Welcome back to Toy Business Unboxed. This episode features Tyler Jefcoat, founder of Seller Accountant and leader of the Seller Roundtable Mastermind Group. Tyler has been instrumental in helping e-commerce sellers optimize their businesses, with a cumulative impact surpassing a hundred million dollars in annual sales. This engaging discussion delves into macroeconomic trends, cash flow management, and strategies for growth and profitability.
Episode Highlight
- 00:00 Introduction and Guest Introduction
- 00:50 Tyler’s Journey to Becoming Seller Accountant
- 02:15 E-commerce Trends and Macroeconomic Factors
- 05:24 Managing Cash Flow in E-commerce
- 08:14 Profit First and Financial Planning
- 15:33 Accrual vs. Cash-Based Accounting
- 18:52 Preparing for an Exit Strategy
- 27:06 Final Advice and Closing Remarks
Meet Our Guest: Tyler Jefcoat
Tyler Jefcoat’s journey is as intriguing as it is inspiring. Originally grounded in accounting and finance, Tyler transitioned from owning a healthcare company to founding Seller Accountant. With a personal history of nearly crashing his own business, Tyler leverages his experiences to guide other entrepreneurs in avoiding similar pitfalls. With a focus on e-commerce, his insights into macroeconomic trends and financial management are invaluable.
Macroeconomic Trends and Their Impact
Tyler explains how the landscape of e-commerce has evolved, notably during the pandemic, which created an online shopping boom. However, the landscape shift brought challenges, such as rising interest rates affecting both consumer behavior and business strategies. Tyler emphasizes that understanding macro trends like inflation and unemployment is crucial for navigating the fluctuating e-commerce environment.
The Importance of Cash Flow Management
A focal point of the conversation is managing cash flow—a crucial aspect for any business. Tyler stresses the importance of having real bookkeeping that accurately tracks cash cycles, with a practical tip to build a simple cash plan. By doing so, businesses can prepare for potential cash shortfalls and avoid financial crises.
The Principle of ‘Profit First’
Tyler introduces the concept of Profit First, advocating for multiple checking accounts to manage different aspects of business finance. By earmarking funds for inventory and taxes, businesses can bypass loans and maintain financial health. This method provides entrepreneurs a clearer view of their operational costs versus cash reserves.
Balancing Profitability and Competitiveness
Amidst economic uncertainties, businesses must strike a balance between maintaining profitability and staying competitive. Tyler advises having strategic discussions about profit margins and making informed decisions to navigate pricing pressures. It’s important for these decisions to be deliberate rather than accidental, with clear goals in mind.
Preparing for an Exit: Strategy and Readiness
When contemplating selling a business, readiness is key. Tyler explains that setting a target value, ensuring robust financial records, and documenting processes are foundational steps. Additionally, cultivating relationships with suppliers and having a visionary growth roadmap can significantly enhance a business’s attractiveness to potential buyers.
Advice for Aspiring Toy Entrepreneurs
As the conversation wraps up, Tyler shares wisdom for those entering the toy industry: pursue what you’re passionate about and focus on high-value products. Engaging directly with suppliers and fostering strong partnerships are essential steps in gaining a competitive edge.
Conclusion
As the e-commerce environment continues to evolve, being armed with these strategies could mean the difference between merely surviving and truly thriving. For anyone new to the toy industry or considering an entrepreneurial leap, remembering to align your business with your passions and focusing on products that offer high value can provide a competitive advantage and foster business resilience. The importance of strategic planning, coupled with Tyler’s practical financial advice, sets the scene for entrepreneurs to build robust, adaptable businesses ready to face future challenges.
To stay updated with the latest episodes of Toy Business Unboxed and embark on your own journey into the toy business, don’t forget to subscribe and follow the podcast. If you found this episode insightful, please leave a rating and review, and share the podcast with fellow toy enthusiasts. Let’s embrace the world of toys together, staying curious and continuing to innovate.
Guest Contact Information
You can connect with Tyler Jefcoat through the following channels:
- Website: Seller Accountant
- YouTube: Seller Accountant channel
- Podcast: Return on Podcast
- LinkedIn: Tyler Jefcoat
- Social Media: Follow Seller Accountant on X (formerly Twitter) and Facebook.
