Justin Cooke

Justin is the CMO/Founder at Empire Flippers and host of Empire Flippers podcast, Justin is the brand ambassador of the company. From content to paid traffic, he keeps the sales staff busy and the lead funnels full. He lives on the road with his wife and is regularly traveling through SE Asia, Europe, and the US.

In 2012, they did right around $200,000 in total volume, total sales. And then they did right around $4.7 million in 2015.

Expert session

Tactic that has had the biggest impact on Justin’s success

How to position and treat your business as an asset

Result if you follow the steps in Justin’s session

Positioning and treating your business as an asset to have better results

Full session with video, notes, audio and discussion inside EHQ Club. Learn more

Expert session snapshot

Transcript

So when we’re evaluating, businesses have been submitted to sell with us, right? We take a look at a bunch of things but first we put them through, we call our evaluation tool.

And evaluation tool looks, our evaluation tool looks at, you know, how the businesses, what does objectory is, what the net profits are, kind of like where their businesses at. And we’ll give you a range.

So I mentioned earlier evaluation is based on a multiple of net profit. And I use the same example that 40,000 a month in sales, 20,000 cost of goods and 10,000 expenses. That leaves you 10,000 a month in profit, you’re going to get evaluation and a multiple that’s generally between let’s say, 25 and 35 x, right?

Now we’ll talk about outside of those ranges. But let’s just stick to that for now, 25 to 35. So that’s the difference between a $250,000 business and a $350,000 business.

And you might ask me, I’m like, well, that’s a big range, man. Make it 250 instead of 250. I want $100,000 more. Well, there’s a whole bunch of things that go into that. So at the upper end of that range would be a business that’s been around a little longer. It’s got a few years of history.

So you’ve got you know, year over year growth, it’s either stable or still increasing. Saying, you know, quarter over quarter and year over year, it’s also got some diversity in terms of where the traffic or the customers are coming in.

So how you’re acquiring those customers isn’t through just one channel. There may be multiple channels. You might have multiple products, so you’re not, you know, singly really, you know, stuck with one particular product that may or may not be successful next year. So you got some diversity on the product side.

You know, if you’re in e commerce, I’d say multi channel e commerce is generally more valuable to get you a better valuation. What I mean by multi channel is maybe you’re selling a little bit on Amazon, so you’re doing the Fulfillment by Amazon, but you’re also getting customers and selling product through your own e commerce store.

So having those two channels is going to be better than just one, either just the commerce herself or just FBA. Because single channels provide more risk.

Ultimately, what gives you the higher multiples of the higher valuation is going to be what looks less risky to a buyer, the buyers looking to buy the business and, you know, maintain it or grow it over the next few years. And if they think that is at risk in any way, they may still buy your business, but they’re going to want it at a lower multiple, they’re going to want it, they’re going to want a discount.

And so what you want to do as a seller is you want to avoid them looking for those discounts or having opportunities to get those discounts and to be in kind of the upper threshold of the valuation range.

Okay, this is some interesting things that you’ve covered here. And it’s good to know some of these in advance, where maybe you’re not ready to sell now, but it’s good to know so that we can set up the business in the right way and prepare. So it’s not that headache at the end when there’s a rush to sell or your urgency to sell and then you’re not going to get the best price.

One thing I mentioned, Liam, is that, you know, the net profit of the business is generally based on the trailing 12 months. So if you’re looking to sell a business and you’re looking to sell let’s say, year from now, you should know that the clock has started in terms of, you know, what your valuation is going to be and what your net profit looks like. So any changes you can make to your profit between now and the next 12 months are going to have a significant impact in your valuation.

So some of the things could be things like a look at your recurring costs. I mean, do you really still need that, you know, software subscription for 600 bucks a month? Is that critical? Can you consolidate some of the jobs down into one person? You know, ways to kind of like, you know, decrease spin that will improve profitability, is going to have a direct impact on your profit.

We don’t want to do, you don’t want to cut revenue though. So even if you can improve your margin a bit, if you’re cutting revenue, that may be bad for the business. So don’t cut anything out. That is directly related to top line either.