What's Your Shopify Biz Worth? Is It Even Sellable? What's Your Exit Plan?

Jay Myers: Welcome back to another episode of the Shopify 1% podcast. I'm excited for today's episode because it's a topic that I hear so many merchants talk about, have questions about, and then when someone actually goes through it, I hear so many other people asking questions, and that's the topic of selling.

Potentially selling or selling your business or getting some kind of significant investment or some financial event for all your hard work one day. And before this episode, I did a little bit of research and the numbers are actually quite low. Like it's less than roughly 20% of. Well, actually businesses in general, it might even be less for e-commerce.

We'll find out with our guests right away. But just to set the stage a little bit it's a very low number of businesses that ever actually sell. And so if you're a business owner, you're listening to this podcast, you probably know that you work for a lot of years and you might not make a lot of money because business is a grind and there's years where you maybe pay your employees, but maybe you don't pay yourself.

It's a lot of hard work. And then in the end, to not have some kind of exit. Kind of sucks. And so, my hope is to give some information to our listeners today on how to prepare for that, because it's not later down the road that you want to think, okay, I'm ready to sell. It actually starts like day one.

So my guest today is the founder of They Got Acquired, which we're gonna get into what that all is. But Lexi, well, welcome to the show. Thank you so much for being here.

Alexis Grant: Hey, yeah, sure. This is my favorite topic, so I'm happy to chat about it.

Jay Myers: So you've sold businesses yourself and then you built, TheyGotAcquired because you said, I saw somewhere you wished it existed when you sold. So what? What was missing for you?

Alexis Grant: Yeah, exactly. Well, I sold two businesses there, both in the media space. One was a small content marketing agency, and the others was, the other was a website property, like a website for writers. And what was missing for me was everything. Like when I looked around, I didn't know. Where to find resources and I didn't know who could help me.

And all the examples that I saw of acquisitions were like these massive companies that were selling for billions of dollars or hundreds of millions of dollars. And you know, here I was with my six or seven figure sale, which would be meaningful for me and meaningful for, you know, a lot of founders who bootstrap. But I didn't know how to find resources about that specifically. And also you know, how to find. An advisor or someone who could guide me through the process. And most of the places I looked, it looked like the bankers were doing much bigger deals. So yeah, that's, I felt like I needed something to guide me through it and yeah, that's what we do at They got acquired.

Mm-hmm.

Jay Myers: so interesting. You're, and you're also kind of stuck in this space where you can't. Of it doesn't make financial sense to be paying the professional firms 50,000 or a hundred thousand dollars for advice through this transaction. I mean, we've gone through similar things at Bold, like we've had two pretty significant raises in our history.

One was for 19,000,000 one was for 35 million. And we could, when you're doing that kind, you can afford to pay a you know, for proper legal counsel. But I was part of a family business that we sold and you gotta be careful. You can't yeah, you can't be spending a hundred thousand dollars for advice 'cause that'll quickly eat up all the proceeds.

And so that's awesome that you built this. Tell me a bit about it. Like what is the, they got acquired.

Alexis Grant: Yeah. Thanks. Well, we are a media brand at heart. 'cause my background is as a media entrepreneur. So the biggest thing we do is educate. Like we wanna teach founders how do you sell your business? And also even more so what do you think about now so you can sell for more later.

Jay Myers: Right.

Alexis Grant: We also we connect founders who want to sell to advisors or brokers or bankers who are a good fit for that business.

So a lot of the educating we do it through telling storytelling. So we tell stories of founders who have sold their business and how they did it and what they learned, the mistakes they made, so that we can all learn from all those people. And you know, we've interviewed hundreds of founders and they've been so generous to share their learnings with us.

But I think that's one of the best way to learn, is to talk to other people who have exited. But not all founders have that network. And so we try to become like that friend that you can have straight talk with about an acquisition.

Jay Myers: Yeah. It's not something you go through every day building your business, and all of a sudden, I mean, you're dealing with people if they're acquiring it, that have maybe done this a lot and could be easy to be taken advantage of, right? Like you don't, if you don't know. Other people's stories and what is okay and what's not.

Okay. So maybe let's talk about let's start with some of the big misconceptions about selling a Shopify business. But I mean, you could say this about any business, but our listeners all run online stores. Some of them have retail locations, whatever. But what are some misconceptions founders have about selling, especially maybe about running an e-commerce business?

Alexis Grant: Well, I think one we've alluded to a little bit already, which is that you have to have a really big business to sell because you can sell almost any business as long as it has profit. It doesn't really matter how small you are, how you go about doing it will change depending on how big you are.

So like you were mentioning. It doesn't make sense to pay an advisor a hundred thousand dollars if you have a low six figure sale. So you have to think about like, how do I go about it? I might not, I might be too small to use an advisor, for example, but you're really never too small to sell the business unless you don't have profit.