Transcript
EP058_09-20_24_Tyler Jefcoat
Intro: [00:00:00] Welcome to Toy Business Unboxed, your gateway to the secrets of the toy industry. Here, Jason Hsieh, a toy entrepreneur and expert in the field. “Every product we develop is really inspired by some of the real life experience that we have with our son.” “60 percent of all toys last year were sold on Amazon.”
“Be passionate about it. Because it’s a road. It’s a journey.” “Like when you have an idea that you think is gonna somewhat change the world, make things better, I’d say go for it.“
Jason Hsieh: hello. Welcome to another episode of Toy Business Unbox. I’m your host, Jason Hsieh. Today we have a very special guest, Tyler, the founder of Seller Accountant and the leader of Seller Roundtable Mastermind Group. Tyler has over the year helped multiple e-commerce seller maximize their businesses totaling over a hundred [00:01:00] million dollars in annual sales.
In today’s episode, Tyler and I is gonna be focusing on talking about some very exciting topic, macroeconomic and finance. This is a topic that a some business owner avoid to talk about and ’cause they don’t like to talk about numbers as much, but we’ll be talking about the impact of the interest rate and also how is it changing the customer behavior? Also, we’ll be talking about cash flow profitabilities and also building lasting relationship with the customer. So thank you so much for joining us on the podcast today.
Tyler Jefcoat: Absolutely, Jason. Thanks for having me buddy. Good to be here.
Jason Hsieh: I guess I want to start off first can you share with our listener how do you become the seller accountant or what make you do what you do right now?
Tyler Jefcoat: How do you become the seller accountant? I think it’s probably what went wrong in your life, dude when you up a seller accountant, but no. So I did study accounting. I actually studied more finance in grad school built a healthcare company in 2012, and I sold it in 2017, and so I’m probably more of an entrepreneur and a builder than I’m [00:02:00] an accountant. Just happen to have that degree. It’s kinda like a AA or whatever. Like once an accountant’s always an accountant. You can’t shake it, but yeah. So yeah, we started this business to try to help other entrepreneurs not make some of the mistakes I made in my first business. So I’m not proud of this Jason, but I owned a company with a hundred employees and I almost crashed it financially a couple times, and that just shouldn’t happen as an accountant with a banking background. And yeah, I just thought, geez, other entrepreneurs out there probably have even more issues than I do. Hence seller accountant.
Jason Hsieh: I don’t know if I mentioned this before the interview, I also had an accounting background. I used to work in corporate finance for over 10 years, but my specialty is cost accounting, which is a different, it’s like a very niche type of accounting for manufacturing companies. That’s something we have in common. But I do also love to look at spreadsheet as well. That’s my hobby.
Tyler Jefcoat: Jason, we need to probably talk about finding you a new hobby at some point here. I dunno.
Jason Hsieh: For sure. For sure, you have been doing this for quite a while with the business. What are some of the trends you’re seeing [00:03:00] inside a e-commerce landscape over the last decade?
Tyler Jefcoat: We started seller accountant in 2018, right at the beginning of 2018. And that was, if you guys remember, those of you guys have been selling maybe on a Shopify site or through Amazon. That was really the heyday baby. It was like, oh wow, everything’s growing so quickly and, it’s in a weird way, the pandemic helped us because it created a lot of additional momentum toward buying stuff online.
Jason Hsieh: Online, yeah. Yeah.
Tyler Jefcoat: And listen, for anyone who has been living under a rock, Jason, the last two years have been a little harder, right? The interest rates have been way up. Literally the sessions on some keywords on Amazon, I’m thinking about that in particular have just been down. And so you know, whether we like it or not, whether we love spreadsheets or wanna read the Wall Street Journal, we have to pay attention to some of these macro trends like inflation, like economic growth, like unemployment, like interest rates. Because I don’t know, I don’t know about you, Jason, but sometimes I think as an entrepreneur, like I’m a superhero if things go really well, but I’m also like a complete idiot if things go wrong and sometimes. We’re just [00:04:00] lucky to be in a good market and maybe we’re not as much of a superhero as we thought. And then six months later, we’re in a garbage market and maybe we’re not as much of an idiot as we thought. We’re just having to figure out how to navigate the current environment.
