Scott Scharf: You know, one of the things there…from Acuity and our e-commerce practice, is to really help our clients not only just do management accounting, so they know where things stand on a daily, weekly, monthly basis, but it’s helping them have a great exit.

So I’ve been talking to our team about a great book called The EXITpreneur’s Playbook by Joe Valley, one of the brokers that we work with. He does a great job saying, “Here are the 3 things you need to do to get the most return and the largest multiple on your business.”

And the first is accrual-based accounting. OK so you’ve got a whole bunch of sellers going, ‘Oh yeah, I should probably do that.’ And now they do because they’re going to sell in a year or two, or whatever time frame.

The second key thing that he recommends is that you have to have a unique product. You can’t just be a reseller of other people’s stuff, because you’re just doing it faster and somebody else can take over. You need to have some of your own unique products, whether it’s private-label or your own design.

And then the last thing is you have to have a solid marketing campaign and really a social following. You have to have that organic ability to pull people in. Um, Jamie, what are you seeing? Are sellers starting to catch on? Are more people signing up for A2X and going, oh yeah… I do need good data…I do need good accounting?

Jamie Shulman: Yeah, it’s interesting. I was just thinking as you were saying that. Am I right to say that everyone sitting here by coincidence has had an exit?

Jermaine Brown: I didn’t have an exit.

Jamie Shulman: Okay. Well, you’re exiting. I would say that these merchants/these sellers – absolutely – we’re seeing more direct discussion around that. They’re coming to us saying, “I understand that I should be getting my books in order because I should be thinking about an exit.”

I don’t know whether they’re reading Joe Valley’s book or whether they’re being more thoughtful about it. I share that view. I know people have asked me about selling Hubdoc and I often say to them, “We didn’t sell Hubdoc…Hubdoc was purchased,” meaning that you need a buyer who wants to buy you. You can’t just go out and think I’m just gonna sell my business. And so the idea of being prepared for when a purchaser emerges makes a ton of sense.

And so we are seeing a lot of that…merchants who are coming in specifically mentioning exits. Interestingly…I think I might have told someone recently this story… which is that we now find ourselves working a lot with aggregators who are rolling up a number of brands or sellers. They’re in the news a lot because they raise a lot of capital, and they buy up these companies.

We see businesses signing up for A2X and just adding, you know, dozens and dozens of subscriptions and we’re like, “who is this…it doesn’t seem like an accounting firm that’s magically got hundreds of clients.” And it turns out, it’s these aggregators.

And so we’ve spoken to a number of them and one of the themes we’ve heard is that when they go to do due diligence, and they’re doing the research on these companies before they make an offer to buy them, they learn that it’s not proper accrual-based accounting. And, oftentimes, it’s as simple as they’re just booking deposits from say, Shopify or Amazon from their bank account straight into their GLS sales.

And it turns out that it was net sales and their sales were actually quite a bit higher, but they weren’t realizing that sales tax and refunds and returns and fees and a whole bunch of things had come off of it. And so these aggregators, a number of them said to us that we have to inform the entrepreneur, that you actually are not a $2 million business, you’re a $3 million business because you’re not accounting for it correctly.

It’s something as simple as that. And to which the entrepreneur often then says, “well then I want you to buy me for more money because I’m a bigger business.” So we are seeing that, even in a simple example like that, people are recognizing this. And it might be in some ways from Joe’s book.

Scott Scharf: Yeah, that’s great. Well, Marketplace Pulse today – their newsletter today – showed the amount of VC funds in aggregators, specifically Amazon aggregators. And it went just like this and then it plummeted down.

So we are seeing that the money’s not only not being invested, it’s being pulled back. I know of one group that the VC has come in and taken over and they’re running the business because they’re not getting the returns they want. So there’s just a lot going on.

The other thing, talking with Joe Valley and a few other people, last year was just kind of the heyday and people were getting between 3X and 5X multipliers on their SDE (seller discretionary earnings) or better in some cases. And now, it’s two to four multiples come down across the board, whether it’s an aggregator or somebody else.

So there’s just a lot of interesting stuff going on.