I think what's hard to sell is an unprofitable business. And actually that gets kind of another misconception is. Because we see all these stories of VC backed businesses that are selling before they're profitable or acquired before they're making any real money. People think that applies to, can apply to the rest of us.

And it doesn't usually it's difficult to sell a, an e-commerce company that's not profitable. So that's the number one thing that you wanna have just for yourself as you're building the business, but also when you go to sell is profit. And like profit, I mean EBITDA, or another word in the m and a space, they use SDE, which is seller's discretionary earnings, and that's basically a proxy for profit that applies to smaller businesses.

Jay Myers: Right. And discretionary earnings. Because as a founder, if you are spending money on something that wouldn't be. Spent on for the acquirer correct it like I might use the profits of my e-commerce business to pay for myself to go to a lot of conventions or something like that. But now if someone were to acquire it, that discretionary spending wouldn't be there.

So it potentially is profit, is that what you mean by that?

Alexis Grant: Well, so I'm an account, not an accountant by the way, but my understanding is that the biggest difference is that SDE, you can. Include your own salary. So you're paying

Jay Myers: Right. Yes.

Alexis Grant: thousand dollars a year, then that counts as profit. Whereas a much bigger business, they're gonna be looking at ebitda, they're gonna take that out.

But for smaller companies, if you're an owner who just has a few contractors, the money you put in your pocket at the end of the day, that is profit too, right? Because you're taking it home. And so it, it works a little differently and I think a buyer can see it that way as well. Like they understand that's how an owner's thinking about it.

Jay Myers: So what is a buyer actually buying? Is it all your inventory? Is it your, just your cash flow or future potential earnings, maybe systems that you've set up? Your story your social, like what are they actually buying?

Alexis Grant: Well, what they wanna buy is they wanna buy predictable revenue and predictable ebitda or profit. So they want you to have systems in place where. They're gonna, you're gonna make money every month or every year, and they can count on that coming in. And yes, like for an e-commerce business, they'd also buy your inventory.

And honestly, I'm not, so we cover all ki types of businesses. We've written plenty of stories about e-commerce businesses, but e-commerce businesses do have some specifics that I'm not like, quite as familiar with because. What you're talking about, like having that inventory, like that's unique to an e-commerce business and that's why you really wanna work with someone who has experience selling e-commerce businesses specifically

Jay Myers: Yeah. Every business is unique. Yeah.

Alexis Grant: Mm-hmm. Mm-hmm. But yeah. And they're also buying the brand, but really what they care about is anything that ties into revenue and profit at the end of the day.

Jay Myers: So one thing on that note, then I would imagine, and this would probably be true for all businesses, is the amount of your revenue that is recurring or repeatable or subscription in some component would affect the valuation.

Alexis Grant: A hundred percent. And in fact, one of the best ways to make more for your business when you sell it is to have recurring revenue. Buyers are gonna pay a lot more for recurring revenue. And, excuse me, it makes sense because as an owner, when you own a business, you wanna have predictable, consistent revenue that you know you're gonna get over time.

Right? It's creates a less stressful environment for you. Well, the buyer wants the same thing. The buyer wants predictable. Consistent revenue. So if you have recurring revenue, whether that's part of your like just part of your revenue or all of your revenue, that's gonna help you sell for a lot more.

So this is actually one of the ways that we suggest people think about if you're setting your business up years in advance before selling it, you wanna think about like, how can I add in a recurring revenue model? Because that's going to sell for a lot more.

Jay Myers: Yeah. When we with our raises at Bold, we actually had. So we had different types of revenue and we had an agency component and we don't do agency work anymore, but at the time we did. And you know that work is kind of one time revenue. Like you would do a project and they might pay you $50,000 or some whatever amount, but it's one time.

And then we had our software revenue, which is generally recurring, some type of a monthly fee. And they literally looked at our revenue and they said, okay, this bucket. Gets like a one x multiple. The one time revenue. This bucket over here, the recurring revenue was like, it was, it varied, but it was like 10 x that.

And it's the same company. We're the same business. Were the same brand, but they just looked at the revenue buckets completely different when they looked at the multiples.

Alexis Grant: Same thing happens for when you sell. So that's why if you are starting out a business, like if you picked a business to start based on your exit rather than what you actually wanna build and what the market needs or whatever, you would probably build a software business because software trades for much higher multiples than pretty much any other type of business.

Jay Myers: Mm-hmm. We've seen some of, so we have a subscription platform at Bold, like our listeners know, but I don't know if you're aware, but anyways, I, so we have a lot of stores. Running subscriptions for e-commerce, not software, e-commerce subscriptions. And we've seen some of them sell and get valuations similar to what software companies get.