Jason Hsieh: I agree. I usually use the term entrepreneur rollercoaster. You’re always on a rollercoaster. It’s oh, one day riched. Then, oh, I’m going to go bankrupt. It’s like a typical entrepreneur rollercoaster. We need to adjust and, since you mentioned about the interest rate I think Fed just caught the interest rate by half a point too, right?
Tyler Jefcoat: They did. Yeah. So we got 50 basis points relief. I don’t know when you’ll post this podcast, but very recently we just got our first interest rate decrease, I think at four and a half years or something like that, Jason. So let’s talk about toy manufacturers or sellers in general. What impact does this have on me?
It makes it a little bit easier adjacent to borrow money. It’s going to, I think, over the next few months, and it makes it a little bit less expensive to try something new. So you guys gotta think about it this way. Like every kind of minute [00:05:00] increase in interest rate means that every experiment I run has higher stakes. So if I have a really low interest rate environment. I can take lots of risks and try new things and if they fail me I can just borrow more money. But when the interest rate environment is really tough, like it has been these last two years, I. Yeah, I have to very carefully pick my battles. I’m not gonna launch five new toys, I’m gonna launch two. I’m not gonna go into five different countries. I’m gonna go into one. And yeah, I think what we’ll see here, Jason, is as rates come down, and I think it’ll be slow, people can start opening up the throttle just a little bit. But here’s a quick warning, you guys, if you’re still in business right now, because guess what?
Some of our clients didn’t make it through this tough last couple years. But if you’re still in business, it means that you worked really hard to manage your interest expense and your loans and your cash. You worked really hard. My encouragement is to don’t stop doing that now that we’ve had this lesson of a little bit of a lull. Let’s keep running our businesses by the numbers. Let’s [00:06:00] keep an eye on our cash flow so that we can actually make money through this next two years instead of being stressed out.
Jason Hsieh: That actually is a perfect segue to the next question I wanted to ask is, since you have been working with so many different e-commerce based businesses, not just within the toy industry, but all across the different vertical.
What are some of your advice when you’re advising other brand about managing cash flow, which is one of the hardest part when you’re running a e-commerce brand because there’s a lot of money going in and out when you’re buying inventory, paying for your containers, et cetera. Do you have any advice?
Tyler Jefcoat: Yes I, do have advice. In fact, I would say like cash flows is the thing. I had a friend of mine say this last year, and it’s been so true. The consequences of running out of inventory suck. But the consequences of running out of cash equals death. And so if we are gonna fall off, one of them’s a ditch. I don’t like ditches, but I really hate cliffs and so when it comes to managing cash. What we learned over the last 18 to 24 months, Jason, is that [00:07:00] has to be a priority for every single CEO, every finance team, every operator out there. And so let me give you a couple practical nuggets on how I would view maybe managing cash.
The first things first, guys you gotta have real bookkeeping. You have to have real accounting so that you can understand your cash cycle and which parts of your business generate money and which parts of your business take money. So first step is to just make sure you have decent books. Step two is the, you gotta build some kind of, even if it’s rudimentary, build some kind of a cash plan or cash forecast. This literally could be a simple if you don’t wanna do a long term plan. Get a spreadsheet and every column is the next week. Week one, week two.
Jason Hsieh: Oh, that’s the one I have. Yes.
Tyler Jefcoat: Remember we’re back to Jason’s hobby here of spreadsheets, right? But guys, literally just put like up at the top cash balance. And here’s the expected smiley face news all of my deposits coming from Amazon or Shopify or PayPal or wholesale accounts. And below that all my sad news. [00:08:00] Here’s my credit card bill. Here’s my payroll. Here’s my PO that I have to pay my supplier in China. And so my expected ending cash is just a quick math problem. Yeah. And then guess what? That ending cash becomes the starting cash of the next column. It’s the next column.
Don’t go out a hundred weeks, but go out like five to six weeks so that you don’t have the thing that I’ve had before. I don’t know if you’ve ever experienced this Jason, but every entrepreneur has the moment. In the fetal position at two o’clock in the morning where they’re like, oh Lord, yeah, I just need to make that one wire go through tomorrow. Please bring me cash.
