This is episode 35. Keeping Focus While Selling a Business With Kelly Shroads
Kelly Shroads is a photographer, web design consultant for startups, and E-commerce business owner. Her business, which sells spa-quality bathrobes, has been going strong for eight years, but is currently in a state of transition. Kelly is looking at selling her company now—but that in itself involves a lot of research and work. In this episode we take a look at Kelly’s business model, and the many considerations she faces as she decides how to sell her business and where to go from there.
- Starting an ecommerce business: finding a niche, finding suppliers
- Selling a business: keep a share or sell outright? When is the right time to sell, and for how much? How should you prepare?
- Financial classifications: is it worth the hassle to reclassify a business as an S corp?
- Finding direction: how do you take stock of your business’s “why”?
More About This Episode
Kelly Shroads runs a successful E-commerce business in a particular niche: spa bathrobes. The high-quality robes used at hotels and spas aren’t widely sold online or in stores, and many spa-goers are frustrated by their unavailability to consumers. “That really was my initial inspiration, trying to create the spa experience at home,” Kelly says. “It’s very specific.” After a lot of research in industry journals and trade shows, and a lot of refusals, Kelly found a supplier to help her meet the demand.
But that supplier was recently bought, and while Kelly looks for new ones, the business is in a state of flux. At the same time, she’s also starting the process of selling it, and wants it in optimal condition for potential buyers. “When you look at your business from the standpoint of showing it to a buyer, it changes everything,” Kelly says.
That means putting some work into cleaning up her financials. “I used to do just simple spreadsheet accounting,” Kelly says. “I knew I needed to step it up in the accounting department so I dialed everything into Quickbooks.”
While before she had filed taxes as a sole proprietor, with income from all three of her businesses under the same LLC, she’s also reclassified her robe business as an S corp. The reclassification involved some changes and challenges, with payroll to manage and new accounting habits to form, but Kelly says that she’s traded a little more work each month for a lot less work at the end of the year.
More importantly for her buyers, having separate entities has made it easier for her to report on and track expenses and earnings for this particular business. She can clearly report on exactly where her company’s earnings and expenses are, and send that earnings information to her potential buyers.
Then there are higher-level questions about selling the business. Is it best to sell the business outright and let someone else take off with it? Or is it better to retain some part in it so she can “get some reward from the work I put into it.” A lot depends on the sale price, but that can be hard to assess. Hearing a lot of discussion about value at Rhodium Weekend gave Kelly a sense of what’s average in the market for businesses like hers, and what the low and high end she can expect to see are as she proceeds with selling—helping to inform her decision to retain part of the business or not.
But maybe the largest scale question is when the right time to sell is. This year is the first year Kelly’s sales have gone down. Part of that is because of her supplier issues, but there’s a lot of other work she knows the business needs as far as branding, promotion, and alternate forms of monetization. The question is whether it makes sense for Kelly to do that work now, taking a year to get her business in top condition before selling it, or to sell it and leave those decisions up to the new buyer to make for itself.
That’s a question Kelly hasn’t answered yet, but she’s devoting a lot of thought to it and to her overall goals in business and life. “[The bathrobe business] is something comforting for people. It’s a simple product, simply delivered,” Kelly says. But as she moves forward, she’s balancing the management and improvement of her business and deep consideration of how her future business can make an impact and be of service in the world.
Books that have helped Kelly think about her business: