Losing a $1m SDE Business to Bankruptcy

Three and a half years ago, today's guest came on acquiring minds at the beginning of her ownership journey. She's back now for the post-mortem. Morley Decide was our guest in March 2023, a few months into her SBA acquisition of an e-commerce skincare brand, doing three and a half million of revenue, and about one million of SDE. She was the target customer herself, so the deal checked boxes, both financial and personal. Today, the business is liquidated, and Morley has been through personal bankruptcy. Listen for the diagnosis. Morley thought Google ads drove about half of revenue. It was closer to 90%. The email affiliate and Amazon sales all traced back to the same Google click, so as cost per click climbed from 60 cents to $3, and she trimmed campaigns, every channel contracted at once. Underneath that, a harder problem, a low 8% repeat purchase rate that nothing she tried would move, customers just would not come back to the product. Then listen for the bankruptcy. Her $2.7 million loan carried a personal guarantee, and the bank asked the judge to take her assets, including the house she was raising her boys in. What protected her was a sub-chapter five filing made just days before the CARES Act window closed. What may surprise you throughout our interview is the tone. Two years on, Morley is philosophical about her crucible, grateful even for what she learned, and for where she's landed, which she did not see coming. That perspective is hard one, and rare still is the willingness to share it publicly. Our thanks to Morley for coming back and telling us the whole painful story. Here she is, Morley decide, former owner of a Myra natural skin care. For a lot of business buyers, an acquisition is the first time they've ever raised money from investors. You may be plenty comfortable across the table from a seller, or an SBA lender by now, but bringing equity partners into a deal is a different negotiation with its own vocabulary, its own economics, and its own governance questions. Well, in a webinar today, Thursday, attorneys Bill Barlow and James David Williams return for another office hours to break down how equity financing gets structured and where buyers end up negotiating. Among the topics you'll learn today, common investor terms you need to understand. The key economic and governance terms you may have to negotiate. How the new SBA rules affect investor terms and equity financing options. How equity is structured in SBA deals versus independent sponsor deals. And what financing looks like in the muddy middle between SBA and independent sponsor deals. The webinar is equity financing from SBA deals to independent sponsors. And it is today, Thursday, September 17th, new in Eastern. Link to register is right at the top of this episode, show notes, or on the acquiring minds homepage, acquiring minds.co. Welcome to acquiring minds, a podcast about buying businesses. My name is Will Smith. Acquiring an existing business is an awesome opportunity for many entrepreneurs, and on this podcast I talk to the people who do it. You know Inzo Technologies, as one of the leading IT managed service providers serving the search community, led by Nick Acres, an acquiring minds guest who bought the 35-year-old business. The team at Inzo regularly works with searchers and their acquisitions. And one feature of acquired businesses that Inzo is seeing over and over is the need to implement cybersecurity promptly during the transition. So many acquired small businesses either have glaring vulnerabilities, lack security best practices, or both, that step one to de-risk the deal you just closed should be addressing these issues. Inzo is your full service IT MSP for post-closed stability. They assess your target, surface the biggest risks in plain English, and give you a day one through 30 plan to cut exposure, prevent downtime, and even find cost takeouts like bloated telecom bills. Check out InzoTechnologies.com, i-n-z-o, or email Nick directly at [email protected]. Morley, decide, welcome back to acquiring minds. Thank you, Will, I'm really happy to be here. Morley, you were a guest back in March 2023, so three and a half years ago now. You had acquired an e-commerce business, a sizable one with an SBA loan. Things did not go according to plan. We're going to hear all that has happened in these last three years. Start us off Morley with a refresher, please, so quick background on you and why it was you chose to buy business. Sure, so my background is finance, investment banking, private equity, corporate, and then decided to blow things up when I left a marriage and had my kids and my mom had started her business when I was younger, and so I had the vision of entrepreneurship. I was approaching 40, and it was one of these situations where if I don't do it now, I'll never do it. And so I ended up leaving corporate cold turkey, and then started my search in 21, and then acquired right at the end of 22. Great, and tell us a little bit then about the business that you bought. It was an e-commerce company. We sold skincare, specifically targeted towards postmenopausal women, post-maternity women, and it focused on skin issues from getting a little bit older, hyperpigmentation, dryness. It was something that was near and dear to my heart, kind of given the life stage I was in. I found it on one of the quiet light sites, and I had breached out, went through diligence, I actually hired a firm to help with operational diligence, had a great lawyer, did the SBA, was able to close it within four months, and then took over right at the beginning of 2023. Yeah, so we would have talked just a couple months into your ownership. So it was an e-commerce business in the sense that that was kind of the go-to-market, but it was also essentially a product business. It was a skincare product line, right? Correct, yes. So we had inventory, we were fulfilling orders through a third party logistics provider. It was, we had five or six contractors that were all over the world. It was like a really nice business that had scaled up very quickly through COVID, and then we, coming out of COVID, we were starting to see kind of the de-scaling of it. Yeah, yeah. Can you give us some numbers around the business, kind of at its peak, when you, which was, I guess, when you bought it? Yeah, so there were actually two entities, or was a US entity, and then there was an Australia entity. So combined, it was around four million. The US entity was about, I'd say, I think about three and a half million top line, and that was certainly the peak, and also the peak of what I bought it at. Okay, and so four million of total sales, three and a half of that in the US, half a million in Australia, and what were earnings? SCE was about a million. I would say, most of it, again, was in the US, and then ironically, we never ended up closing on the Australia portion of it. We had to separate them because the SBA would only fund the US entity, and I, so we separated them, and then it was taking a while to get the Australia one closed because I had to apply for an Australia business license. And we were, you know, I was working with the lawyer there. We were, you know, it was one of these things were like things kept popping up. Like, I had FedExed all my documents there, and then they lost them. And then it was taking a long time, but basically in the interim of when I got my license, which was about three to four months after we closed on the US transaction, I had was watching the financials, and we were seeing them decline. And when I had approached the seller, they