And it's awesome. That's one of the things I love the fact that it, that we in some, in a small way are helping that brand get

Something more. So, and I just want to add something else that I've noticed. Lately is, I talked to someone and get your thoughts on this, but I talked to someone about six months ago who acquired e-commerce businesses and he said one of the first things they do is obvious.

They look at the recurring revenue. If there's any subscription, they look at the one time revenue, but then they also look at. Revenue from repeat customers. So there's one time revenue, which is just a customer coming once, one and done. They buy, they never return. But then there's repeat customers who aren't on a subscription, but they buy over and they might come, I don't know, say you sell dog food, like they might not be on a dog food subscription.

But they're a repeat, and they buy, and he applied a different, multiple to that revenue. And then also by the same token, when he sold these businesses, he made sure investors also applied a different multiple. So he kind of broke it into three buckets. Any thoughts on repeat business that's still one-time revenue and how important that is?

Or any strategy? Any I'll stop there, but any thoughts on that?

Alexis Grant: Yeah. That's awesome. I think that's a great way to think about it. Anytime you sell a business, if there's something that you're doing that makes it, again, more predictable and consistent, then that's great for you as an owner and it's gonna be great for a buyer. So any buyer's gonna ask what percentage of your buyers are repeat customers?

And they're also gonna ask, do you have control over that? Like, how are you making sure that continues to happen? Maybe that's like paid media, or you have an email list. Or there's some way that you're getting people to come back, but that makes it a lot stronger for sure.

Jay Myers: What kills multiples. So you've got two businesses doing the same. Just if you just look at the numbers and one store is doing a million dollars and 500,000 of it is recurring, 500,000 is one time. What can kill it, even though you maybe have the numbers, but what's, what are like red flags for buyers?

Alexis Grant: A big one is growth. So growth can kill or it can like multiply. If you have consistent strong growth over the last couple of years, the buyer's gonna think, oh, this brand is gonna continue to grow. And so I wanna, I'm gonna pay for that, right? Because I want a brand that's gonna continue to grow.

And on the other side, if the brand is declining for the last few years, which by the way is a problem, a lot of eCommerce. Owners are facing. 'cause it's been a tough couple of years for a lot of business owners that can also hurt, like how much you sell for. So sometimes I'll talk to founders who will say, oh, we, we've had a bad couple like last two years, but the year before that, you know, we did really well.

But the thing is, a buyer's not gonna look at that. They don't care what you did before. They care about what you've done most recently and what the trend is. And they're assuming that the trend is gonna continue.

Jay Myers: right. So for people listening right now, I sometimes I ask founders, I say what's your long-term goal? And they, a lot of times people say, well, maybe, you know, one day to sell it, write this. And you know, I have always heard that it's not a decision you make one day. It's, you gotta start planning now.

What are some things that. Merchants should be thinking about, even if they're not at all on the market for selling, but they wanna start setting themself up. For I always say like even if you're not selling, structuring your business in a way that's healthy for someone who's looking at it as still a good exercise, but regardless, what are some things people should be looking at and doing now to be.

Alexis Grant: The cool thing is that most of the things that you would do to be appealing for a buyer are also the same things that would make a business great for you to run. So sometimes there are people who like make these optimizations with the goal of selling and then they're like, oh, actually this business became more profitable and it's less stressful, and so I wanna keep running it.

Jay Myers: There's a reason they care about those metrics, right?

Alexis Grant: Yeah, exactly. So one good one is thinking about founder dependencies, and that means like where is your company dependent on you as the founder? So that could be operationally, so like maybe you're doing, you're actually executing stuff in the day to day, like you're making the business run. Or it can be a branding dependency where people are buying from the brand because they know your name and your face.

If you weren't there, then they wouldn't buy in the same way. And both of these things are a risk for a buyer because you know, if you leave, then they won't be able to continue to run the business in the same way. And most founders, not all, but most founders, when they sell their business, they're doing it because they do want to exit.

Like they wanna move on to something else, they wanna go onto the next phase of their life. And so you wanna set it up in a way where you can transfer it over and there may be like a transition period, short or long. Eventually you can transition it over. So building teams and delegating and having systems that are documented so that other people can do the work.

That's one of the best ways to set yourself up and founder dependency is also a, you asked about multiple killers that can be a deal killer.

Jay Myers: Yeah. It's so interesting 'cause I, the last episode literally was about the importance of building a personal brand as a founder, which, so I just wanna make sure listeners know that is important. It is like building your personal brand. You as a founder, becoming an authority on something.

