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7 full-price offers in 10 days via Quiet Light Brokerage
Using broker Joe Valley (Quiet Light Brokerage) and clean books from his CPA background, Anderson listed his business and got 7 full-price-or-higher offers within about a week to 10 days.
“we put the business on and, uh, within, I want to say a week or 10 days, there were 7 offers. Full price or higher offers, which was just like mind-blowing to have that too. So that was a super nerve-wracking process and also an exciting process.”
Steal thisKeep your books clean from day one; buyers pay fast for businesses with no accounting messes to untangle.
Number
How much deal sizes grew: $225K average in 2013 to $2M in 2018
Joe Valley of Quiet Light Brokerage describes how the online business market matured. The average size of the deals he personally closed jumped roughly 10x in five years.
$2M
Average deal size · USD
“You know, in 2013 when I closed 23 transactions myself, it was about $225,000 on average. In 2018, my average size was about $2 million.”
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Ramon climbed from a $200K exit to $400K to a $9M sale
Valley recounts how Ramon Van Meer (the soap-opera blog founder) didn't start with the $9M sale. He sold a $200K business first, then a $400K one, learning each time before hitting the big exit.
“He actually sold a $200,000 business first, right? And learned from that and built another. And the next one that he sold through Quiet Light was $400,000. Right. And then hit the motherlode and jumped up to, to $9 million. So I don't want anyone to think, oh my gosh, that's amazing. I'll never get to that. People start where they start and they just keep going forward and fighting and ramping and succeeding.”
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Lost a quarter million in 42 days buying a content site killed by Penguin
After selling his own business, Valley bought a content site that thrived for 42 days, then collapsed when Google's Penguin update crushed its keywords because the previous owner had cheated. He lost about $250K.
“I actually, I bought a content site and had 42 amazing days, and then the floor fell out from beneath it. It was the Penguin update, so it got crushed. All the keywords that are on page one got crushed because the guy that built it cheated like crazy. And, uh, it was a very valuable lesson, lost about a quarter of a million dollars.”
Fact
SDE = net income + add-backs (and always trailing 12 months)
Valley explains the core valuation metric for online businesses: seller's discretionary earnings. It's net income plus owner 'add-backs' (salary, travel, write-offs), and the multiple should always be applied to the trailing 12 months of SDE.
“When people talk about, oh, I got a multiple of 2, I got a multiple of 3 or 4 or 5, it's a multiple of seller's discretionary earnings. And it should always be a multiple of the trailing 12 months seller's discretionary earnings.”
Steal thisCalculate your SDE as net income plus owner add-backs on a trailing-12-month basis before estimating what your business is worth.
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Cash vs accrual accounting cut a seller's valuation nearly in half
A client running a fast-growing physical-products business thought he had $1.3M in discretionary earnings, but he was on cash accounting and plowing cash into inventory that showed as an expense. Switched to accrual, his real SDE was ~$800K, dropping his valuation from $6-7M to $3.5-4M.
“This gentleman initially thought his business was doing $1.3 million in discretionary earnings. Well, after digging deep into it, the reality is, with all the proper adjustments the way it should be, he was doing about $800,000 in discretionary earnings. So he's gone from a value of in the $6 to $7 million range right down to $3.5 to $4 million.”
Steal thisIf you run a growing physical-products business, switch from cash to accrual accounting so inventory purchases don't artificially depress your net income.
Fact
You can borrow up to $5M personally on an SBA loan to buy a business
Valley explains that the most common way to finance an online business acquisition is an SBA loan, where an individual can borrow up to $5 million. Both the business and the buyer must be SBA pre-qualified.
“Even with that, it's a great opportunity for the buyers because with an SBA loan, you can borrow up to $5 million personally, and that's how we were able to sell Ramon's business.”
Fact
The 10%-down rule of thumb for sub-$1M SBA acquisitions
Valley's rule of thumb: a business under $1M can often be bought with 10% down via SBA, meaning $100K buys a million-dollar business. As deals get bigger, the required down payment grows and lenders often demand a seller note so the bank risks less.