said, I'm sorry, I cannot offer you the original amount that we had signed the L.O.I. on. He said, well, we took our eye off the ball. Let me start to to work on the business and kind of get it back up. I was like, that's great. About six months later, it was very clear that he was not able to do that. And so he ended up shutting that entity down. And I'm actually grateful that I didn't end up acquiring that part of the business, which was, you know, 20% of the total revenue. - Yeah, yeah. But a terrible sign at the founder himself couldn't get things going in his own business, and even if I get it. But the Australia connection was that the sellers were Australian? No, if they're. - Yes, the sellers were originally Australian, and they had local distribution there. So they were buying inventory from the US entity, but they were then able to like distribute it locally to their customers there. - Okay, gotcha. Well, before sales started dipping, in some ways, morally, this seems like just a dream acquisition and particularly in kind of 2023 timeframe. It was a time when e-commerce was very hot. I, too, was still most attracted to businesses that were kind of as virtual as possible. COVID was still very fresh. I mean, we were still sort of in the tail of COVID. So everybody was valuing virtualness. My tastes have changed. The world tastes have changed since then, but the idea that you could get a million dollar SDE business with an SBA loan and e-commerce in this timeframe, and then one where kind of the mission resonated with you, the product, you were the target market. It's a target market. It really seemed to check a whole lot of boxes. I mean, I remember being very enthusiastic for the business. So what happens once you get in there? - Yeah. You know, the close was, I remember being so surreal because there was it like a physical space, right? The inventory were all at the 3PLs and their various locations. So I remember like, okay, here we have just transferred over the Shopify store. We transferred over the Amazon store. It was so smooth. Relinked to the bank accounts. I mean, things were like showing up in the bank accounts and I was like, wow, like is this how it works, right? We had kept on all the contractors. And so that was still kind of going and managing. I had, you know, already reached out and met them and they were all solid. So it was like that first, I remember that first month of January was this like, wow, like I actually like, oh, this company and it's working and like, and then it was like month like three, probably right around when we originally talked where it was just like being started to then get messy. And the first thing that happened was that all of a sudden on our Amazon business, we started getting complaints that the customers were getting the complete wrong product. Like not even like the wrong my product, the wrong product. And like, that's it. And this was causing, you know, a lot of concern, a lot of complaints. We realized that there was like an asin mix up between my products. And then the seller had another skin care line that he was like nurturing and tried to, tried to grow it. And they had mixed up the asins and all the sudden, people were getting those products when they were ordering my products. And so we had to do a complete recall of our key product that was 80% of our revenue from Amazon. We had to take the listing down, right? We had to like clean out all the inventory. And it like really hurt the Amazon business whenever you like aren't able to fulfill the orders. And that I remember just like panicking like, oh my God, but like, okay, this is what businesses like, we fixed it, we cleaned up the inventory. I literally had boxes of it coming to my house. I was physically like sorting it. I was restickering it based on little stickers from Kinkos, right? Like I was like, okay, this is what it is. And we got through that. And I had an Amazon agency that was helping. And so they were like dealing with like the back end and stuff. And we were able to get it back up. But I remember like, that's kind of like when the panic like started and then through this. And morally, ultimately that wasn't a structural problem. That was really just a flood. And you could have recovered it. Well, it didn't, okay. But it was an ominous sign that this wasn't going to be easy. Right, exactly. It was an ominous sign. And also during this point too, the person that was a head, was in charge of all of the marketing. She was the Google ads person. And she was like doing all the email, marketing and stuff. She had a major health issue. And she needed to lead the business. So had to scramble, had to find out. And at this time, I was not paying attention really to a lot of the KPIs in terms of the ad spend and all of that. I was like trusting her to do it. Well, I was still trying to understand the other parts of the business, usually around like the inventory in that part. And I had trusted her. She had been running the ads. And she, ironically, she was also the sister-in-law of the seller. So there was, there was still that trust there. And she left. I had to bring in a new ads person, right? And found someone. And that's when I was like, I got to learn the ads, right? This is a major part of what's bringing in the traffic, what's bringing in the revenue. And so as I start to then get into the ads, right, we're seeing kind of this downward trend in the row ads of a lot of our campaigns, right? We're starting to optimize the campaigns and shutting off the ones that are not profitable. We realize that our ads were actually running worldwide. And so we shut that down. It just, why are we running ads and like Dubai and the Philippines, right? So we're bringing the spend in, this is my hypothesis of why the Australia business ended up declining because they were actually leveraging the ad spend from the US business. And so that was my hypothesis of maybe why they were seeing the decline. But overall, both businesses were seeing a decline, right? And I'm starting to get into it. And we're doing everything we can. But as we're trimming the campaigns, right? The volume is going down to the website. And I'm starting to witness that, okay, I thought we were a diversified company. I thought Google ads were just maybe 50% of revenue. The, we had affiliate marketing revenue that was like 20 to 30%. We had our email revenue. We had our Amazon revenue. But as we were seeing the Google ads revenue decrease, we were seeing it across all of the channels. And my initial assumptions, like they should have been independent. And then I quickly realized that actually Google ads was driving 90% of the revenue. And that's how is that, how does that 50, what you thought was 50% actually become 90? Yeah, so the Google ads with the email, when you looked into the email marketing, the majority of the revenue were coming from the welcome flows. And the pop up that was popping up when people would come to the site for the first time. So when you had less people coming to the site, less people were getting the pop up and the welcome flow, which had a pretty nice discount on that first product. So as the Google ads, we were trimming them and the volume was going down. We weren't having as many people come to the site and utilizing the discount code. And then on the affiliate marketing similar, right? They were coming, they were seeing their Google ads. They were then clicking around to the other affiliate sites, then our affiliate platform was tracking those clicks, right? And so it actually wasn't their customers coming independently, it was customers that