher than the average that we see. Well, he did an amazing job with it and didn't come back in a year because he was loving the business that he built, because he built a better business for a better buyer to take over. It was a great business to run and he was really enjoying it. So it took about 18 months before Joe decided to sell. We actually sold it for about two and a half million dollars. So he went from 700,000 in value to about two and a half in value in about 18 months. And this is a guy that is really conservative. He keeps his overhead low, is his house that's $60,000 on a channel down on the coast of Florida and no debt. He bought a boat, went fishing for four months after closing. It was just great life. Great life.

Good for him. What about you had talked about sop, a standard operating procedure. What does that actually look like when somebody brings you a business and you start to. My guess is you factor all of these things in when you're trying to come up with of value. You know, how much risk is there, what does growth look like, how transferable is it? Is stuff documented? What does it look like to actually document things? Well, like what do you. When, when have you looked at a business and you're like, oh my gosh, this documentation is awesome. What does that look like?

Yeah. Mo most times people don't have documentation. Bjork. And the problem with that is it doesn't. Sometimes it doesn't instill confidence in buyers, but more often than not, it just makes your job after closing harder, harder. So people like SOPs. I don't want to do SOPs. I'm like, yes, you do. Because if you, if you, if you document everything that you do in your business, because I'm going to take over on the day of closing, I'm taking over and I can either be on the call, I'll call with you all day, every day, and you can walk me through everything, or you can hand me an sop. The first day will be on a call and you can hand me an SOP and goes. This is what you do when this happens. You do that. When you try to do that and it doesn't go exactly right, you do that over there and it just gives you all of the path that somebody that bought your business can go down to operate your business with the things that go right, the things that go wrong, and it helps instill confidence in them. And they're buying your business and like, yeah, you're going on vacation for two weeks after closing. You know, first of all, I'll tell you, you really can't do that. You stick around for a little while. The typical training and transition period after closing. In a typical asset purchase agreement, which is the contract between the buyer and seller, it literally says up to 40 hours over the first 90 days.

Sure.

I don't think I've ever seen anybody use all 40 hours. And the more organized you are with SOPS, the more, the lower number of hours those are going to be. With content sites. It's going to be incredibly low. I mean, we're half that, maybe.

Yep, yep. The thing that is Interesting about that to me is we're going through this process with tinybit, so the parent company over, Food Blogger Pro, Pinch of Yum, WP Tasty, nutrifox, Clarity, all these businesses we have and we're trying to, we're using EOS as their operating system. And then part of that is like processes and documentation and we're trying to figure out like, how do we do that, where do we do that, how.

Do we do that?

Well, but one of the advantages that I found is like, then even I use processes for a system that I've usually just gone through myself where, like hiring, okay, here's kind of generally what we do and I just know that. But now that we have a document for it, I actually go back to and refer to that document on something that previously lived in my head and it's allowed me to release some of that. And it's also been great when a team member is like, hey, can you explain kind of the hiring process? He's like, oh, we have a process for that. And you can just imagine that at scale for somebody who's taking over a business and they say, instead of calling you, how do you do this? It's like, well, there's a process for it, there's a document for it. So my point with it is valuable in an exit, also probably valuable right away as you start to implement it, especially if you're building a team. But even not to just document your own processes is really helpful.

Yeah. You know, you're hitting the nail on the head there. I mean, you're making operating your own business easier for you. It's going to be easier for the buyers as well. But it takes less time for you to explain to somebody the hiring process because you've documented it here. Sarek, go ahead and run with it. Go ahead. Here it is. So you are focused on bigger CEO type projects that will generate more revenue for the business and more profit. Yeah. Cool stuff. EOS is cool stuff. You know who wrote the book, right?

You know, and he's. His name's right on the front here.

Heck of a guy. Heck of a guy. Yeah. That's a fantastic book.

Yeah, yeah, yeah.

Or well, it's. I'm assuming you was attraction that you went through. I know we're getting off a tangent traction or what the heck is EOS traction?

And then work with an integrator to like do our actual implementation of.

Mark and I are doing the same thing.