“Anything sub-$1 million, you could probably buy with 10% down. So you're coming to the table with $100,000 and you're buying a million-dollar business. So they're loaning you 90% of the money, the SBA is.”
Steal thisTo buy a sub-$1M online business, plan to bring roughly 10% down via an SBA loan plus working capital for inventory.
Fact
SBA lenders' favorite buyer: a spouse with a $400K stable income
Valley says lenders evaluate debt-to-income and want the buyer to have enough cash flow after servicing the note. Their favorite profile is a buyer whose spouse keeps a high-paying day job that can support the household, de-risking the loan.
“Their favorite buyers, their favorite buyers of all time— I've sold lots and lots of these. The lenders will tell me, depending on lender, but they'll be like, man, I love this guy. His wife, she's making $400,000 a year and she can support the entire household. Those are the favorite. When you've got a second income in the family that is sticking around and keeps their day job and can support the family”
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Bank bets on a high-school dropout over two Harvard MBAs
Two Harvard MBA students with parental down-payment money got turned down in SBA underwriting for a $2M deal because they had no real-world business experience. Valley notes banks would rather bet on a high-school dropout who has actually built and run a business.
“So the banking institutions would rather bet on a high school dropout that has built and sold their own business, or built and runs their own business, than two kids that went to Harvard that have no real business experience, as would I.”
Fact
SBA deals close in 60-75 days; cash deals in 30-45
Valley lays out the acquisition timeline: a pre-qualification letter takes about 24 hours, and from letter of intent to close is 60-75 days with an SBA loan versus 30-45 days for an all-cash deal.
“With an SBA loan, it's going to take 60 to 75 days to close. And by close, I mean money changes hands and the assets of the business change hands from the letter of intent to closing. 60 to 75 days, right? We've done it in as little as 30, but it's the exception, not the rule, right? But cash— cash deal, 30 to 45 days”
Framework
The roll-up arbitrage: pool $200K businesses into a $2M one and double the multiple
Valley describes how private equity and search funders buy small 90%-Amazon businesses at 2-4x discretionary earnings, then pool them. A bundle doing $2M in SDE commands a much higher multiple (a 3x can jump to 6x) than the individual sub-$1M businesses did separately.
“And they're buying them at 2 to 4 times discretionary earnings. But when you pool them all together, you don't have a business doing $200,000 in discretionary earnings anymore. You've got a bigger business doing $2 million in discretionary earnings. And that 3x multiple might immediately jump to 6x multiple, or depending upon how defensible it really is, maybe even more. So they're buying them up low, and just by pulling them together, they're becoming much, much more valuable.”
Steal thisRoll up several small Amazon businesses bought at 2-4x SDE into one larger entity to re-rate the combined cash flow at a higher multiple.
Billy
The 30-year-old stay-at-home-dad CPA who built an Amazon brand from scratch
Valley's favorite listing of the year: a former CPA who left corporate at 30, built a 90%-plus Amazon brand growing 200% year over year while being a stay-at-home dad to his 2-year-old, his schoolteacher wife keeping her job, and outsourced his own bookkeeping despite being a CPA.
“left the corporate world as a CPA to become an entrepreneur and run a business online and built it from scratch while his wife, who was a schoolteacher, stayed employed. And not only that, he was the stay-at-home dad to his 2-year-old running this business. But the beautiful thing— and this goes back to financials and instilling confidence— he's a CPA, but he outsourced his bookkeeping to an e-commerce bookkeeping firm.”
Billy
The 30-year-old stay-at-home-dad CPA who built an Amazon brand from scratch
Valley's favorite listing of the year: a former CPA who left corporate at 30, built a 90%-plus Amazon brand growing 200% year over year while being a stay-at-home dad to his 2-year-old, his schoolteacher wife keeping her job, and outsourced his own bookkeeping despite being a CPA.
“left the corporate world as a CPA to become an entrepreneur and run a business online and built it from scratch while his wife, who was a schoolteacher, stayed employed. And not only that, he was the stay-at-home dad to his 2-year-old running this business. But the beautiful thing— and this goes back to financials and instilling confidence— he's a CPA, but he outsourced his bookkeeping to an e-commerce bookkeeping firm.”