were Googling it, seeing the ads, and then also clicking on some of their sites. So again, it was duplicate there. And then with Amazon, same thing, people were seeing our ads on Google ads, and then they were going to Amazon, being like, oh, I wonder if this is prime. They would go into the search bar, they would put a Myra, which, and then they would click on the PPC ad in Amazon, and then they would then go and purchase on the site. And so I just didn't realize how much of the Google ads were actually driving all of the channels. And as we were seeing the row as decline on Google ads, and we were trimming and trimming and trimming, it was affecting the whole ecosystem. Long time acquiring Mindsponsor Aspen HR is now part of Engage.peo. Engage helps acquisition entrepreneurs, business buyers like you, take care of their new employees and build trust from day one. Whether it's an asset or stock purchase, Engage provides a turnkey solution for payroll in taxes, HR admin in technology, employee benefits, retirement plans, workers comp, and more. They're also always a phone call away, so you can receive HR guidance from licensed employment attorneys promptly, as those inevitable people issues come up. With engaging your people infrastructure, you, as new owner of your business, can focus on building relationships, operating the business in driving growth. To learn more, contact Jenny Thear directly at J Thear, J-T-H-E-A-R at engagepeo.com, or click the link in the notes. This was such a crazy observation to me morally, because when you told me in the pre-call, because I think of, and I think most people think of Google ads is basically direct advertising. Somebody puts in the term they're looking for, they go to the website and then they buy it if not then later. But in fact, what you're kind of discovered is that Google ad words in some ways are kind of a top of funnel, a top of funnel, you've almost even a branding spend, because they're driving not just the sales that they send to you directly, but all these other sales that you generate indirectly. So somebody like you said, I mean, that kind of user flow of finding you on Google, but then saying to themselves, but let me go see if I can actually rather want to order from her directly. I'd rather get all the benefits of my, just have this go through my Amazon Prime. Let me go to Amazon and buy it. But they initially found you through Google. So if they hadn't found you through Google, they weren't going to go then look for you on Amazon. So all these knock-on effects, because you're killing that first point in the funnel that Google search. Correct. Yeah. And what was interesting is that, and it was working when the cost per clicks were low during COVID, right? When I purchased the company, it was like a 60 cents cost per click, right? And we were winning the majority of the impressions, because there weren't that many other companies bidding on our keywords. And then what we saw as we were getting into 23, and absolutely into 24, is that the cost per click was increasing, right? Then it went to $2, and it went to $2.50. Then it went to $3, right? And it was double what we had originally purchased it. And then when we looked at who was bidding against us, right, it was Amazon, right? It was Teemu. It was Shine. It was these platforms, right? And we sold on Amazon. And again, like when you're using someone else's platform, you don't have control over that. It's a black box algorithm. And I remember saying like when I had my Shopify store, I would wake up each morning, and I would feel like I was in a casino, because I would, I would see the number, and the number were completely like dictate my emotion for the rest of the day. But it felt completely out of my control, because I was beholden to the Google algorithm. Like did it do well? Did it not do well, right? And it just was quickly going in the direction where it was the cost per clicks were going up. The row houses were coming down, and it was just not the direction. And it was like whatever we tried, like I went through multiple Google ads, managers, multiple advisors, but these were just, these were not in our control. And this was not a company or a brand that was old enough for strong enough that the only way you could drive sales was through online digital paying for paying for ads. There was no kind of inherent brand value, because it was too young a company. Yeah, that's my hunch. And the thing that I my like biggest ah-ha for the business was the repeat rate. That is really what made me really understand what what the dynamic was for this company. So, and I remember when I purchased the company, this came up in diligence, right? The repeat rate was like eight percent. And that's not common for skincare. When people find a good product, they stick to it, right? And I remember this being flagged. I had a conversation with the seller. He gave me a very convincing story of like, oh, we just don't take advantage of it. We don't do subscriptions. We don't do subscribe and save. We don't do loyalty email marketing, right? Things like that. And so I was like, okay, this is what I'm going to work on. Yeah. Because if that's your lover, if I can get my customers, right, to keep coming back. And they had really good upsell on flows. And so they were doing a nice job like, you know, getting them to buy more than one product. But there was not good repeat rate. And I, and that's what we focused on, right? We like really focused on retention marketing. We focused on, we added subscribe and save. We started subscriptions. And I couldn't get the repeat rate above 10 to 12 percent. And that's when I was like, okay, there, there why is that, right? And so I had, I had brought on like a CMO advisor to kind of help think through this. And she's like, we've got to do some customer interviews. We've got to understand what is the customer experience, right? And when you do e-commerce and it's all through Google ads, you're not really interacting with your customers, right? And that's when we realized that there, while there was demand for the product, right? I mean, millions of women have these skin issues. The natural product was not meeting their expectations, right? It was, it was an all natural product. It needed to be used consistently. It needed to be used for, you know, a certain amount of time for it to work. And that was not meeting expectations enough for customers to come back and rebuy. So that meant that we had to go out and acquire customers month after month after month. And that's a very hard game to play in direct to consumer in skincare in like the toughest like demographic category. And that to me was like the wake up call for the business. Well, and it's also, it's not just that you have to go out there and re re acquire customers. It's also just a structural problem in the business that the product doesn't work or doesn't work that effectively. Was that basically your conclusion? That was my conclusion, you know, and I, I used the products. I don't use them anymore, but I used them and I had, but I'm very disciplined about using them because I was also doing content. But like you had to be very consistent and you had to have realistic expectations. I think that's also an issue that we can have with skincare products that we assume that they're going to be miracle cures, right? And it's a topical product. It's not a laser, right? It's not going to completely eradicate all hyperpigmentation and then also there's different types of hyperpigmentation. Some which more than others, right, can be better addressed with our products. And