Jason Hsieh: Yeah. You’re trying to make payroll. Yes.
Tyler Jefcoat: I’m just trying to survive tomorrow. And so if you just put out this little, because guess what American Express tells you four weeks in advance, what’s gonna come out of your account for that payment? Yeah. You know what that PO is gonna be next Friday. Go ahead and put it in a plan if you’re gonna run outta cash today, instead of waiting till the day of.
Jason Hsieh: Yeah. And something has been talked about, not just in the [00:09:00] e-commerce space, but just overall business in general. The concept of profit first. I don’t know if you also teach your client about this concept, and if we can also educate for those of you this internet that doesn’t even know what that means. Can you talk a little bit about that?
Tyler Jefcoat: Yeah. So Mean Profit first. There’s a guy his name’s Mike Mcic, wrote a great book called Profit First. I think he wrote it about a decade ago, but it’s so easy. It’s almost like the old envelope system. I dunno if you remember when you were like 21 and you didn’t know how to budget money yet, and your mom was like, Hey, put your eat out money in a envelope, and then when that envelope’s empty, don’t spend any more money. Like that kind of thing. Yes. This is a little bit more sophisticated for businesses and, for e-commerce businesses in particular. One of the most helpful things that you can do, a gift that you can give yourself is to have a separate checking account for inventory. And every month put a little bit of money aside so that you, instead of having to get a loan next month, wow. I have accumulated some cash. I can just buy my inventory with cash. And then the second one that I would encourage you to have, even if you don’t do like a [00:10:00] full profit first with seven accounts or whatever, even if I was gonna give you advice, it would be at least have an inventory account and at least have a tax account.
I met with the CFO client last week, who’s having a great year. He’s gonna make almost a million dollars in profit this year and buddy, he needs to make sure he’s got that 350 to 400 K in the account. So Uncle Sam doesn’t come get him next year. For what it’s worth, I think that’s a good way to make sure you don’t run outta cash.
Jason Hsieh: I see. And I think the concept is you also have a account for opex, like a holding account, then you allocate the money from your OPEX account and whatever is still remain there. Is your opex? Pretty much.
Tyler Jefcoat: Yeah. It’s a great book, by the way, if you haven’t ever read the book, I feel like it’s one of those must read books, even if you only implement little bits and pieces of it. Mike Mitz, profit First, no Brainer. Actually one of my peers one of the bookkeeping firm owners in America here, I think her name’s Cindy. R. Profit, first version just for e-commerce, and it really goes into
Jason Hsieh: Yes I, read that book too. Yes.
Tyler Jefcoat: Yeah, [00:11:00] she’s fantastic. She’s a love lovely lady. I know her and her husband well. They run a good business there. We’re like friendly competitors, but like her, she did a great job of taking Macy’s words and applying it to an Amazon business, a Shopify. So I would highly recommend her book.
Jason Hsieh: Yeah, because there’s some, because of inventory components, the most different compared to other businesses because the inventory is so key, just like you mentioned. So we definitely need to have money set aside. Sometimes I’m guilty of that myself, not having enough money set aside for repurposing inventory.
And since we are on the topic of inventory and profitability. How should a brand balance maximizing profitability while also try to stay competitive, especially during periods of economy uncertainty that we are facing right now?
Tyler Jefcoat: ! Yeah. ’cause there’s always a little bit of a tension, right? You’re describing a natural tension. Anybody who’s owned their own business feels this where if I want to grow, or if I want to be able to compete, if my competitors are lower prices, sometimes I feel like I have to compromise and like [00:12:00] sacrifice, profit to like keep the volume up. And I think my advice to you is that’s okay. That’s a normal part of business. If I’m in a category, let’s say I’m in the the toy category on Amazon and one of my competitors sells a similar game or a similar toy, and they’re coming in hot on a particular keyword, or they’re lowering their price a little bit, I have to make a strategic choice to say I’m gonna have to lower my profit margin a little bit to keep up with this competitor. Is that a good plan or not a good plan? And my encouragement to you, and by the way, this is why I love working with you so much, Jason, is that this is a lot of your expertise in terms of understanding that strategy.