You know, the a AI now is looking at all of these data points and that is considerations into when it recommends a product. So, but then transitioning is the key, right? Like it's, there's a balance of it being dependent on you versus successful because of you. But if something were to happen, it's such a unique. Challenge that you want to build your personal brand, but you also want it to then flourish without you.

Alexis Grant: Yeah, totally. It's a contradiction and it's like I said earlier, most of the things that you wanna do for a buyer are the same things you would do for yourself to run the business. This is like one of the few exceptions, I think, because I actually think like when you are, especially when you're starting a company.

People wanna hear from people, not brands, right? They wanna know who's the personality behind this company? And they wanna learn to trust you. But so, so it's good I think to have yourself be visible as part of that brand. But then over time you've gotta find a way to transition that trust either into the brand itself or someone else who wants to be the face of the brand who is gonna stick around for a long time. it could be multiple people. It's really tricky and I think this is like a sticky point that's becoming more and more sticky as branding becomes more important.

Jay Myers: Some other things I have noticed too. Well, I'll get your thought on this. Diversification in general. So like I think of. Being channel specific. Like I know some brands that all of their acquisition is through meta ads, for example. And you know, we've seen issues in the past where people have built up audiences on certain channels and then something happens, some algorithm changes or you're no longer able to reach that audience or you have to pay to reach them.

But channel diversification, I, the three that I, I listed I have channel diversification. Product and supplier too. Like I, I, you know, from a risk perspective, what are some other diversification things you see brands should consider?

Alexis Grant: Yeah, I think those are the main ones. Because you're right, like buyers want low risk. So if there's any risk points you want to diversify. I mean, where you sell, I don't know what the e-commerce word is for that, but like where you sell. So it used to be that, like some aggregators were buying up shops that were just on Amazon, but I don't think that's as popular anymore because most, not all, but most buyers, they want diversification to make sure that if there is a point of failure, it doesn't doom the whole company.

So anything like, I mean, the founder dependency is also another thing that's, you're basically diversifying by having the company run on a team instead of yourself. Right. Yeah. How you make money, how you get customers.

Jay Myers: How you source, if one supplier could potentially be a risk. We see these brands right now building empires on TikTok shop and just crushing it. Like TikTok shop right now is the hottest thing and people are seeing incredible success. But it's an interesting time because TikTok is being very.

Lenient and giving, like really promoting and very easy to work with. But you know, as they have to meet numbers and meet quarterly earnings that could change. And so if your business is ju like the, Amazon's a great example 'cause we know brands that built. Empires on Amazon, but then Amazon would build a version of their product and call it Amazon Basics.

Like maybe you've got some ultra lightweight hiking backpack. Actually this happened to a backpack company and then Amazon literally made an identical copy of it. And you know, the company is still okay, but it hurt their numbers dramatically. So yeah channel diversification I think is one.

I would listen there for sure.

Alexis Grant: Mm-hmm.

Jay Myers: What is the. If you're thinking are, is there a certain metrics that you would track monthly or quarterly as a founder? If you're, like with your business, let's just say if you were gonna sell, they got acquired or any of your, and a few different business, what are some things that you, like your dashboard of health that you would track?

Alexis Grant: Good question. We have some due diligence checklists, which I can give to you as a resource if you wanna put in the

Jay Myers: That would be amazing.

Alexis Grant: But basically it goes line by line. Like these are the things that a buyer might ask you for when you go to sell. But really profit is the biggest driver, and I think that's something that gets overlooked because, you know, everyone wants to build a great.

Brand and team and all these things cost money, but at the end of the day, profit is really gonna be the most important metric when you go to sell. So I would put that like at the very top of a dashboard. Growth. I would also track at a high level is are we growing from the last year or two?

Like how is that trend looking?

Jay Myers: Mm-hmm.

Alexis Grant: And then, I mean, some of the things I would track for a media company probably aren't the same for an e-commerce company. But I'm just thinking around like audience

Jay Myers: right,

Alexis Grant: and how you get people to your product.

Jay Myers: right. In a healthy way that like, to me that's it is, it's easy to build a brand and just pay for traffic, but it's not. Organic healthy growth. That's something I would care about is it healthy profit versus paid for profit that could collapse, right? When you look under the hood,

Alexis Grant: Yeah. I mean, so many businesses now are paid on, are grown though on paid profit.

Jay Myers: No, I know. I'm not against it by any means. By any means, but then turning that into, you can pay for them, but then do you get them to repeat? Do you get them to subscribe? Do you get them into some other healthy channel? Right. Essentially.

Alexis Grant: Mm-hmm.

Jay Myers: I had a, I was just looking back for our listeners go back and listen to an episode called Profit First.

We had an episode. It was in August last year, but. I had are you Lexi? Are you familiar with Michael Mitz?