Cool. Here's a question for you that I'm curious to know. About I've just been always fascinated by. This is less of like tactical question and more, it's almost like work philosophy. How many people who exit a business start another business after exiting it, even if they didn't have to ever work again? How many people are working? Because I think what I've thought about and what I'd be interested in communicating with listeners is it's different for everybody. But how much of having that end goal exit is like, and then I go and live on the beach and drink my ties versus you do that for three months and you're like, wait, actually running a business is enjoyable and then you go and do it again.

Yeah, there's only one person. I can only think of one person or maybe two. Right. Because of the woman that ran that prepper site. That's funny because she was 70 at the time. And I, and I. Yeah, and exactly. And I sold another content site for a gentleman that was 74 years old. And when I sold it, the business was 17 years old. So you can imagine the code that that was built on. But for everybody else, now it's not. They're done. You know, I sold the gentleman that I mentioned earlier, Victor, that's 7,000, 20,000, 8.75 million. He took his last exit and built it. And all those were content sites. And he built a e commerce business that he's hoping to sell for $100 million. He's 41, 42 years old. He's not done. Most people in this world, in this e commerce world that we're in, are not going to exit and live on the beach or go play golf. They're not, they're not, they're not wired like that. But what they may do, you know, as I say, I said, you know, when you exit and then move on to your next adventure, your next adventure may be another business. But you're wiser and smarter and better funded. So you get to do a little bit more of what you like to do and a whole lot less of what you hate to do or what you're not good at. And that's the difference between when, you know, I bootstrapped my first business in 1997 and today. If I was to start a business today, I'd be much more well financed and a heck of a lot more experienced than I was then. And so, you know, somebody that does sell their business and start another, I would say they're, you know, an exitpreneur because when, I guarantee you, when they're starting that next business, they've just sold one and they're starting that next one. Or maybe they took some time off, which I hope they did, and they're starting the next one. I guarantee you at that point. The old motto is true, is that they are thinking about the exit of the business on the day that they start because they know most of the money comes the day they sell. And that's, you know, part of the process for them.

Yeah, and that was one of the questions I was going to ask. So I think a lot of people see like an Instagram and they're like, oh, a billion dollars, 12 people. No, no profit. What? Can you explain the difference of that world versus this world? When people think about buying and selling a business?

Yeah, this, this world is not that. Right. That's the huge, huge exception. You're gonna see that stuff and go, oh, I can do that. And that's the problem with entrepreneurs. We all have that I can do that mentality. It helps and it hurts. We think we can do anything and then we realize we're incompetent at a certain level. No, businesses are not valued based upon potential. They're based, they're, they're valid. Let's call it the sub 25 million dollar range, because that's mostly where we play. They're valued on a multiple of discretionary earnings. And I'm going to real high level surface. You run a profit and loss statement and on the bottom of that profit and loss statement says net income. But you have personal benefits like your salary and your retirement funds and I don't know, travel to events that you then spend an extra week at with your wife. Those are owner computer. Exactly. Because a computer doesn't transfer. So all of those things are add backs. Your cash back monies that you get add backs. So you've got net income and you've exported this to Excel and then down below that you build what's called an add back schedule. And this is all detailed in chapter 11. And it's the net income plus add backs equals what's called sellers discretionary earnings. And in the sub $25 million range, businesses are generally sold at a multiple of sellers discretionary earnings, not no revenue and no profit and a billion dollar sale. So you're going to be, let's say in the content world, I'm going to say a broad range of 3 to 5 times sellers discretionary earnings. And that varies greatly depending upon the size and age of the business and the risk and the growth and transferability and so on and so forth.

Yep. And the basic idea with that is somebody's looking at it and saying, I'm buying cash flow, I'm buying money coming into my bank account. How much am I willing to pay for that, considering the risk, the growth, the transferability and how well things are documented. And then all of that factoring in to allow them to say, hey, I'd be willing to pay $400,000 to buy $100,000 of income each year. And I feel comfortable with that. So I'm going to buy that in four years. They'll have it paid back or less if they can be strategic about how they grow it.