My point is don’t do this on accident. Make sure that you’re actually having a board meeting kind of discussion with your team to say, Hey, alright, our target profitability is 25% after advertising, after Amazon fees. This is gonna put us down to 20% for three months. Are we okay with that sacrifice? Because we believe the ROI is gonna be, we get to maintain number one position with this keyword or number two position with this keyword. I think [00:13:00] if you just have this blanket, ’cause guess what guys? Lemme be honest with you marketing teams need accountability. A lot of times we have a good marketing team and they don’t know anything other than spend more money on advertising. Sometimes they need permission to spend more for a specific strategic reason. But it just needs to be intentional ’cause the answer it depends, it depends. If I’m about to run out of inventory, I should not blow through inventory. I gotta keep my prices.
Jason Hsieh: Yeah, a hundred percent. A hundred percent. You also need to make sure you don’t load the price and sold it out. That’s actually a very bad move. So the other thing I also wanna talk about, because you do the financial planning. But one thing I notice when I’m talking to client, a lot of the client have a p and l or profit and loss statement, but they don’t have a balance sheet. For some whatever reason, that’s like very common in the e-commerce pay for one reason or the other.
What will you say to the people that doesn’t have a balance sheet right now?
Tyler Jefcoat: I think one of the most common things, and I, by the way, this is not a bad thing. If you’re just starting out, you’ve just launched your [00:14:00] brand, you’re keeping your expenses down. Maybe you’re not an accountant who’s hobbyist to play in spreadsheets like me and Jason here. The most important thing you can do if you’re like I’m saying like less than 10k a month in revenue, is I have to know what my unit profitability is on, like I’m just using Amazon as an example, so I’m gonna go buy a tool. Helium 10 or Seller Board or whatever my favorite tool is, and I’m probably gonna choose to use that tool almost like a p and l, right? Because it has my sales, it has my refunds. Yeah. But guys, once I reach a certain volume, and for me this has always been maybe 25 KA month in revenue, somewhere around that point. I can’t get away with just using a dashboard to run my business anymore. I actually have to have an accounting system. And the reason this is so important, Jason, is sometimes those dashboards will lie to you, man, and they’re not trying to, but sometimes the there are more refunds and they capture or the impact of sales tax if they’re going through the wrong data source on Amazon. At the end of the day, a balance sheet is a [00:15:00] list of everything I own and everything I owe. And I never me I’m the CFO for nine figures a year of e-commerce sales. And I never believe a p and l until I look at a balance sheet first. Because guess what? If something looks weird, I’ll give you, I’ll give you a concrete example.
I was helping a client a couple months ago. And I looked at their p and l for, I made the mistake. I went to the profit and loss statement first and I’m like, wow, you guys have had an amazing year. This is incredible. I’ve never seen margins like this before. And then I go and I peek at the balance sheet and I think it was something, some outrageous account was like negative $500,000 on their balance sheet. Just made no sense could not make any sense at all. And our to realize, oh we’ve been misclassifying things in the wrong spot. Can’t trust the p and l and so for what it’s worth guys, don’t be intimidated. If you go by the way, the seller account and YouTube page, we have lots of free content on how to read a balance sheet for an Amazon seller, this does not need to intimidate you. Learn [00:16:00] the basics and it’ll make you much more successful at managing your business.
Jason Hsieh: Yeah, and since now we are nerd out about finance and financial statement, that’s another thing I want to talk about. This is more, a little bit more technical for the listener that doesn’t have a finance background.
What is your opinion as far as using accrual based accounting versus cash based accounting when you encounter e-commerce financing?
Currently my business that we use we do use accrual base and I advise all my client to use accrual base so you have a more accurate picture of what is really going on month to month instead of having a huge dip when you pay a $5,000 for an incoming container, for example. But what is your take on it?
Tyler Jefcoat: Yeah, I agree with you completely. So guys, if this is new to you and you’re like, oh my God, these two nerds are talking about accounting, just know this cash basis accounting it hits your financial statements like your p and l when you stroke the check. If the wire goes to China to pay for my inventory on that day, that’s when I expense it if I’m doing cash [00:17:00] basis, if I’m doing accrual basis, I’m going to wait. I’m gonna put that when I spend money to buy my inventory, it’s gonna go into a warehouse, an inventory warehouse, where I get to sit on that value until next month when I actually sell the units and then I expense it. And the reason this is so important, Jason, is e-commerce has a really long cash cycle.
