Built-up a decent Amazon FBA business? That’s great. But now you’re ready to sell it.
However, I want to level with you straight away before we dive right into this article: Selling your FBA business is possible – but how possible it depends on a few things.
In this article, we’re going to take a look first of all whether you can sell your FBA business for a profit, and then we’ll take a look at exactly how to sell it. We’ll be covering everything, from pricing your business up, to determining who will buy it, as well as how long it will take you to make a sale.
Ready? Let’s make a start.
First things first, let’s consider whether you have a saleable asset on your hands or not.
To figure this out, you need to consider what type of FBA business you have.
For example, do you sell proprietary products or are you a reseller? Or a private label?
If you sell proprietary products, you’re already onto a winner. This is because you’re selling unique products that no one else is selling. That’s attractive to potential buyers, and whoever buys your business knows that they will stand out from everyone else.
If, on other hand, yours is a private label business, it means that you’ve got some leverage. This is because, while other stores are probably selling the same product as you, you’ve at least got a good supply of it and a solid sales history. Whatever you’re doing is working.
Lastly, if you’re a reseller, your Amazon FBA business is a bit less saleable. Why is this?
It’s because you’re competing with goodness-knows-how-many other online stores. Not just that, but supply can often be an issue because you’re buying every item individually. Worse still, none of the products you’re selling is unique. If a buyer wants to purchase your store, all they’re purchasing is your Seller Central account. It’s not that attractive.
That all said, there are other factors that will determine who saleable your Amazon FBA business is:
If your Amazon FBA business is a good few years old, it puts you in a better position. Buyers will be able to take a look at your earnings history and see exactly how long it’s going to take them to break even on their purchase.
On the flip side, if your business isn’t even a year old, a buyer will see it as a higher risk, simply because they won’t know what a full calendar year of sales looks like. Thus, they may ask you for a discount.
If you’re going to sell your Amazon FBA business, you HAVE to understand your numbers. A buyer is going to take a multiple of its annual net profit in order to make you a serious offer.
Basically, what a buyer offers you will be based on your net profit. The net profit is calculated by the SDE, and this determines your business’s valuation.
That said, SDE is only applied if your revenue is below $10,000,000. If it’s higher, you should use EBITDA.
That also said the exact formula for SDE is:
What do business expenses include?
In the case of an FBA business, they should include things like shipping services, fulfilment services, software, fees, the cost of goods, as well as any employees that work for you.
When it comes to add-backs, you should look at your personal income. If you’re the owner and you’re paying yourself a salary, you can add that back. It’s the same if you’re the one paying company taxes. Add these back.
However, it must also be noted that if you’ve got any personal expenses that aren’t related to your business, you cannot include back as add back. For instance, let’s imagine that – for some reason – you’ve leased a car via your business, but this car isn’t used to run your business. Therefore, you can’t use it when totalling up your expenses.
It’s crucial that you get your accounting just right. To this end, you must keep accurate, up-to-date records. If you don’t, most serious buyers will turn away immediately.
I can think of a few reasons, but the most obvious one is that they need to see trends. To find trends, they will look at your profit and loss statement. If you don’t have one, they won’t be able to spot trends such as whether your sales are on an upward, downward or steady trajectory. They also won’t be able to find seasonal trends and so on.
Not just that, but the sharpest buyers will want to see your Amazon Best Sellers Rank, too, as this will help to inform them about how well or poorly your business is trending.
If you’ve decided that your business is saleable, the next step is to calculate how much it’s worth.
In other words, how much you can sell it for.
It’s hard to know with any degree of precision how much your FBA business is worth exactly until someone comes along and buys it. In the meantime, though, you can at least come up with an estimate.
When we value an FBA business, we should study our historical sale transactions to see how they fare against market trends. But there are multiple things to take into account when pricing up your FBA business.
A golden rule is generally to multiply your annual net profit by two.
However, you should also bear in mind that, along with the selling price, any prospective buyer needs to buy your inventory at cost, too.
Some Amazon FBA business owners are concerned that their price is too low to sell now. But that’s fine – there are a few things you can do in order to bump up the value of your business before you sell it.
We covered this a little earlier, so we’re just going to skim it quickly here. But if you can find (or even develop) unique, patented products that no one else is selling, it will instantly make your business more valuable.
Buyers prefer to purchase older businesses than younger ones. If yours isn’t even a year old, it might be a smarter idea to do some more work on it before you sell it.
Buyers won’t consider your business until you start making consistent profits. I recommend using accrual accounting when working out how much you’re making per month.