you know, as I'm starting to learn about these nuances and I'm trying to put content out there to like educate around this, right? But it just, you know, it's like, it's hard to do that while you're seeing your numbers decline month after month. Yeah. You say putting content out there, you had talked to me about this. This was, you, I mean, you were scrambling to figure out anything to generate demand. This was an obvious thing to, you know, beauty, beauty products in theory as a category are well suited to social media. So you tried that. What was your experience of, and you as business owner, you were the kind of the face, you were the source of the content. What was that like? Yeah, you know, and at this time, I'm starting to get some help. I'm joining a lot of these e-commerce forums, right? And what I'm realizing is it's not like if a channel like fails on you, it's when a channel fails on you. And so you've got to constantly be innovating. And then the value of an organic channel and owned channel versus if you're using someone else's channel, right? Like, you know, meta and TikTok shop and all of those. And so at this point, we are starting to now experiment. Like, okay, let's, let's look at influencers. Let's look at, you know, building our own channel when I had acquired the company that Instagram group had 10,000 people on it. So I'm like, Oh gosh, like we've got, we've got community here. I quickly realized that there's just, there was no engagement. So I don't know if those people were real or not. And my, my punch, right, is that they were not real people because we couldn't, no matter what we did, we could not drive engagement. And I did not have much luck with influencers. They just, we didn't have the cash flow to be, you know, just seeding different influencers. And so I had to do the content. Plus like, it's, it's my personal story. Like I could, you know, I'm talking about being a single mom and like wanting to take care of my kids and, you know, bouncing back from after having the babies and going through a divorce. Like, I could bring my story into it. But that's not my natural. Like, communication style. I actually am not personally even on social. I don't feel the need to advertise to my life. And so it was a complete mismatch of skill set values. I thought I was buying a data analytics company where I just had to keep an eye on KPIs and I could get the right people in place. But I quickly learned that a brand right when you're brand building it's a content generation business right. It's about it's experimenting. It's about trying to get into like the next channel because once everyone figures out right that the Google ads keywords are cheap. They're going to go and buy them right when they figure out that the meta ads are like working. They're going to get in there right and then it's just and so I learned very quickly that it wasn't the business that I am naturally set up for. Yeah. She's more like okay so take us to where things really start to kind of fail or you're questioning how or even if to proceed. Yeah. So we get through the first year and I feel like it's fighting tooth and nail right. I've gone through multiple agencies and advisors right. The thought of like I just I'm one decision away from making this work right. We're testing. We're learning. Just doing everything we can we can but we're still seeing month after month after month declines right. And so at the end of 23 it becomes very apparent that I'm not going to be able to to make the loan payment very much longer. The cash flow has disappeared right. And the loan payment I had borrowed at that point was around 2.7 million. And the the interest this is during the time where the interest rates were still rising. And I remember to have such anxiety when the Fed would meet and there were these two meetings in a row where they raised rates like 75 basis points and I was like and I'd get the letter from the bank being like we have now reset your loan and this is your loan payment but it was around 40,000 dollars a month that I had to have the loan payment and it just became clear that I wasn't going to make it. So reached out to the bank had a conversation actually prior to this I had found a contact at the SBA had a conversation with them and just said hey what are my options here. She sent me the SBA SOP document that was like the bank has to work with you right they have to give you six months of loan deferral principle and interest and then they also can sometimes extend your loan it was a 10 year they can extend it up to a 20 year. So I had that I was armed with it I met with the bank I said hey you know we're we've hit some roadblocks we're testing a couple of their channels you know we just need a couple of months to like free up cash flow so that we can kind of get the business back on track. So they gave me three months of loan deferral and they said okay why don't you then check back in with us in three months. So you know great was like okay good I've got a little bit of a breathing room we've got some time to do a little bit more testing and learning right I'm brought on a new Google ads person who's like really getting into the details really like trying to understand we brought on a meta person because everyone's like you got at least try meta right like that's where people go now and then we get to three months it's not enough right there's not the cash flow is not there so I go back to the bank I ask them I need three more months right so they give me the three more months and I'm armed with the SBA document because like they their hesitant right they're like I don't know whatever and I'm like oh but the document right and I talked to this woman right and so I'm I'm kind of like leading them and then they give me three more months still it is very apparent that come kind of Jan you are July 1st it the cash I can maybe do a month of loan payment so at this time I'm like okay well maybe you know in 30 days part of that I'm like okay well maybe I asked for the 20-year maturity extension because again if I can just get the loan payment down anything is going to be I've already put more capital into the business I put another 25 grand in the business because we overhauled the website it was on a very old Clujie together I couldn't like be nimble with with conversion testing and a be like we were doing whatever we could like eat every just rose conversions like this percent right like that would equal like what we needed um so I went back I asked they were like okay yeah we'll think about it whatever and then radio silence from them I kept emailing them okay yeah yeah yeah like this is about to restart and I'm getting nothing from them right and at the three-month check-in I had said what happens when July 1st comes along and I cannot make the loan payment and they were like well you go into default and go into four barons and so to me that was a very clear message from the bank like if you can't pay the loan like they will then go through their proceedings right of what the bank does right so I started to panic it's like the beginning of June I am and I had gotten some advisors on board at this point to help me make some decisions um they're like talk to talk to some lawyers talk to some like basically anyone and everyone right I like called the broker I called the loan but I know I was like I need help what what do you recommend um I talked more like let me let me pause you really quick and just to ask so you're you're about 15 months into the business now or a year and a half into the business correct what what what what is your like headspace