The Secret To Selling Your E-commerce Brand For Maximum Value — Bawar Ahmad | Why Early Exit Planning Matters, What Buyers Value Over Revenue, Why Clean Financials Save Deals, How Ebitda Controls Final Valuation, What Red Flags Collapse Acquisitions (#493)

Please support the show if you liked today's episode:

• If you love the podcast, please get someone else to listen, too!
• If you enjoyed this episode of the Ecommerce Coffee Break podcast, please head over to Apple Podcasts, leave a rating, write a review, and subscribe.
• Share the podcast with your family, friends, and co-workers.
• Tag the podcast on Instagram @ecommercecoffeebreak and let me know what you like about it.
• If you like the content and would like to support the podcast, you can buy me a coffee here.
• Become a guest on the show or sponsor an episode.

00:00:00:20 - 00:00:14:01
Speaker 1
You have to think as a buyer Yes, they pay for the past, but they don't buy the past. By the future, you have to build the company in such a way. It has a bright future. Nothing is nicer. And having lied down the tunnel and having some exit or liquidity event.

00:00:14:02 - 00:00:22:23
Speaker 2
Most founders focus on growth. Why should they start thinking about their exit early?

00:00:23:00 - 00:00:43:23
Speaker 2
Hello and welcome to another episode of the E-commerce Coffee Break podcast. Most e-commerce founders spent years building their business. They focus on growth, customers and revenue. But what many don't realize is that the biggest factor behind a successful exit is often decided years before the business ever goes up for sale. The decision you make today can have a major impact on what a buyer is willing to pay tomorrow.

00:00:44:00 - 00:01:04:12
Speaker 2
So today we're tackling a big question how do you exit your e-commerce brand at maximum value without leaving money on the table? Joining me is Bawar Ahmad. He is the founder of ecomma.co. He has spent years buying, growing and selling e-commerce businesses and had firsthand experience. What separates premium exits from disappointing ones? Great to have you on the show.

00:01:04:13 - 00:01:06:00
Speaker 1
Thank you. Great to be here.

00:01:06:00 - 00:01:11:16
Speaker 2
Most founders focus on growth. Why should they start thinking about their exit early?

00:01:11:17 - 00:01:42:12
Speaker 1
If you look at the typical e-commerce owner, what we have noticed is they have a swing of ambition from about 3 to 5 years, usually after about 3 to 5 years. They tend to either stagnate, so they hit a ceiling on some level, or they start exploring different opportunities or losing passion for the business. So usually what you see is that every e-commerce founder, they have a big optimistic peak in the beginning.

00:01:42:13 - 00:02:01:22
Speaker 1
They fight, they go, it goes forward usually three years down the line. That's when you know new things come on the market. Maybe they the grass is greener on the other side. So that's usually when the founder comes with the idea of selling the business. Because whatever, if something new is going on, which if you want to sell tomorrow, it's it's too late.

00:02:02:00 - 00:02:18:23
Speaker 1
You mean we want to sell a business? You have to start a year before or six months before. Like, you have to think about it as a buyer. You don't want someone who's just woke up one day and, you know, decided to sell the business. So it's way easier to sell a business if that's a goal. If you start with the exit in mind, then you build the company differently.

00:02:18:23 - 00:02:34:17
Speaker 1
Then if you would just, you know, have a lifestyle business or build difference differently. So I think as e-commerce founder is very important to know what's the end goal. And if it's an exit to start pretty early on on it because, you know, it could be a great liquidity event or a big miss and a big time waste.

00:02:34:17 - 00:02:37:22
Speaker 1
And, you know, you want to be left with surprises at the end.

00:02:37:23 - 00:02:49:11
Speaker 2
Obviously, there's a lot of factors that make a good sale. What's the biggest mistake e-commerce founders make when they are building a business? And they hope to sell one day, and they don't do the right steps to get it started.

00:02:49:12 - 00:03:14:03
Speaker 1
So usually when you when you look at founders, they they have seen the nights, the sweat, the, the, the hard work, the stressful nights has gone into a business and they factored that in to some level into the price because they want to be compensated to some level for all of the hard work they went through. But the problem is you have to think as a buyer, yes, they pay for the past, but they don't buy the past, they buy the future.

00:03:14:03 - 00:03:33:14
Speaker 1
So you have to build the company such a way. It has a bright future and not just focus on what you've done in the past. And the more you get stuck in the past, the less bias. Eventually get excited for the future so most people will see. Mistake is just they focus on the past, how much effort and money they've put in and whatnot.

00:03:33:14 - 00:03:35:20
Speaker 1
But it's all about the future, really.