Alexis Grant: Yeah,

Jay Myers: Yeah. His book. Yeah. So he is got his book Profit First. I had him on the show a little while ago and I loved, it. Just reminded me this concept when he is talking about the importance of profit and he's got a really interesting concept on that.

He flips it backwards, you know, usually the way you do accounting, traditional accounting is you have. You know, your expenses and everything else, and everything you pay. And then what's left at the very end is profit and the premise of it, and I'm gonna butcher this a little bit and condense it but the premise is.

You need to flip it and think profit first. Like what should you be making? And then build everything else around it. Build your pricing, build your how do you your cost your every mo else model needs to support what your profit should be. Don't just let the profit be. A surprise and like I've heard founders, I think I've probably done this myself, like at the end of the year, you're doing your bookkeeping and then you ask your accountant, did we make any profit?

It's like a, it's like a surprise at the end versus you should know what your profit's gonna be. Everything else might, you don't know as much, but it's a backwards way of thinking essentially. It's a really good episode. I would encourage anyone to go and listen to that one, so he'll explain it much better than I did.

So. Lexi, I wanna take a super quick break just to hear a little bit from our sponsors who make the show possible. And then when we come back, I wanna talk about the difference between brokers and advisors, and what is their difference? How do brokers work? Like billing I think a lot of people are not clear on that, so I'd love to pick your brain on that.

But first, let's just really hear quick from one of our sponsors. Okay. Lexi Brokers, advisors. What's the difference?

Alexis Grant: a good question. They're mostly the same. I consider like an advisor, broker and banker, they all help you sell your business. But there are nuances between the, between those three. The biggest difference is a banker does bigger deals. So if you're selling for,

Jay Myers: I.

Alexis Grant: I mean some banks do much bigger deals, right?

But there are boutique banking shops that would sell a business for 25 million. But anything less than that, you're gonna wanna work with a broker or an advisor. And a lot of people, like the word brokers, kind of gotten a bad rap over the years. People think they're like slimy salespeople. So a lot of the brokers don't use that word.

They call themselves m and a advisors, which is also confusing because there's all types of advisors in this world, right?

Jay Myers: And is that because they, the concept of a broker, just the first thing that comes to mind is they're taking a percentage? If I have an auto broker or a broker for anything else, is that why they use a different term?

Alexis Grant: I think people sometimes think of brokers as being very transactional and not caring about the person involved. And advisors consider themselves like more hold a hand holder from beginning to end where they're like. Helping this founder sell their

Jay Myers: Sure.

Alexis Grant: But in practice, you know, we partner with advisors and brokers and bankers, and they all do very similar things.

The ones in our network, at least, they all handhold and regardless of what they call themselves. So the bigger question is really who's the best person to work with, regardless of which term that they use. It's who has experience selling your type of business? Who sells businesses of your size?

Then the other big thing we encourage founders to look for is like someone who's vetted or comes recommended by other founders. Those are the pieces that we, so we have a network of advisors, brokers, and bankers that we match to founders who want to sell. And those are the three things that we promise.

We always say, and this is whether you do this on your own, find somebody or you go through us. You wanna find someone who has sold your type of business, who sells businesses of your size, and who comes recommended by other founders who have sold with them.

Jay Myers: So when should someone engage with a advisor? Like when they're ready to sell or do you start. When should someone reach out or find one?

Alexis Grant: I mean, you can do it when you're ready to sell. You can also do it maybe up to a year before you actually wanna sell. And for much bigger businesses, they, it is common to work with bankers for like years as you're preparing, like working towards a sale. A sale. But if you're gonna sell for less than. 10 or $15 million. Yeah, a year is plenty. Even six months is probably plenty. But I mean, it depends on how much work you wanna do to get your business in good shape, right? If you're thinking far ahead, you have a lot more opportunity to make optimizations. And if you understand the things that we're talking about now, like you might be able to look at your business and say, oh, if I make these three tweaks, it's gonna sell for a lot more.

So it's really about knowing those pieces and sometimes an advisor can help you identify what they are.

Jay Myers: Mm-hmm.

Alexis Grant: why it makes sense to kind of maybe shop around a little a year in advance and find someone you like so that you can work with them and they can get to know your business and they can say, Hey, if you do these things, you'll sell for more.

But it typically takes like at least a year or two. To make changes in a meaningful way so that, 'cause it has to show in your bottom line, it has to show in your profit. And you don't wanna make changes right before you sell. If they don't have time to do that. If they don't have time to show in your p and l, you don't really wanna bother making the changes because you could be taking away an opportunity for a buyer who says, oh, like it's not like selling a house, like when you sell your house, you want your house to be perfect when you put it on the market, right?

Jay Myers: Yeah.