look like like how are you dealing with this emotionally we heard you use the word panic um and maybe give some some kind of context here you've got your single mom as you've said you've got two kids do you own a house yeah what's it state what's it state here yeah I mean there's not any assets in the company so the personal guarantee um and I will I did not sleep right for that whole entire period I had such terrible anxiety I would I'd fall asleep and then I'd wake up at two o'clock in the morning with the fireball of anxiety and just ruminating and fear um you know the the house was pledged right it there was a lean on the house it had quite a bit of equity in it but it's the house that I brought my my kids home right it's very personal um and I had assets so it wasn't a situation where like they were just going to take the business they were gonna absolutely come after me and ask and I and it was all the things you think about right like I'm not gonna have a place to live that there I mean my whole that worth is going to be erased right everything is for this and feeling like but none of it was in my control so I mean the fortunate thing is is that I had a lot of support um my the people in my life showed up for me I was very open about what I was going through my family was amazing my friends would check in on me um you know my my co-parent my kids like and we didn't tell the kids what was going on but they could they could tell right the energy um and the the biggest turning point was when I did decide to go ahead and file for bankruptcy that was at the point where I was like okay I have done everything I can at this point I have to surrender and I have to allow this to play out and then whatever wherever we end up is wherever we're gonna end up and morally when you say the bank basically at six months trigger you know you're then in default and in forbearance was a word you used you might have to define some of these for us what does it mean what's the difference between default forbearance and and formally filing for bankruptcy what what are all these decision points and definitions yeah and I I will just tell you what I interpreted them as I don't really know the legal definitions but um but to me it was I would then lose control right they would then begin their their procedure they would call the loan right they would ask for the business they'd ask the assets then they would come after my assets right and so that was my assumption um and that through talking through to bankruptcy lawyers the only way to remain in control was to officially file for bankruptcy because that then um makes them stop their it's been it's bankruptcy protection right bankruptcy protection yes and something kind of interesting was happening at the same time where I was debating about whether to even file for bankruptcy because again in my head I was like we are one decision away from making this work like I'm gonna kick the can down the road as long as I can maybe I'll put in a little bit more capital maybe like maybe that's all that we need and we'll get it to work right we'll get the engine to work but something happened at this time period where The multiple bankruptcy lawyers told me about chapter 11 bankruptcy and a special kind of sub law called sub chapter five, and it just happened, and this sub chapter five is actually favorable because it allows the business or the person going through bankruptcy to have some more bankruptcy, right? It kind of expedites the bankruptcy and it gives them a little bit more power than a normal chapter 11, but there are limits of how much debt you can have to go through it. And so during the, during COVID and the CARES Act, they raised that ceiling to where I would be eligible for it, but that CARES Act was going to expire on June 20th. And so if I didn't file for bankruptcy by that date, I would no longer be able to file under that chapter, that sub chapter five. And so I remember it being like literally like June 17th, and my lawyer saying, I would recommend that you do this now. June 19th is a national holiday, so like you've got to get filed by June 18th, and it was just one of those things and he said, look, even if you think that even down the road that you may want to think that bankruptcy is a possibility, he's like, I recommend you do it now. I was still considering offer and compromise at this point. I was talking till like, hey, maybe we just negotiate with the SBA, but some of those don't work and you end up in bankruptcy anyways. And so I pulled the trigger to say, I think the universe is giving me a message. I filed on June 18th, right? Like July 1st was when the Glompayment was due, and then it just stopped the bank, right? It froze everything so that I could then go through the bankruptcy procedures. And I filed for the company. And then because of the girl personal guarantee, I had to also file for myself. And so what are the differences there, the entity files for bankruptcy and as an individual, you file for bankruptcy and you do both as a business buyer in this situation? Yes, because of the personal guarantee. If the business had owned the debt on its own, I could have just put the business, but because the personal guarantee and because there are no assets, right, in the business, the bank would naturally call the personal guarantee. And so I had to also put myself into bankruptcy because of that personal guarantee. And so then what were the implications of this decision? What then happened? So what happened was because it was chapter 11, which is a reorganization bankruptcy and not chapter 7, which is literally a liquidation bankruptcy where you just hand over all your assets and then the trustee kind of doles it out. I had to come up with a plan of how I was going to pay back the debt. And so we, McLaren, I worked on a plan. We offered them, you know, like a 10 year payment plan and the plan cannot be any less than what the bank would get in a chapter 7. So I had to offer the equivalent of my assets, right? But I could offer it in a plan where I would pay back over the next 10 years. So and when we had calculated it, I could pay back 75% of the SBA loan, which was 2.7 million is what it was when we filed for bankruptcy. The, luckily the sellers know one away, I had a 10% seller's note that was 300,000 in that one away, because I did not personal guarantee that. I would note for the audience not to personally guarantee a seller note. That 75, 75% of the loan balance number jumps out of me morally, because I think isn't that what SBA guarantees to the lenders. So in, so the lenders are made whole. So I guess, so I guess the, your actual lender, eight, you know, 25% or wrote that up, considered that a loss, got their 75%, 75% remaining reimbursed or whatever by the SBA. And then the SBA came, expected you to give them the full, the full balance of what they'd paid, your lender, who they guaranteed, right? Or do you not know? I don't know the nuances of how the SBA and the lender works. All I know is that in, in the lender has to give their best effort to collect as much of the loan as possible, right? They've got their SOP, so they have to get as much of it as they can in order to get reimbursed by the SBA. So how much the lender got reimbursed and whatever, I don't know the nuances about that. I just know they are incentivized when they are coming after me that they need to get as much as they can back. If you ask owners in the ETA and search community, which insurance broker provides highest quality work, great outcomes, and has a practice dedicated to searchers and acquisition entrepreneurs, one