00:03:35:22 - 00:03:53:19
Speaker 2
Yeah, I think a lot of people can relate to this. I mean, it's blood, sweat and tears building a business, but 100% right? The seller doesn't care. He wants to buy something for the future. Now I want to find out from you is like what our buyers are really looking into when they're evaluating a business, a brand.

00:03:53:20 - 00:04:16:18
Speaker 1
We have sold 60 companies. So we can say some things to what a psychology of a buyer like. And it tends to look in two ways. They look at opportunity, look at the growth and look at the risk. And what people really miss out is the risky side. Like usually these e-commerce businesses there a lot of was being done in the business is done by the owner to some level, which is a big risk for a buyer.

00:04:16:18 - 00:04:36:07
Speaker 1
So if you're the one who's like logging every day to Facebook ads, checking in, the campaigns are working. If you have to text every day the creative strategist to make new videos, it's it's something that, you know, bias. They step over. They don't want a liability. They don't want to by themselves, a second job. They want something that goes.

00:04:36:09 - 00:04:58:13
Speaker 1
And usually they are financial investors. I think if I answer the question correctly, it's more focused on how can you de-risk the business, move away the risk, which is yourself, which is platform dependency, which is diversification or product diversification. If you have only one winner that's been working for last seven months, product of an end of the cycle, it's not very interesting to a buyer.

00:04:58:13 - 00:05:17:01
Speaker 1
So one side the whiskey business second side opportunity. Like if you're already making steps to go international, for example, continue with the plan even though you're going to sell continue with that because new buyer comes in and it's your big opportunity on the new on the new plans. And so they can sell the dream. You can sell the dream to them and you can sell the opportunity.

00:05:17:01 - 00:05:22:06
Speaker 1
And that tends to, you know, get a buyer over the line and go for it basically.

00:05:22:08 - 00:05:35:18
Speaker 2
So you want to start early to work on the business, not in the business. Make yourself replaceable that someone else can take over. It's not buying you. They're buying the business now. Is revenue still king or are bias looking at something else?

00:05:35:20 - 00:06:00:13
Speaker 1
EBITDA, it's really about it. But especially in economics, game revenue doesn't say much because you have thin and you have thick margins. And then this type of businesses and they really want to see how the EBITDA performs because revenue can go up. But if EBITDA shrinks, it's usually in a, you know, an efficiency in the business. And by the smart they have some some sense of financial analysis.

00:06:00:14 - 00:06:26:14
Speaker 1
And usually they have and they all mostly look at EBITDA. Of course revenue is important and shrink and go down. But if it does really leading factor and EBITDA for the people, sure. It's basically net profit before you pay loans back or depreciate some stuff, but basically not profit. That's the holy grail. That's that's the one and only number that dictates the valuation of a company.

00:06:26:16 - 00:06:32:18
Speaker 2
Talking about numbers. How important are clean financials, your statements when it comes to selling?

00:06:32:19 - 00:06:56:18
Speaker 1
I'm so happy to say that, you know, of course we maybe we have we've looked at over 9000 companies to acquire. And what we have seen is probably 8990 of them didn't have clean furniture. It's it's. We are we are a buyer who's very experienced. Of course, we we kind of go in with the idea that the financials is not clean.

00:06:56:18 - 00:07:21:15
Speaker 1
So we got to do it ourselves. I want to come in and get all the accesses, all the all the experts with their own financial, you know, accounting and then, you know, make a decision to go forward or not. If it's not like a buyer like us, but a retail buyer, which is the majority of bias. It's such important to have that clean, which you don't want, is to agree on a price based on your financials, and then you get a chance.

00:07:21:15 - 00:07:46:13
Speaker 1
They come forward like, wait a minute, that's not clean or that's messy, or there was something. It really leads to deals collapsing you what you want. When you have momentum with a buyer and you have that lie, you have that intent of the buyer to move forward. Worst thing you have to can do is, is lose that and going over little stuff like, you know, what's the revenue line and what's the real net profit and what cost is maybe personal and not.

00:07:46:14 - 00:08:12:10
Speaker 1
And few tips, you know, start with not doing a personal expenses through the business. We kind of stresses a much how well annoyingly it is for a buyer to come in getting the bank statement and seeing groceries, UberEats, seeing whatnot on the on the on the peanut and needing to, you know, what's business, what's personal and coming to really separate those out and stop early on this.

00:08:12:11 - 00:08:14:23
Speaker 1
It really helps to push through a deal.