Alexis Grant: when you sell your business. If there are things that you haven't done well either, either like work on those years in advance so that you have time to see the benefits and then sell, or when you sell, it's actually an opportunity for the buyer. 'cause they're gonna say, oh. For example, this e-commerce shop never used paid media.

And you might sometimes founders are embarrassed of the things that they didn't do well or they didn't do at all. But the truth is, it's actually an opportunity for a buyer. 'cause a buyer might then say, oh, like we're good at that. And so we can layer that on top and it's a good reason to buy this business.

I see. 'cause a buyer wants an opportunity. Right. So coming back to your question, yeah. I would like the, for the advisors in our network, they're usually open to introductions for someone who wants to sell in the next year.

Jay Myers: That's such a good point that if you're evaluating your business is so let's say paid media, I mean, most people would probably be doing it, but if you're not, do you. Is it better if I implement this now and try to ramp up my sales? Or if I better if I leave this off the table that I do and as something I can call out to whoever's buying it.

Look we're doing this profit, we're seeing this growth, and we're not even running ads on meta. That's a good

Alexis Grant: I think it would depends. Yeah, it depends on what your timeline is. You know, if you wanna sell in the next six months or a year I would not make any huge changes.

Jay Myers: Mm-hmm.

Alexis Grant: Maybe six months is more fair. If you wanna sell in the next month, six months, I wouldn't make any big changes. But if you have a longer timeframe than that, you can start thinking about what you can do.

We, that's, we actually have a course on this. It's about what you can do now to sell for more later. Because a lot of founders are in this position where they think okay, I have a couple of years before I sell. What can I do so I can sell for more?

Jay Myers: Right.

Alexis Grant: And there is, we have, we offer like a framework for thinking through different parts of your business.

Hopefully, I mean, really it's one of the if you are thinking about this in advance, first of all, you're amongst the few, like most vendors don't think about this until they actually go to sell. So you're already like doing well if you're thinking about it ahead of time. And I mean, it's literally one of the best ways, like to, you could make literally make millions of dollars more when you sell your business, if you make the right changes ahead of time.

So it's really smart if you can take the time to think about it.

Jay Myers: It's the most valuable time you'll ever spend. Arguably. What does engagement with an advisor look like from a financial? Does it are they taking a percentage? Do they bill for hours? If you engage someone two years before you're selling and they're advising you. What does that, what does all that look like?

Alexis Grant: Yeah. So I'll give you, if you wanna put something in the show notes I'll send something to you that you can put in the notes that explains all this. And we have a kind of a chart that shows. How advisors typically charge, but most of them charge primarily on commission. So when you actually sell the business, you give them a percentage.

So just if you have a real estate agent sell your house in the US at least you don't pay them until they actually sell the house. Then they get a piece, right? So all brokers, advisors, bankers have that model. Some also have upfront fees. So there are some advisors that are work on commission only, and there are others that also have upfront fees.

And that might be a small one-time fee just to make sure, you know, you're invested or it could be a monthly fee that you pay over time as you're preparing the business together. There are also like. think sometimes people confuse us with like exit readiness consultants, who are people who help you get the business ready for sale and they're actually working with you ahead of the sale.

And those types of professionals do pay like a monthly, you have to pay them a monthly fee over time or a quarterly fee or however they charge. But I, so basically if you're selling for less than a million dollars. I usually recommend commission only advisors. There's a couple I can think of.

There's a couple exceptions that I can think of, but most of the advisors I would suggest are commission only,

Jay Myers: Interesting. So is it really

Alexis Grant: for

Jay Myers: sorry is the analogy with a real estate agent? If you don't sell your house, you don't pay. The agent is the same thing with your business. So like they, they work for you, but if you can't find a. A buyer is there, I mean, is there some terms where okay, we agree that your company should be sold for X value.

They find a buyer. But now if the founders just no I don't wanna sell it to that person. But if that broker gets like a reasonable buyer for a reasonable price, but the founders still doesn't wanna sell it for some reason, is there any type of arrangements there where they have to pay some amount or, I don't know, maybe that doesn't come up.

I don't, maybe it's a dumb question, but that's

Alexis Grant: No, it makes sense. It really depends on, so every advisor or broker, they have their own agreement that you sign. And actually this is a mistake that some founders make is, I would have a lawyer look at that agreement. 'cause usually the broker or the advisor is like the first stop for a founder and it's their first counsel.

But really, you wanna have an m and a lawyer look at that agreement because there's usually some exclusivity. Rules in there, and there might be terms like you're describing where if there's a perfect deal and they decide not to sell, they still owe something. I'd say most advisors do not, like most advisors, if you don't sell the business, they don't get paid.