What I mean by that is I might buy inventory today, like pay cash, and it might be three months before the inventory even arrives in the states. And then I need another month before I sell through it. In other words the only way I can actually compare sales with the expenses it took me to make those sales is to do what’s called accrual accounting, which matches things in the same month. And guys I know we, we may talk about exits here in a minute, but I helped my clients through a ton of monster exits over the last five years. Zero of those exits happened with cash basis accounting. 100% of the successful exits we were involved with [00:18:00] had solid accrual basis accounting. Really, important.
Jason Hsieh: Yeah. And I think that’s sometimes some of the e-commerce business I talk to, they didn’t do a very good job on doing accrual correctly as well. Like allocating, which is tricky sometimes because okay, you have a container with 10 different product in it, how do you allocate it to per unit correctly as part of your cost of good sold in your inventory on the back.
Tyler Jefcoat: And one of the most important things there, and again guys, this is way down the nerd hole here, but if you’re trying to say did it cost me, how much did it cost me to buy this unit? And I might be tempted to try to load a little bit of a duty or a tariff duty or a little bit of the inbound freight. The most important thing is to be consistent. If I’m going to load my freight forwarding cost into my cost to get sold. I need to have my accounting team do that every single time. So that my apples to apples is similar. There are lots of correct ways to do that, Jason. And to be honest with you, we have clients that try to do accrual accounting but still go ahead and expense like inbound [00:19:00] freight charges right away. Like it’s okay to do things that, because guess what, we’re like juggling. Let’s say we don’t have a great inventory management software. Like we haven’t spent a ton of money to spin up like a a, finale or a RSON seven or something like that. If that’s us, it’s a real pain in the rear to load a lot of these ancillary expenses in and so we might make the business decision to be like the most important ones are my factory invoice and my freight forward or everything else. I’m just gonna expense. I’m not gonna worry about it and as long as I’m consistent with that consistent, I don’t get in too much trouble yeah.
Jason Hsieh: I see. I wanna kind of transition to exiting because e-commerce a lot of, in over the years exiting the landscape also has been very different as we see all the giant aggregator went outta business. That’s a lot of comp like aggregator couple years ago, I think during Covid there’s like a huge boom of aggregated buying a brand like crazy.
What have you seen in your line of work over, especially in 2024 and going [00:20:00] into 2025, as far as what kind of trend are you seeing? How much people are usually getting as a multiple when they are considering, and what is the thing the business owner should even think about? Should I have make maybe a million in the annual growth revenue first before I even entertain on the idea of exiting? What are some of the benchmark or threshold that you are seeing?
Tyler Jefcoat: So you asked a couple questions there, and they’re really good ones. I think another one of those macro economic things that for those of us who are in the e-commerce space, are really matters to us, is we saw a ton, in fact, the ton was about $15 billion flood into this space to buy businesses like yours and mine. And to your point, Jason, a lot of those aggregators, which is just a private equity backed company that buys a lot of brands. A lot of those guys did not do very well, and they thought they were a lot smarter than you are friends listening to this podcast and they realize, they come to realize they actually weren’t as smart as they thought they were. [00:21:00] And yeah, they, and so that’s the macroeconomic trend. So multiples were outrageous. If you were lucky enough to sell your business in quarter one of 2021. You might have been getting 5, 6, 7, 8 x multiple, which what that means is your annual profit times eight is what your business would be valued at. That would be an unprecedented high rate in this industry when it’s normally been like two and a half to three x. And so we saw things go way down into the toilet in 20 22, 20 23, because interest rates were high, everyone was scared, no one was investing. And we saw a lot of deals getting done at more like a one and a half to two x, right?