00:08:15:02 - 00:08:33:14
Speaker 2
It's interesting to hear that this is even on the level of business willing to sell that this happens. I mean, a lot of businesses, specifically in the DTC, in the e-commerce market, sometimes they explode their viral they have crazy numbers in a very short time, and the founders are just not prepared for all of that. What's coming towards them?

00:08:33:18 - 00:08:41:17
Speaker 2
Are they other big flags, red flags that buyers find during due diligence that they prevent them from buying a business?

00:08:41:18 - 00:09:01:18
Speaker 1
Yes, I will tell you what we found find regularly as a red flag. So one is not clean financials. It's been in the US and usually just the idea of do we do the whole financials just pain in the ass to go through. And usually it also lets you know how the seller is. So is it a structured person or not.

00:09:01:18 - 00:09:22:12
Speaker 1
And usually you know structured people. So that's one second is that they really under value of under state their own work. So they might tell you, look, I just spent an hour a week on the business. I just check in and I give thumbs up and that's it. And the moment you speak to the team, I speak to the supplies and whatnot.

00:09:22:13 - 00:09:45:07
Speaker 1
You actually see they spend more than ten times as much as they claim they do. So it's a big red flag as well. When they when they understate how much effort they put on the business, a third is they in what is with ecommerce. It's very marketing asset based. So you have a lot of dependency on Facebook ads, a lot of dependency on and cocoa merchant center on the platform Shopify.

00:09:45:07 - 00:10:08:15
Speaker 1
And when you have copyright strikes, when you have disablement, when you have issues on these platforms and most bias they might not realize, realize yet because they come with a financial background. But this big red flag in general, if you had disablement and issues in marketing platforms, it usually leads to, you know, deals collapse or not go through at all.

00:10:08:19 - 00:10:31:14
Speaker 1
You've seen that a lot. Well, all the flex we have seen is that people just not report specific cost. So in one case, for example, that we're about to buy a business. But if we got to mention they had about, I don't know, almost $150,000 in affiliate cost, which would drop down the EBITDA from 300 to 150. So it just forgot to mention that later on.

00:10:31:16 - 00:10:57:00
Speaker 1
And the last one, the big one we also see is tax compliance. A lot of these e-commerce people, nomads, they don't have a great relationship with tax. And so they try to find ways to minimize it. Sometimes they might cause a line that they should have been text liable but haven't. And that's a big risk. And again bias the come from a financial understanding.

00:10:57:01 - 00:11:14:22
Speaker 1
One of the first things you check is text compliance. If you have a complaint, if you have you do that again. So if you haven't got a lawyer paper to back up any claims you're making on not paying or not being VAT liable or something, you should really saw those things out because buyers will come with those questions and you better be prepared or else you might lose a deal.

00:11:14:23 - 00:11:34:21
Speaker 2
I think this is very valuable information that you just tell us here, and it shows how complicated it is. As you said, there's a lot of business out there ready to sell. And then they figure out their numbers are not right there. Reports are not right, their taxes are not right. And then the next step, I reckon, is talking to a buyer is if you have never sold a business is not the easiest task.

00:11:34:21 - 00:11:45:14
Speaker 2
And I think that's where you come in. You help us this whole process talk me through the process on what you do, how you help potential buyers to get everything up and ready and then to find a buyer.

00:11:45:20 - 00:12:07:00
Speaker 1
I'll do better. So we're not a broker or a marketplace. We acquire the business ourselves. So we have bought over 65 companies. We have. We have been there, we've done that. We've seen all the issues as a buyer, as a seller, and we feel very comfortable in buying. So we we make it very easy for a seller to exit.

00:12:07:01 - 00:12:34:15
Speaker 1
We for example, we just need a pal to make an offer and we make an offer within 48 hours, just usually 100% cash offer. And the moment accepted seven days we diligence. And then within seven days we can close the deal and a couple of days the money should hit the bank account. So we we saw that a lot of these sellers, they they for some reason they come to a point that they want to sell.

00:12:34:16 - 00:12:52:18
Speaker 1
And usually when someone wants to sell, there is this huge optimism euphoria of amazing, I'm going to have money in the bank. I'm going to have finally got liquidity event. So then they said, you know what, let's go to this website to see how much business is worth. They take in the, you know, the variables and say, wow, I'm worth so much.

00:12:52:19 - 00:13:10:06
Speaker 1
I did not know that not knowing these platforms have to sell the dream to, you know, get you on the platform. So the moment you go on a platform, you let the business. You get a lot of interest because a lot of people always looking, you get a lot of interest, maybe from 50 or 60 people, you might even get like a few offers.

00:13:10:06 - 00:13:30:02
Speaker 1
But as time goes by, they go cold day by day. You lose out on them. Interest is dying out, and before you know you're 2 or 3 months in mentally, you already separate yourself from the from the business you're putting effort into more and the business tends to drop and go down because again, the passion is not there anymore.

00:13:30:04 - 00:13:45:01
Speaker 1
So that's why a lot of sellers, they feel very happy with us because you don't have to go through that, don't have to go through legal. You don't have to go through and hold intelligence. You just come. We make the offer if you like it. Amazing. We shake hands and seven days we close the deal and we take it from there.

00:13:45:02 - 00:13:59:01
Speaker 1
We'll keep you on for maybe one month. Most at two. And, you know, shake hands. We ask you for testimonial and we basically move on from there. So we believe we fill in a gap on that level that we make it very easy for sellers to sell.

00:13:59:03 - 00:14:04:02
Speaker 2
Are there any signs for a founder, for a business owner that they should consider selling?

00:14:04:07 - 00:14:24:12
Speaker 1
They say the best time to sell is when you don't need to sell. So the moment you, you, you feel like, okay, now I have to sell, it might be too late. So at the moment you might have an itch for something else. You might have an what I call a shiny thing syndrome. You see something else that's shiny and you want you want to go after it.

00:14:24:14 - 00:14:48:08
Speaker 1
It might be worth considering preparing, preparing for it. And if the liquidity like. I'll give you an example. We had a we had a woman who had in here spray lightning and her lightning spray or whatever it is, and she became pregnant. So she well, four months in the pregnancy, she was more thinking about the child and the costs associated with it and whatnot.

00:14:48:09 - 00:15:02:11
Speaker 1
So she she had an idea of, look, maybe we can sell my business. I can use that to you, support my other business, but also support my child that's coming on. So when there's a moment for liquidity, it's a nice moment to do it.

00:15:02:13 - 00:15:12:02
Speaker 2
Now we're talking about e-commerce. We're talking about TTC brands. Who's your perfect customer or who's your perfect client? Are there specific industries or verticals that you work more with than others?

00:15:12:04 - 00:15:36:00
Speaker 1
Yes. I love happily to say that we love all industries as long as it is not seasoned or hype. So we like the industries. That's what we call evergreen. You know, beauty, fashion, home decor, toys, whatever's happening, war not work. People still will need to buy food for the babies, for example, or by clothing. Or women still want to look beautiful to some level.

00:15:36:00 - 00:15:58:08
Speaker 1
So like beauty as well. Homeless people still have them and couches and stuff. So we love those industries that are kind of evergreen. We look a lot in terms of financials. So a few KPIs, they have to be profitable for at least 12 months. They have to be an existence at least 12 months, ideally 2 to 3 years.

00:15:58:10 - 00:16:43:03
Speaker 1
They do. They need to at least let's say 2 to 300,000 revenue a year and up to about 10 million in revenue year. And that's that's basically a sweet point. So anywhere between those. No, we're happy to to to take a peek, take a look and well give an offer out one thing maybe also worth mentioning, people tend to have a very scared feeling of launching a business for sale, because it means that other people will come and look at the business, see everything, learn, and it might have the feeling that someone might copy them, which is also a point that, you know, I think we can very easily step in because we're the only

00:16:43:03 - 00:17:01:22
Speaker 1
ones, which is acquire. We don't start anything and we can vary. And it's quite private setting, you know, on the NDA it's under a confidential conversation. You can never do anything. And which didn't buy or not we want participate after. So I'll be worth mentioning that we keep it also private for sellers.

00:17:01:23 - 00:17:17:04
Speaker 2
Yeah a good point that you made. I think NDAs is crucial there just to build trust with each other. Now, I think a lot of our listeners now will have a big question is like, okay, I'll make this number and revenue, how much can I make when I sell? And I think it's a bit of a sketchy question.

00:17:17:04 - 00:17:23:14
Speaker 2
It's a bit of a difficult question for you to ask, but can you give some indication is there some kind of formula that you work by?

00:17:23:19 - 00:17:49:18
Speaker 1
Yeah. So there's always the fun question like how much is my business worth? We do have a free valuation calculator on the website, so do go check it out. It's free for free. You don't have to fill in any information. So if you look at it typical. The industry has paid a multiple on the EBITDA. And so how much net profit you make last 12 months is really times in multiple.

00:17:49:19 - 00:18:16:10
Speaker 1
It goes for we've seen deals for 0.5 multiple up to about 3 to 4 multiple. And the truth is it's really depending on how unique and valuable the businesses. Again it's about the future. So if you have been making five years the same amount of profit every year, you're worth less than a business that is likely to double every year moving forward.