But some of 'em do have terms that specify you get, they get paid for something. So just review those terms closely and I mean, this is why advisors are pretty. about who they choose to work with because, you know, not only do they have to know that the business is sellable, but the founder also has to have their head in the game.

'cause founders do change their mind at the last second, or decide they don't wanna sell for whatever reason. There's a million reasons why deals can fall through.

Jay Myers: It's their baby, right? They built it and they maybe they, yeah, for sure.

Alexis Grant: And that's why some many, you know, advisors, especially for bigger businesses, they do charge. Fees upfront, and they still get paid the vast majority of their fees through the commission.

But that's why they have to do something like that because they're, if they're putting a lot of work into getting the business ready and there's a risk for them, and there's, it could be a point of failure on the founder's point. On the founder's part or the buyer might fall through. There's so many things that could go wrong.

But it is really a risk for the advisors that do, are doing the commission only model. And that's why I say if you're selling for more than a million and even under a million, if you have a like some specific types of businesses that are, that would be difficult to sell an advisor might still slap a fee on that because they wanna make something if, even if they know that they might not sell it in the end.

But so it does make sense to consider. Advisors that have upfront fees as well as the ones that are commission only. It basically just, it's which one is best for you? That's the question I would ask,

Jay Myers: Is there a stat, oh, go ahead.

Alexis Grant: I was just gonna say, and then just coming back to something that you said at the beginning around if you're a certain size, it might not make sense to use an advisor.

I think I, for me, I think that markers around ha half a million. So if you're selling for 500,000. I have seen some advi, some founders use an advisor there, but I've also seen others decide that they don't want to, or they have another way of selling so they don't have to because it is significant.

Like it'd probably be, so basically the way it works is the bigger your business is, the smaller percentage they take. But if you're selling for half a million dollars, it might take 15%, which is what like. $75,000 or something. It's a lot. So it eats it. The smaller your business is the more that fee eats into your take home.

Jay Myers: Yeah.

Alexis Grant: But for a lot of founders, they don't have another option. If you have a smaller business you could sell in a marketplace, you could pitch buyers yourself.

Jay Myers: Yeah.

Alexis Grant: But really in the best case scenario, you wanna have more than one interested buyer. So even if you're able to pitch buyers or a buyer comes to you, for example.

The best way to drive up your sale price is to have more offers. So you wanna find some way whether it's you directly reaching out to more buyers, or you engage an advisor to do that for you. You wanna add more buyers to the pool 'cause that's gonna how you're gonna sell for more.

Jay Myers: Yep. One last question on the advisor front. Is there a standard time that is wr written into contracts where if the founder decides not to sell, but then for a certain period of time after. That advisor is entitled to the commission. So like the scenario being that you engage an advisor, and the reason I ask is, 'cause I heard of this happening to someone, and I think, I can't remember if it was three years or five years, but there was a timeframe where the ENG engage.

Yeah, I, sorry, I don't remember the exact date. But it was along that lines where they engaged an advisor broker and they worked with them for. But they worked with them for a while. It was for like a couple years. They ended up not selling, but then it was in the agreement that if they did sell within a period of time, like a year later or something else, they still were, had to pay something.

And I, I mean, I get it because

Alexis Grant: Mm-hmm.

Jay Myers: you could, if an advisor does all that work for a year, you end the contract and then you try to sell it yourself. That's not right either. But is there a standard that's normal for that?

Alexis Grant: Honestly, I don't know what the standard is, but I have heard of that happening. So even if there is a standard, I would look closely at the terms in your own agreement because you never know what your advisor has written in there. And those are the things that can come back to bite you.

Yeah. That's why you need a lawyer to look at it for you.

Jay Myers: Exactly. Okay. Well let's do a couple quick kind of no sort of rapid fire questions, but little quick ones here before we run outta time. But what is, what's the biggest red flag when you look at a business that you say, this won't sell?

Alexis Grant: Not profitable or drastically decreased anti-growth, what's the word, declining.

Jay Myers: What if it's not profitable, but. Growing but the founders putting all the money back into growth because I know a lot of our e-commerce brands are like that. They might not be profitable, but they're growing 50% year over year. Is that okay?

Alexis Grant: I mean, if you have a path to profitability, I think it's worth showing that, but I think you're in a better position if you're already there.

Jay Myers: Right. What is one metric. You would improve in 90 days That would sell to help sell more for more?

Alexis Grant: That's a good question.

Jay Myers: Someone? Someone listening right now. Okay. Forget I said 90 days.

Right now. If there's one metric they can focus on to increase their valuation, obviously there's lots, but if there's one, what would you say?

Alexis Grant: I mean, I have to say profit, but we've talked about that so many times. I'll give you another one too. Founder dependency, that's the other one that can kill, and it's not really a metric, but I guess maybe like how much of the work depends on you to get done. I guess you could measure that in a metric.