And so what’s encouraging, and to your point, about 2025, Jason. We’re already seeing multiple start to create backup. Interest rates going down is great news if we choose to sell our business because it allows our investors to have access to cash more easily. Like you think about right now, your your standard rich guy, somebody has a family office. If you can get 5% [00:22:00] guaranteed interest just in a savings account, he’s not gonna be very excited about taking a risk on your business or my business. But as soon as the interest rates start dropping, his risk profile’s gonna change. He’s gonna want to come fund an inventory based business to try to get some upside market. And so, that’s the first thing I would say is it’s going to be a lot more interesting to try to sell your business. My forecast is probably middle of 20, 25 than it is right now. Not gonna be eight x multiples like we saw three years ago, but probably, more in the three, three and a half, four x which is gonna be a great moment. So the key you got to be ready for whenever. ’cause you, and I don’t know, we can’t time the market. We don’t know when it’s gonna be rosy. What we can do is we can choose to be ready for whenever it is rosy.
Jason Hsieh: So that’s a perfect transaction to my next question. How do you get ready for exiting strategy?
Tyler Jefcoat: So there’s a couple things. Let’s say, Jason, you and I are talking we’re buddies. We’re hanging out. And I say, Jason, I think I wanna sell my business someday. And so Jason, being a good friend of mine, is gonna ask me some questions. The first question he is gonna ask me [00:23:00] is Tyler, what is your number? What is the value that you need to glean to make this particular investment a successful investment? And so you asked this question a minute ago in the, midst of your other questions, which is, do you have to have a million of revenue? Do you have to have a million of profit? And the answer is that really depends on what your objective is. So, guys I’ve now sold two businesses and someday I’ll sell a third business, right? And so my question had the, answer to this question for me has changed. The first time I ever sold a business, 100% of my net worth was tied up in that business. I got nothing else. It was my entire universe was this baby, and I needed to try to sell it earlier because my risk profile was really high. For my second business sale, okay, emily and I had a little bit of capital. We were a little bit healthier financially. I could afford to wait and let that business mature and maybe get a slightly higher number for it. And maybe with my third business it’ll be even more and so you, this is a very [00:24:00] personal question, but lemme give you a quick case study. I had a friend, a really good friend of mine, his name’s Todd and Todd actually I walked him through this process. He knew his number, was like 3.5 million of what he wanted for the business. And during the feeding frenzy of the aggregators, one of them reached out and offered him that number. He was feeling some fomo, Jason and he didn’t listen to his number and he said, no, let me go keep shopping. And guess what? That was right when the market started turning back down. And he still exited, but it wasn’t at his number. So my advice to everyone out there is take some time, this is probably a personal, get alone with a journal, get along with your spouse. Like maybe a prayerful. This is an important decision that what is my objective? And guess what? If somebody comes and gives me my number. Time to get out, baby. And by the way, the number can change. Let’s say I have a couple of great years, I’m like maybe my, new target number is 5 million instead of 3 million.
But know your number in advance. You asked me for some of the things you can do. There’s a couple more checklists, so you know, you might wanna [00:25:00] exit one day. You gotta know your number. Number two is you’ve gotta get your books in order. I, realized that I own a bookkeeping company, but friends, this is so important. We saw $85 million businesses not get through due diligence because they had not done the little things. Do their accounting consistently. And we saw businesses get way more than they probably should have gotten because they just had good accounting. So know your numbers and get it situated. Third thing is take a little bit of time to document your processes. I know a nerd thing to do. But guys, I don’t want all of your processes. I want your 20% that are most important and here’s a quick hack. If you ever use assistants or VAs to do your work, literally just record a Loom video. It’s free. Just record a Loom video showing your screen and saying, here’s how I click here to place my po. And here’s how I did this. Just record the five minute loom.
Jason Hsieh: There’s actually a AI that you can turn the loom video into SOP as [00:26:00] well.
Tyler Jefcoat: I know, and it’s interesting, I’ve seen some of those tools, Jason, like literally guys, for less than a whatever, a hundred bucks a month, you could make Bulletproof SOPs that would be easy to transfer to a new owner. Finally, what I would say is as you get closer to exiting do your buyer a favor and put a very sexy roadmap for ’em. Like for instance, let’s say that I’ve launched five toys and they’ve been pretty successful. I wanna have my next five toys envisioned out so that when I go to my potential buyer, I can say, Hey, look how good we’ve done. But look where we’re headed in the future. Because guess what? The buyer needs to be a believer in the future of your business. And that’s what you wanna do.