name comes up again and again, Oberly, Oberly risk strategies has worked with hundreds of searchers over nearly a decade and is in fact led by a two time successful searcher, August Falker, which makes Oberly a specialty insurance brokerage for searchers by a former searcher. And if you've got a business under LOI, Oberly will provide complimentary due diligence on that business's insurance and benefits program, an easy, no risk way to get to know August and the team at Oberly. To take advantage, check out Oberly-risk.com, that's O-B-E-R-L-E-Hyphen-risk.com, link in the notes. And so you're negotiating now with the SBA directly at this time. No, this is all with the lender, right? This is all because I didn't, I didn't do an offer and compromise. This is all directly with the lender. So if they are having conversations with the SBA, they are doing it behind the scenes. This is purely me and the lender. I got you. Okay. Okay. And so you arrive at 75% of what is owed over 10 years. That was our plan. That's the plan. And what is that sum, by the way? That was, it's about 2 million of like the 2.7. So it's $200,000 a year that you've got to find and pay to the lender. Yeah. Around there. Mm-hmm. I mean, some of it's a balloon payment at year 10. But yeah. Around there. It's about 200. And how did you contemplate being able to do that? Pay. Come up with 200 grand a year aside from all of your other necessary living expenses. Yeah. I mean, it's the equivalent of what I own, right? So it would be, you know, and the fortunate thing is I kept all my assets. I didn't have to liquidate anything. But it's through working, right? And trying to pay back and then liquidating personal investments, right? To be able to make the loan payment. And that's, you know, and that was the plan we provided. I think one of the important things to mention though is that the bank did not accept this plan. In a normal, they actually requested a full chapter seven. They said we do not feel confident that I could pay that plan per what I proposed, right? And so they requested the judge to convert it to a chapter seven and just have me hand over all my assets. In a normal chapter 11, we could have been in bankruptcy indefinitely going back and forth because they had to, they were my only like lender, right? They were the only vendor with the exception of some credit cards, but we did that intentionally so that the bank wouldn't be the only one that I had to like get approval from. And the credit cards all accepted the plan. And because of that, we asked the judge to approve the plan anyways. And luckily because of the sub chapter five, the judge approved my payment plan and forced the bank to take my payment plan. So that was a monumental decision in your favor, because otherwise the bank would have taken everything you have. Yeah. They, I would have had to turn over the house. I would have had to turn over all the assets, not the retirement accounts, but everything else that was liquid and. Well, well, I imagine that was an incredibly tense time waiting for that decision. Yeah. And at this point, I had surrendered, right? I had said, you know what, the fate, it's not in my control. What the bank asked for, what the judge does, it's not in my control. All I can do is continue to work on the business, right? Continue to see if I can make it viable. Now that the debt was going to be restructured and yeah, and that's, that's it. And so the implications of all of this are that you still own the business and you can. Hopefully. try to figure out, still try to figure out the business. Mm-hmm. Mm-hmm. Okay. In do you? Yeah. I know I have since liquidated the business. Shortly after the filing for bankruptcy, two other big events happened that made it very clear that it was not a sustainable business. One was that the R manufacturer, we had a manufacturer that provided 100% of our products, um, had previously given us really favorable terms where we had kind of positive cash conversion and that we only had to put down a 20% deposit when we ordered inventory and that, and then we had usually a net 60 or a net 90 of the remaining 80% after the product was delivered. And in that instance, I could sell enough of the product before the payment was due that it wasn't, it didn't use a lot of cash. Yeah. They, I did the right thing and I was like, hey, I, you know, we're restructuring some things at the company. I'd like to go have and pay off my open invoices. My lawyer recommended me to do this so that they did not become a creditor in the bankruptcy, right? Mm-hmm. They scooped them and they took away the terms and then said, you now have to pay 100% at order and the lead times were five months, right? So I would have to pay 100%, wait five months to get the product and then start selling it, right? And that would have taken so much more cash that we didn't have. And that, by the way, that, that's also a learning, I think, morally too understood. I mean, this would be so, so hard to diligence for a first timer. But that the terms you have with your suppliers, one single decision on supplier terms can completely disrupt the, the cash conversion of the business. Mm-hmm. And I remember that was a risk when we bought the business that a single supplier, right? And I knew this risk, we had gotten, you know, the seller had allowed me to reach out to the manufacturer ahead of time. I got some stuff in writing about the cost and about like they weren't going to jack up the cost on me. They were going to respect the price list and all of that and they had a personal relationship. I went down there and like had dinner with them, like, you know, I got comfortable, again, knowing what I know now. I'm like, it's, they're still a risk. But the plan was to find another supplier because, and that's not a quick process we would have, we would have to have taken all the products brought into a new place, had them reverse engineer it. Like it was, it was a couple of month process and it was always on the to-do list. But when things started getting hard, right, you push some of the, that stuff, right? To focus on the forest fires instead of like, oh, we should really make sure we've got another supplier, right? And so, yeah. So that was definitely a lesson learned and a huge risk to have a single source supplier. And so when they came back to you with these new far less friendly terms, you did, then what? I mean, I reached out, I talked to them. And I was like, hey, like this is a, this, you know, I won't be able to continue sourcing from you. Like this, you know, like I, I did what I could, right? And to see if they would budge at all. But I mean, my hunch is that they were also struggling in their space. They were also kind of a batch manufacturer. And so, you know, again, I don't, I don't begrudge anyone in this process. I think everyone was just doing what was best for them. And it, I mean, it was devastating and that I couldn't make any headway there. And again, it was just like, there's things I can control and there's things I can't control. And then the other major thing that happened was that Amazon sent me compliance notifications and all my products requiring extensive testing that had to be done at their lab. And this would have been tens of thousands of dollars to do all of this testing. And every year, they kind of pop up and we were able to get our manufacturer to do a little bit of testing. It's, you know, it's a little bit of an investment, but the extent of the testing that they were asking for, requiring us to use their labs, it was just, it was not, the investment was not feasible to be