I.

Jay Myers: Mm-hmm.

I'm putting you on the spot here, but what is, would you say the most underrated diligence question founders should prepare for? They don't think they're gonna get asked, but often gets brought up during the due diligence period.

Alexis Grant: Well, one I've seen, this isn't exactly what you're asking, but kind of adjacent, but I have seen a number of founders who thought their books were in good shape and when they went through the due diligence process, it, they weren't in great shape. And the buyer uncovered that, like the bookkeeper hadn't been doing a great job, and the numbers looked a lot different than they thought.

And this is basically what you wanna avoid because it gives the buyer a. Reason to revise downward their offer.

It's very difficult as a founder to work the offer back up once you go through something like that. So one way to avoid that is to just really make sure that your books are squeaky clean going, 'cause you don't want any surprises.

Like the whole point of due diligence is they're looking for surprises or things that you haven't revealed. So if you can show everything and obviously in a good light if you can, but no surprises should be your goal for that due diligence.

Jay Myers: Yep. And I would say too, just knowing the numbers. It sounds as founders we're often sometimes just focused on building, growing and we have an accountant that takes care of the, a lot of the bookkeeping. But you should, especially at the time where you're talking to someone selling, if someone says what was your net revenue last year?

Or you're, do you do subscriptions? What's your net dollar retention? Or what's your churn look like? Or this you should be able to rattle those numbers off the top of your head. I, you know. I would say on a daily basis you should know, or monthly, be reviewing this stuff. But especially when someone is talking to you like those, just knowing those numbers.

'cause nothing kind of scares an investor, even if you have a healthy business. So they say what was your whatever pro profit ratio on something last year? I don't know. I'd have to look that up. It's just it might not be a red flag. It might be perfectly fine, but it feels like a red flag to someone

Alexis Grant: I talk to founders all the time who don't know their basic numbers, like how much EBITDA they made last year. And honestly, I'm like no judgment because I get it like as a founder, you're basically, you're focusing on just, you have your heads down building this business and you know, we know what to focus on to make that business do well.

But you're right. When you wanna sell, you do have to look up and get yourself up to speed on all the things a buyer cares about. To make yourself look informed. And that's also why, especially if you sell for a certain size, it's nice to have someone else to guide you through the process because they're gonna make sure that you have what you need.

And often they'll share those numbers on your behalf too.

Jay Myers: Okay. Final parting advice you would give Founders listening right now who dream of selling their business one day? It's not something they're like actively doing right now, but they know it's something they wish and hope for that they can sell it and maybe add a big chunk to their retirement. What final bit of advice?

Obviously check out your content, download your guides. We're gonna put all those links in the show notes. But any last advice you can give.

Alexis Grant: Small deals can be life changing. I think like it's really. It's easy to think you have to sell for a ridiculous amount to put a lot of money in the bank for your family, or to be able to, you know, donate to a cause you care about. But if you bootstrap your business and you do well, like a seven figure sale or even a six figure sale can be really meaningful.

So I like to keep that in perspective and don't fall into the trap of thinking, oh, I've gotta be, you know, so much bigger. Because those are the stories we tend to hear about. But in reality, there's lots of founders who are. Selling for quote unquote smaller amounts

Jay Myers: Yeah,

Alexis Grant: and doing really well, and then many of those people also go on to start another business, so it doesn't have to end there.

Jay Myers: Yeah, and I've seen it where it one builds on the next

Alexis Grant: Mm-hmm.

Jay Myers: right? Like even you look at some of the most successful Elon Musk, maybe the richest person in the world, but he started with one business and then used that to build the next one. Used that to build the next one.

And I've seen a ton of founders have a similar path.

Alexis Grant: Yeah. That's how my career path has gone as well, so I'm a big fan of that. That building block method?

Jay Myers: Lexie, where obviously they got acquired, is it.com.

Alexis Grant: Yes. Yep.

Jay Myers: Okay. Is there any social channels you're active on? I can send people to.

Alexis Grant: I'm on LinkedIn personally. That's it though. Our biggest way that we reach people is through our newsletter. And you can sign up just by going to, they got acquired.com.

Jay Myers: Okay. Awesome. I'll make sure I put all that in the show notes. Lexi, thank you. Oh, sorry. Go.

Alexis Grant: I was gonna say, I'll offer two other resources we have. One is if you want a broker match, you can do that through the website as well. Like you want us to suggest a broker or an advisor who's a fit for you. And second, if you are interested in learning about how to increase the value of your business now so you can sell for more you'll find a course, our course available on the homepage as well.

Jay Myers: Amazing. Lexi, thank you so much.

Alexis Grant: Yeah. Thanks for taking the time. This was fun. I.