Escaping the J-Curve in a $700k SDE Ecom Business

And then the rest we typically are getting 15 to 30 days terms.

Okay, okay, okay, Chris. And then about the business, the numbers of the business, the revenue and earnings it generated. The employees. Number of employees.

And then the rest of the staff were in the warehouse. There was shipping and receiving person and then I think four assembly people who were working in the company. So pretty good multiple on staff.

You know, for, for revenue. The rev. The business runs very roughly a 50% gross margin. One of the biggest challenges that I ended up having throughout this transaction was that the owner was doing what I would call expense accounting rather than cogs accounting.

And what I mean by that is, is that if he procured $100,000 of goods in March for that month, his cost basis was $100,000, which is pretty atypical of, you know, this type of business. What you really want to be measuring is the cost of goods sold. And then the goods that you bought but haven't sold go onto your balance sheet and they don't hit your P and L until you actually sell them. So the…

And, and Chris, this is just the difference between cash and accrual, essentially.

Yeah. Although even, I mean, typically. Yeah, I mean, I guess that's, that's true. In most product businesses you're still going to do some kind of cost of goods accounting and then you make an adjustment at the end of the year when you're filing taxes and stuff for, you know, to be actually filing on a cash basis.

And that's typically how it'd be done. But in this case, there were large shifts in inventory position. So from one year to the next, inventory might go up 60 or $80,000 and down the next year $120,000.

And it was really hard to figure that because he wasn't doing a really good job of doing inventory and whatnot. And so fortunately for me, my expertise in background in operations and in supply chain in particular, made it so that I could really dig into the numbers and try to understand exactly how much the business was making. Originally it was being billed as a business that was doing about…

I didn't really believe that to be the case at the time and know, as I dug in I proved further that that really wasn't the case. Um, I think I got to a place where I was confident that it was at least 650 and probably closer to 7 and then it might even be as high as 7 50.

Um, but I was, I had to, you know, just know that we were going to be in that range and then working on the deal to try to get to a multiple of that that I felt comfortable with, you know.