able to spend that much money, especially when we were seeing the Amazon business declining precipitously. And they gave us kind of a 90 day warning of if we didn't do the testing in time that they would pull the listings. And so what did you decide in the, in the wake of these two pieces of terrible news? Yeah. I mean, it just over a couple of months, it just became very apparent to me that this was not a sustainable business anymore. Even if we got the debt restructured, there was no way that the business could support the debt, the cash flow was gone at this point. I didn't even think, I mean, I was like, well, maybe I can sell it, but there was no cash flow, right? So there's going to buy a business. And when I did the math, liquidating it, right, selling the inventory to a liquidator because there was no other assets was the most that I could get for the business because it required more capital at this point to keep going. And at this point, I was like, I can't keep putting good money into this business. What did you sell the inventory for? Was it worth anything? Penny's on the dollar. Mm-hmm. I mean, I probably spent more on the shipping of it to the liquidator that I did actually getting back from them. Morley, you said you don't begrudge anybody in this process. What about your seller? You know, I don't, I feel like the seller was, you know, he was very opportunistic, right? He spun up a business, he, it's really, he started in 2017. It exploded with the Google ads and it descaled at the same rate, right? And through the first year, we were talking monthly, we were, he was trying to help. He kept, I mean, like, you've got to let the ads optimize, just let it spend, just let it spend. We spent hundreds of thousands of dollars just letting Google ads like optimize it. It clearly became very apparent that he did not know what he was talking about. We talked about the Australia business. He kind of put that on me and was like, I don't know what you're doing. But I'm like, you're in Australia, like I don't understand how my business is affecting your business, but realizing that the Google ads were not working for him either. And then as we were trying to bring in our costs, right, it must not have been showing anything in Australia. So I guess he was, you know, it wasn't a, it wasn't a separate business, right? It was all kind of part of the same ecosystem. So, you know, I, obviously I owed him money, you know, my lawyer sent him the notice, right? He had the option to file a claim. He did not. So that disappeared and morally. Do you think that he looks at what happened after he sold to you and says morally ran the business into the ground? Or do you, or he, he don't think he says, boy, I got out of the right time. It was inevitable that it was going to decline, especially since, you know, what happened to you has happened to many e-commerce, e-commerce started cratering as a category. This isn't, this isn't an exceptional story, unhappily. There are a lot of e-commerce businesses that, as you keep kind of touching on, there was a surge during COVID, e-commerce as we all know, surged and then came back to earth. So he probably understands that, no? Yeah, I mean, I can't say for sure, right, because I haven't talked to him. I mean, I'm sure there's an element of, you know, my management of it and that I actually think there's truth to that, right? Like I was a first time owner, I did not have expertise in e-commerce or digital marketing. I think that was a major miss on my part when I assumed, right, like, oh, I know marketing. I worked in corporate, right, for 12 years doing marketing and this is a very nuanced marketing, right? E-commerce is a very nuanced and a lot of entrepreneurs grow up in the business. And so they know a lot more. I think it was a lot of hubris on my part to think that I could just come in and take this over. Right? And so I think a part of him is probably like, you know, she made a lot of mistakes, right? And, but I think also a part of him kind of understands because he has other e-commerce businesses, right? Like he spins them up and then tries to sell them. So I'm sure he's seeing some of the same dynamics and his other businesses. So, you know, I don't know, it's something that I'm like, I don't even worry about, right? Like he's, I'm just grateful that he didn't try to come after his seller note, right? Like I think he saw the writing on the wall that he wasn't going to get it. Yeah. And morally, how do you reflect on ETA broadly, buying a business overall? We should say that you're now, you have a role at New Majority Capital where your, I don't know if advisor is the right title, but you speak to the cohorts there, other researchers. How do you think about this whole? world now of ETA. Yeah, I'm still an ETA proponent. I still think that it has changed my life for the better, especially a single. Yeah, I mean, I know, I know. I mean, now that we're on the other side, we can talk about like the happy ending, right? Part of it. Now, I mean, I do. I think it has changed my life for the better, being a single mom, like building something. I have learned so much. You know, I I'm a lot more eyes wide open. I, you know, I want to tell the story because I think a lot of people I didn't understand the risk I was taking, especially with the personal guarantee. I was told, you know, that the bank doesn't want your house. Like they're not going to take your house, right? Like they'll work with, right? And that was not the scenario, right? That lawyer stood up and said, nope, we want a full chapter seven. We went all the assets and we want to pay it back. And that just floored me, right? That like, and they are just doing their job, right? Because they want to get reimbursed by the SBA. So they have to do that. So I just, but now I tell people about the risk. I say, make sure you're buying the right business. Don't lever it up, right? I know the SBA lets you do up to 90%. I don't recommend doing that, especially for volatile businesses. I don't think e-commerce is a good, leverageable business. It's just too volatile. And so I share that experience. I tell people, and I like, I help them to kind of think through, you know, some of the, how do you protect yourself, right? Like now there's things you can think about, right? Coming out of clothes, right? Do you think about personal, personal guarantee insurance? Do you think about, you know, putting some of your assets in a different entity, right? Like how do you minimize potential downside? Yeah. Morley, you said you started your search in 2021. And we're now in 2026. And so the searchers you're talking to are sort of ETA is five years older now. And we often hear about how much, how much it's grown, how much hype there is around it and attention there is on it, enthusiasm. Do you feel like the searchers of today that you talked to are different? Do they have a different perspective than you did five years ago? Or is it pretty much, pretty much the same? Yeah. I mean, I think the Y is the same, right? Like we're all looking for opportunities, right? We're all, you know, we're doing this to have more control over our life and our legacy. And, you know, thinking about our family. So I think the Y is very similar. I think it's become a lot more like commoditized, right? I think there's just so much noise out there, right? And that's what I worry about where like it gets touted as like this by, you know, be your own boss. It's super easy, whatever. And that's kind of where I like come in. And I'm like, God, it was the hardest thing I've ever had to go through. And not just