Selling Amazon businesses has changed dramatically recently.
With more options than ever, sellers must carefully consider their goals and choose the best path.
Most people who want to sell an online business on favorable terms should work with a good broker.
Why should you get a broker to help you plan and sell your Amazon FBA business?
Before we begin, let’s define the general selling paths.
There are two ways to sell your business: through a broker or directly to the buyer.
When selling your FBA business, an experienced broker will guide you through every step. Among the advantages they will bring are the following:
Direct sales mean selling your company to a buyer without a third-party.
Several companies want to buy Amazon businesses—investors, FBA brand operators, roll-up buyers, and aggregators.
Many aggregators are currently seeking FBA businesses from individual sellers. They claim to save sellers money by eliminating the need for brokers, but closer inspection reveals that sellers almost always lose out.
The sections that follow will explain why.
Everyone enjoys discussing multiples. This is a number that everyone can relate to. “I got a 4.3 multiple” or “I got a 5× on my business” means “I had a successful exit!”
The multiple is undeniably essential, but another question arises.
Owners can get caught up in the “multiple” and forget the number it applies to—the seller’s discretionary earnings (SDE).
Understanding the multiple is usually easier than computing the SDE.
SDE must be done right. Incorrectly calculated SDE costs sellers thousands, if not millions, of dollars.
Even the savviest entrepreneurs make mistakes when selling their own businesses.
The list below is based on extensive research and is a brief summary of the more common errors we see. But only a customized valuation can show you how it works for your business.
A few simple calculation errors can significantly reduce the sale price. Below are a few notables:
Some business owners think that the ability to understand cash flow and financial statements means they can establish SDE and value their company. Sadly, this isn’t true.
Understanding which expenses qualify and which do not usually. Expertise gained only through experience is critical when determining your company’s worth.
We’ve seen instances where sellers failed to account for significant expenses. Of course, underreporting SDE leads to the undervaluation of their business.
Is it likely that a wise buyer will overlook an unnecessary expense on your addback schedule?
What if you forget to include an expense in your addback schedule?
You will almost certainly miss the error without a professional’s help. Very few buyers will report a mistake that benefits them.
Advisors can help you decide which expenses to addback.
We’ve seen sellers’ COGS drop months significantly before listing their business for sale.
When this happens, SDE for the previous year should be adjusted to reflect the higher margins. Because most sellers are unaware of this, they fail to include a COGS addback.
Others have unintentionally underpaid themselves by failing to prepare an accurate addback schedule because there are so many reasons to include expenses as addbacks. Working with a business advisor can help you avoid costly mistakes.
The value is often calculated incorrectly by businesses with high growth rates.
For example, if your company’s value doubles in January but the sale doesn’t close until May, your monthly SDE will be roughly 40 percent higher than when your company was valued. So a new valuation is required before closing the deal.
Again, most sellers overlook this. Working with an advisor can help you avoid such pitfalls.
In short, SDE is influenced by many variables at any given time. Having an advisor ensures that your SDE is measured correctly, saving you money.
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This is because reputable advisors receive more offers than FBA businesses.
Thousands of potential buyers are on famous advisors’ lists. When your FBA business goes live, investors worldwide will be notified.
All our buyers are educated and experienced business owners.
Most sellers do not have direct access to a large buyer pool. In the event that thousands of qualified buyers are allowed to make offers, it is difficult to predict how much your business will sell for.
More exposure means more chances.
Buyers know that when you sell through an advisor, your company has been thoroughly examined by experienced entrepreneurs.
Working with an expert is like borrowing their credibility. Buyers are thus more interested and trusting.
If you sell directly, a large pool of potential buyers will lose interest because many buyers rely on brokers to help them feel comfortable with the deal. An experienced advisor would not list a company unless it was a valuable and legitimate investment opportunity.
Of course, large private equity (PE) firms will buy directly from you. They prefer it because it eliminates buyer competition. But as a seller, you want buyers to compete. It’s in your best interest to get as many offers on your FBA business as possible. Advisors are vital in this process.
When aggregators know that other investors are making offers, they are more motivated to make their own. That’s great news for sellers.
“How can I make the most money?” is the main concern of most sellers.
You will almost always save money by working with a financial advisor.
Accurate financials increase exposure and credibility, resulting in higher offers.
It’s all about market competition. More aggregators mean more offers. The more proposals you get, the more competitive they are.
Indirectly, aggregators hope you will overlook other potential exit opportunities.
How can you be sure you’re getting a good deal if no one else has made an offer? Simply put, no!
Selling based on one offer is a certain way to get the “ignorance discount.”
If you only get one offer from a single buyer, it’ll probably be not good. If you get six bids from buyers, you can expect some competition.
Private equity firms claim that excluding advisor fees saves sellers 10 percent. They want to keep out other buyers who may be able to beat their price.
You will pay an advisor fee of 5–10 percent, depending on the size of your company. However, the advisor may let you sell for 30–40 percent more than you would otherwise.
So after years of hard work, do you really want to lose money by not getting the best price when it’s time to sell?
Working with a single buyer increases your chances of receiving a lower offer but also poor terms.
Earn-outs are frequently heavily weighted in PE firm offers. It makes them appear reasonable while not paying you the full sale price.
Ready to begin your next project? A lingering earn-out may hinder your efforts. Making a clean break from the business you just sold is very satisfying.
You’d want to know if another seller would pay the full sale price at closing, even if an earn-out isn’t the end of the world. This is more likely to happen if your company is shown to a large number of buyers.
Selling to an aggregator may be the only option available unless you work with a business advisor to sell to someone else.
Neither options are not mutually exclusive of one another. If you get the help of a business broker, you can still sell to buyers who approach you. The difference is with an advisor, all other buyers can make proposals for your company, forcing everyone to make better offers.
If one aggregator contacted you about buying your company, chances are there are many more.
Right now, private equity firms are looking for FBA brands. Assume you own a small business that sells on Amazon and has been contacted by a private equity firm interested in buying it. If so, you may have something extremely valuable.
Ecom Brokers can help you put your company in front of thousands of potential buyers.
For sellers, a listing that appeals to multiple buyers results in higher offers. We can help your FBA company achieve this.
When multiple buyers are interested in your company, you know you have to make a reasonable offer!
These serious offers for a desirable Amazon business are common. We’re seeing more aggregators try to buy our sellers’ FBA businesses.
Selling to a private equity firm is a great idea. Make sure you’re getting the best deal at a fair price by knowing all the options around the marketplace.
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