Yeah, if it's growing 25% year over year, they'll make their money back in 2.7 years. And some people might be thinking, why in the world would I sell it for four times if I'm making 100 grand a year and all I'm going to get is 400,000? Well, you're not making $100,000 a year in cash flow. Seller's discretionary earnings is always much higher than cash flow. Second, your income that you're making in the business is taxed at a personal gains, personal tax bracket level, which is much higher in most cases than capital gains, which is what the sale of your business would be taxed at. So you're probably looking at huge takeaway. Huge takeaway. You could be looking at, you know, if you live in California, in New York, I mean, you're looking at anywhere from, you know, 10 to 13% difference between personal, personal and capital gains. And then if you live in Texas or South Carolina or New Hampshire, some other tax free states. Puerto Rico. Oh, well, forget about if you live in Puerto Rico, you're rolling in dough. You don't have any Internet service, but you're rolling it down. Yeah. So it's capital gains versus personal income tax. And then you've got money in the bank as well. So it's significant when the math is done. Right. And I go through that exercise in the book, if somebody owns a business for four years, how much cash flow they take out of it versus how much they'll have after four years and selling it. And I think that you get like 3.5 times more by selling the business than by actually operating the business.

Interesting. Yeah, that's in that one example, the Puerto Rico thing. For those who aren't familiar, it's. They don't have like a. You don't have a federal income tax, is that right? It's like 4%.

Yeah, it's like 4%. And you've got a, there's certain codes or something that you apply for and it's not easy to do. And I know people. Yeah, I've, I, I sold a business that was an affiliate platform business for somebody and after the sale he managed to, you know, up and move to Puerto Rico.

Yeah.

And the next time I sold a business for him, it was like 3.75 million and he had, he owed nothing more or less in taxes on the sale of the business. It was just a really incredible. Yeah. But as an American citizen to move to Puerto Rico, there's a certain tax exemption status that you can file for. I can't tell you what top of my head is what it is. And if I try, I will definitely get it wrong. It sound even more foolish than I.

Probably already page in the show notes for it. It's called the exitpreneurs Playbook. For those who are watching see it. It's even bolded in red for me that when I was reading it before saying entrepreneur, maybe I looked at the Gino title of Entrepreneurial Leap, which is another great book and one that I'm reading now. But where can people find that, Joe? Is it on Amazon? Is it best if they buy it directly from you? Where's the best place to find it? Kindle Audiobook.

If they go to exitpreneur IO, I give away three free chapters of the book so they can get a taste for it and see what they think before buying it. If they can't afford the book, send me an email and I'll send it to you for free. I mean, it's like $17 on Amazon, but all the book sales, except for bulk sales are being done through Amazon. So you can just do a search for exopreneur on Amazon or go to xpreneur IO. I also give away a bunch of other information on the site as well.

Cool. And then if people want to connect with Quiet Light, if they're at that point where they either want to have a conversation to say, hey, I'm early stage, I'm not burnt out yet, but I want to think about this, I want to be strategic about it, or if they're at the point where they're like, hey, you know what, I am kind of ready to be done, what's the best way to connect with Quiet Light?

Yeah, no matter what stage they're at, they should have this conversation. Because again, what I talked about earlier and what I talk about in the book and I've got it on my screen on my computer. I got my eventual exit up on here, my screen that you can't see and it talks about a dollar value and a date and how I'm going to feel. Once you have those things set, you got to figure out where you are. And that's what the advisors at Quiet Light will help you with to know for certainty how close or how far you are from your goal. So you can just go to quietlight.com and click on the valuation page.

That's awesome. Joe, thanks for coming on the podcast.

My pleasure. Thanks for having me.

One more big thank you to Joe for coming on and talking about what it means to be an exitpreneur again. If you want to learn more about what that means, what goes into that, you can go to exitpreneur IO and there's information about the Exopreneur's playbook, what it means, some considerations, where you can buy it, those free chapters that you can pick up. And if you're interested or thinking about, hey, in the next few years, maybe it's a year from now, maybe it's four years from now, maybe it's seven years from now, or maybe you don't know when it is, but you've kind of thought about that idea of selling a business. Selling your business. Quiet Light is a great brokerage to connect with and follow up with. We've known them for a long time and have a lot of connections there. And a few folks who are brokers there have actually been on the podcast. Chris Guthrie was on the Food Blogger Pro podcast, obviously Mark, and now Joe. So check it out. Quietlight.com or exopreneur IO and if you haven't yet, feel free to follow along with the Food Blogger Pro podcast in whatever podcast app you use. You can just hit subscribe or follow. We would really appreciate it. That's a wrap for this week's episode until next week. Hope you get a tiny bit better every day forever. Thanks. See ya.