the downside of it, but even just running the business. And I said, and I say like, I went through a separation and a divorce. And it was like 10 times worse than that, right? I would not wish this on my worst enemy because it's, you're getting at fundamental, like I'm not going to have a home, right? Like this is everything I've worked for the past 20 years is going to be wiped out because of this one decision that I make. And I have no control over it. So I just want people to understand, right? Entrepreneurship, it's not for everyone. There is risk. There is ways to make sure that you understand the risk and ways to minimize the risk. But I still am a huge proponent of it. How do you feel emotionally these days about the experience about where you are now? And then I'm going to ask you to close by telling us where you are now. Actually, you can put that all of that into the single answer. Yeah. Emotionally, I'm in a lot better place, right? I did a lot of therapy. And I remember my therapist asked me, like, where do you want all this to end? And I was like, gosh, I just want this to be like a footnote in the, you know, in the book of my life of like, yeah, that really sucked. But, but gratitude for the experience, like, God, like, and there's growth in all, you know, in trauma, right? And, but, and I feel like that's where I am now. Now that it's been two years since I filed for bankruptcy, 18 months since I was discharged from bankruptcy, that there is gratitude for the experience because I have learned so much about business, but more so about myself and about just like, I can do hard things and everything is going to be fine. And, you know, it kind of makes a lot of the stuff that people get really stressed about today. I'm just like, yeah, right? Like, I had the worst happen to me, right? Like, I, you know, I had a major business failure. I am one of those people that's not a lot to have credit cards, right? Like, that's a big ego. Like, you know, people telling me, you know, you get out of bankruptcy, you have to do one of those like online trainings to teach you how to use credit responsibly. And I'm just like, you're just, it is so hard, right? And this is kind of the ego, right? Like, I'm a working MBA. Like, what, what is going on in this world that like, I have now been completely wiped out. But I have gratitude for it now. My priorities are so different. I appreciate what I have. I have more than enough money, which I was never in that position before. And now I have enough. I have everything that I need. And there's joy in just the everyday. And I'm sorry, Morales. That was wonderful to hear all of that. Thank you for sharing. But I, the detail of you have more than enough money now. And you didn't before. I don't understand that. Mm-hmm. I mean, before he was never enough, right? It was like, okay, I'm going to get to like five million. Okay, I'm going to get to 10 million. Okay. We're going to buy this business and we're going to add other e-commerce brands and we're going to grow it. And it's going to get to 20 million. And then we're going to sell it to private. Like, it was never the goal posts kept moving. And now I'm at the goal post, right? I've got enough. I have my house. I have my retirement accounts. I have all my assets, right? Like, I have to pay the bank for the next eight and a half years. But, and it's painful. Every single month, I have to write a physical check because I need a paper trail. It is painful. But I, but it's to the point now where I have gratitude. And I have everything that I need. I have my health. I have my family. I have an amazing career in entrepreneurship, which gets to your last question, which when all of this was happening, I remember my bankruptcy lawyer was like, oh, what are you going to do now? Like, you've got to show the judge that you can pay this money back. You need to go get a job, right? And it needs to be a good job so that you can pay, you know, $200,000 back a year. And I remember being like, okay, let's go back to corporate, right? I got my contacts, whatever. And I just remember checking in and everything in my body was like, no, like, you can't that this is not the right move for you. And then just talking to my, my mom, who's been my rock through all of this, I mean, this woman offered to buy my house from the bank. Like, she showed up for me in ways that like, I just, it flabbergasts me that like, the people in my life showed up for me in the way they did. And we were just talking about this. And I don't know, she's been begging me for 20 years to come join her at the accounting firm. And I don't know why it just the ego was just like, no, like, I got to do my own thing. Like, it's her business. Tell us the 10 seconds on what it is. Exactly. She's a CPA and she started an accounting practice 30 years ago. And she just turned 70. So she's looking to exit. And so I was helping, helping her prep it for sale for the last couple of years, having now been a part of the ETA landscape. And it's one of those things where it was just like, I remember sitting on the couch with her and just being like, well, why don't I like see what it's like? Maybe we could work together. Maybe I can help you, right? And I remember, she said, I knew we would get here. You just need it to be on your own journey. So it's been 18 months. We've been working together. We've got a five year transition plan for me to take over the business. I'm getting my CPA. I love it. I, it's, I'm able to use everything I learned about business to now work with small businesses, not only on tax strategy, but I also talked to them about cash flow management. And I share my story. And especially for I do CFO services now having gone through my experience of just, you know, cash flow is really important. Here's how to manage it. And it's everything in my body tells me that I'm exactly where I was destined to end up. That's beautiful. So you're going to take over mom's business on a very gradual plan to do that effectively acquire it, I assume, or some sort of, there's going to be some sort of financial piece or sweat equity piece or both. And in the meantime, you're her employee in your, in the This is your job, and this is where you're earning your income and paying your living expenses and your bankruptcy debt, and your mom knew all the time that this is where it would end. She knew this is where we would end, and she was patient and just said, "You have to go do your own journey if you would have joined me 20 years ago, like it wouldn't have been the same thing. I don't think I would have stuck with it." Yeah, I feel very, very grateful for where I am. Let's leave it there. Morely, as I always say to guests who are willing to come on and share essentially what we put always in quotes, a failure story, because as we just heard from you, you actually feel a lot of gratitude for what happened, but it didn't work out as you had planned going in, and we always are just so appreciative that people have the courage and the selflessness to do it. So thank you very much. Yeah, you're welcome. Hope you enjoyed that interview. Don't forget to subscribe to the acquiring mine's newsletter. We send an email for every episode with an introduction to the interview, a link to the video version on YouTube. In soon, key takeaways, numbers, and more essentials from the interview for those of you who don't have time to listen or watch it. Subscribe at acquiringmines.co. You'll also find all our webinars there on the website, both those we have coming up and recordings of past webinars. 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