Jason Hsieh: And one thing I also want to mention, especially within the toy industry, the more patent or IP you have, that will also help with the exiting multiple, in my opinion. Do you also agree, Tyler?
Tyler Jefcoat: Yeah. It makes, it can make a huge difference. I totally agree. And one more quick point on that a friend of mine, Joe Val, wrote a book called The Exit Preneur. And I do recommend this [00:27:00] if you’re thinking, how do I do the blocking and tackling of getting my business ready to sell? I think that’s probably the best 15 bucks you could spend on Amazon is just buying Joe Val’s book, the Exit preneur.
Jason Hsieh: He also, the agency that he help you with exiting too, right?
Tyler Jefcoat: He does, yeah. He’s one of the founders of Quiet Light Brokerage. Yeah they do a good job. Yeah. And but even if he didn’t use his brokerage you may choose to. They’re great guys. I think they do a wonderful job. His book is just gold because he is walked through hundreds and hundreds of these deals with e-commerce brands and in particular he’s seen all the things that kill deals, all the things that make it less like you’re gonna get paid. Campaign. And he’s able to go into a lot more detail than you and I can on this little podcast.
Jason Hsieh: Of course, And thank you again for being on the podcast and sharing all your experiences. One of the questions I’d like to ask to wrap things up is if you have to just share one piece of advice to someone that’s new and getting started in the toy industry as a e-commerce entrepreneur, what would [00:28:00] be, what would you tell them?
Tyler Jefcoat: I think my general advice right now for online product sellers is first of all, make sure you do something you’re passionate about. I love solving problems that matter to me. That’s what I’ve, Jason, that’s what I’ve always loved about your story, the products that you develop to address the need that was so meaningful to your family. That’s because it’s a passion project. You care, you’re gonna grind through the hard stuff if you care about the problem. The second thing is, guys, if all things are equal, I love higher value products. If I could somehow get my retail price. Above $30. Above $40. Above $50. I have the power to absorb a much higher level of fees, A much higher level of logistics. I don’t really wanna start my business by selling like a 3 99, a $3.
And so I think all things being equal, if I could find a, honestly even better, if I could find an $80 toy, right? Find something that would generate enough value that there’s $80 and I would really work hard to develop relationships with my suppliers once I’ve [00:29:00] tested it.
Guys I, can’t tell you how important this is. Like your ability to dust off your passport, fly to wherever your supplier is and develop a meaningful relationship can give you a competitive advantage. But for people that are starting, I would maybe start with those two things. What’s something I care about? What’s something that really hacks me off? When my kid broke this toy, it really pissed me off. Let’s make that toy better and then the second thing is just again just making sure that you have higher value products where you can capture more profit.
Jason Hsieh: Thank you so much for those advice. So where can the listener audience find you online?
Tyler Jefcoat: Yeah, so seller accountant.com. Bookkeeping, CFO. Get your stuff in order. Get ready to sell. Seller Accountant has a wonderful YouTube page. Return on Podcast is our little show, and then me, Tyler, Jeff Code. I post a lot on LinkedIn. We have some content on, X and Facebook as well.
I do lead a mastermind for seven and eight figure e-commerce brands called the Seller Round Table. So again, the nice thing about having a weird last name, like [00:30:00] Jefcoat with one F is that, eh, if you Google me, you can find my bald self somewhere. I’m happy to talk to you.
Jason Hsieh: Okay. But thank you so much for being on the podcast.
For the listeners, thank you again for tuning in to this episode toy Business Unbox podcast. We hope you enjoy the conversation and find it insightful and inspiring. If you like what you have heard, be sure to subscribe to our podcast on your favorite platform, so you never miss an episode. We really appreciate your support and would love it if you can leave us a review and share the podcast with your friend and colleague. For more resource tips and the latest update within the toys and game industry, visit our website at toy-launch.com. Join the conversation and connect with us on social media using hashtag. #ToyBusinessUnboxed. We’d love to hear your feedback and suggestion for the future episode. Until next time, keep innovating. Keep creating, keep bringing joy to toys. This is Jason Hsieh signing off on Toy Business Unbox podcast. I’ll see you in the next episode.