00:18:16:10 - 00:18:41:12
Speaker 1
So in theory, it's really about what do you expect for the next years, and how do you discount that to do this cash flow. And because it is counted cash flow and that leads to a multiple. But you can consider if it's a typical normal brand for couple of years. They are very stable profit. They have something unique to the business.

00:18:41:13 - 00:18:59:04
Speaker 1
It might be closer up to two times the year, the profit. So if you're making 100,000 a year, that's a $200,000 payout over there. If it is declining, it's usually less than one. And if it is exponentially growing, you can think 3 to 4 eggs.

00:18:59:06 - 00:19:10:20
Speaker 2
Oh, you said that you make the offer relatively quickly at the start as quickly, but obviously there's a lot of paperwork and legal stuff involved. How long does the whole process take from getting it over to your site?

00:19:10:21 - 00:19:32:01
Speaker 1
I'm very proud to say, because this has been a big improvement for us for the last few years. For the moment, someone accepts the offer. We aim to close it within ten days to have the within ten days, the money in the bank. Simple, as clean as that. So to give an idea of how a typical process looks like you, you have your first financials ready.

00:19:32:03 - 00:19:53:21
Speaker 1
You have no idea what the business is. A buyer like us look at the financials and they make an offer if that's okay. If that's happy, great you accept it and then you diligence stuff. And in a normal scenario do diligence sometimes takes up to 60 days. We do in seven days. So we we have everything ready. We are done.

00:19:53:22 - 00:20:10:03
Speaker 1
You know hundreds of detail interests. So we know what to look for and you know what not to look for. So we're in seven days. We have finished our due diligence. And we know if there are any red flags or any skeletons in the closet. If so, then we discuss those. If not, it's a great he's the contract.

00:20:10:04 - 00:20:32:12
Speaker 1
It's very friendly. Both sides are protected. We send a contract. Once assigned, we send the money to an escrow account so safely, you know, funded account. And then we do the handover. And then ESCO releases the funds to you. We shake hands, we celebrate. We toasted drink on it. And what transition begins? And usually about a month we don't need you all know anymore.

00:20:32:13 - 00:20:34:16
Speaker 1
And we move on from there.

00:20:34:18 - 00:20:44:02
Speaker 2
Now, if you do it and it turns out that you don't want to buy the business, is there any cost involved for the potential buyer or what's the process then?

00:20:44:04 - 00:21:05:00
Speaker 1
No. Well, that's our risk. So once we, you know, we see stuff that, you know, even could have been said before, I guess we take our loss and we shake hands. We always end with shaking hands in some level with shake hands. And we miss best of luck. Or we we calculate the issues that we saw into the price of a silver it.

00:21:05:02 - 00:21:14:00
Speaker 1
And that might be a discount on the on the total valuation. Or we just pull out and with this no cost and forth other than the time that is spent on the owner. Yeah.

00:21:14:01 - 00:21:28:01
Speaker 2
Okay. So if you're not selling, at least you have learned a lesson on how you can improve your business. So it's a win win situation anyway for the buyer. But before our coffee break comes to an end today, is there anything you want to share with our listeners that we haven't covered yet?

00:21:28:01 - 00:21:50:12
Speaker 1
So I know how it is to have an e-commerce brand. I, we, we had our first one. Almost 7 or 8 years ago. I know how joyful can be, but also how stressful it can be. And I'm just saying is, when the stressful moment comes, nothing is nicer, and having light down the tunnel and having some exit or liquidity event.

00:21:50:14 - 00:22:11:10
Speaker 1
And that's why we're here. So that's why we saw a gap in the market. If whoever comes to the point that, you know, it's time to sell, we love the first one to think of, to at least consider, or if not, we happy to give some free advice and tips and just help sellers get through that phase. I know how mental this training can be and I'm here to solve that to some degree.

00:22:11:11 - 00:22:15:03
Speaker 2
Okay, that's a great offer. Where can people go and find out more about you guys?

00:22:15:08 - 00:22:26:16
Speaker 1
Just go to your website Ikoma. That's ecom with a at the end. Feel free to go into the website or social media we have on YouTube channel. So we take a look.

00:22:26:17 - 00:22:39:07
Speaker 2
Okay, I will put a link in the show notes as always. And you just one click away. Baba, thanks so much for giving us an overview on how you can sell your business. Very easy, very fast, very straightforward and I hope lot of people will reach out to you and hopefully make a good deal.

00:22:39:08 - 00:22:40:14
Speaker 1
Thank you. Happy to be on.

00:22:40:14 - 00:22:41:10
Speaker 3
Thanks so much.