Also, as a general rule of thumb, buyers generally don’t look at businesses that are making less than $250,000 net profit per year.
Defensibility refers to how difficult it is for a rival to come along with the same product as yours (or a similar one) and eat your market up. If it’s easy to source your product, it means that you’ve got poor defensibility. And this could also put a prospective buyer off.
Basically, if your product is too easily available on the likes of Alibaba and Amazon, you have to ask yourself: What is stopping others from coming along and taking my market off me? All they need to do is create an account, a new listing – and they can start selling the same product.
As well as selling a unique product, there are one or two other things that can increase your defensibility:
If you’ve got a strong brand and a proprietary product, it will be very hard for even experienced FBA rivals to come along and outrank or outsell you. This alone will make your store more attractive to buyers.
Another way to boost your value is to diversify.
What does this mean on Amazon FBA?
Essentially, prospective buyers will take a look at your store to see what might happen if your account got suspended on Amazon. If that were to happen, you’d lose your Amazon ranking and all your customers.
Unless you’ve already diversified, that is.
Diversification means being able to continue running your business for a profit even if things went wrong on Amazon. For example, maybe you sell products outside of Amazon and have traffic sources other than Amazon (such as social media and email).
It also means you sell in more than just one niche and – crucially – you have a brand that can survive being kicked out of Amazon.
Too many FBA business owners chain themselves to Amazon. This means everything they do is dependent on the eCommerce giant. All it takes is an account suspension for their business to be effectively over.
It’s essentially like being at the mercy of a social media platform, such as Facebook. If your whole business is reliant on a third party, it’s not attractive to buyers because they know that all it takes is for Mark Zuckerberg to pull the plug for your business to fold. This is why diversification is so important, and I can’t stress that enough.
Here are some ways you can diversify your FBA business:
When a prospective buyer is weighing up your business, they will cast an eye on your competition.
If you’re selling a super popular product that others are also selling, there’s every chance that your rankings will dip at the drop of a hat. This, of course, means that your income will go with them. It’s the last thing you want, and it’s also the last thing buyers want.
The easiest way to eliminate the competition, and thus make your business more valuable, is to sell either unique or patented products, develop your own products, or diversify (see above).
Even if you know how to bump up the value of your business, that doesn’t mean you should sell it immediately.
In fact, knowing when to sell your FBA business is one of the most crucial things you need to get right.
Here are some questions you need to answer:
Even if you’ve answered Yes to just one of those questions, you could be ready to sell your business.
On the flip side, if you answered No to every single one of them, you might want to delay a sale.
Another thing to be wary of is answering Yes to the first question. It might be the case that you’ve now got a bigger priority in your life, such as a separate, more exciting business venture. The problem here is that, if your FBA business has become a bit of an afterthought, you might rush through a sale and get lowballed. Thus, while you might sell your business, you may also look back on it in the following months with regret.
Yet one more thing to bear in mind is that, even if you really want to sell right now, it might be better to hold things off for a while if your profits have dipped recently. This is never a good time to sell because it will only make your store appear less valuable. As a consequence, you won’t get the price you want (and which all your hard work over the years deserves).
Okay, let’s say you’ve decided that now is the right time to sell your FBA business.
Great! But who’s going to buy it? Who buys FBA businesses at all?
Because there are numerous types of buyers, it’s impossible to go through them all in this article. Instead, let’s begin by looking at what buyers look like according to how much your business is worth.
If your business is worth less than half a million, it’s more likely that you’ll attract private buyers who have decided that simply putting their cash into a bank won’t give them a good ROI. As such, they’ve decided to invest in a small business instead.
These private investors will typically use their own money, and normally they’ll have a well-paid job, often in an executive role.
However, the problem for you is that this type of buyer tends to let emotions get the better of them. This is because it’s their own money that’s on the line, and as such, they’re more cautious than experienced investors with deeper pockets.
Not just that, but because these types of buyers already have a full-time job, they’ll be looking to invest in a fairly hands-off business. It’s important, then, that your Amazon FBA business is automated, as this will help to bump the price up (and make it more appealing). Not just that, but you need to remember that, due to their being emotional, they will always be focussed more on reasons not to buy than reasons to buy. If something about your business doesn’t make sense to them, they will either back away or will lowball you. As long as your business is defensible (see above), however, you’ve got a chance of striking a deal that really suits you.
Another thing to be wary of is that, due to your price, you’re swimming in a buyers market.
In this range, there will still be a handful of private buyers looking to invest in your business with their own cash, but not as many. However, there also won’t be any private equity groups looking to buy your business. Why? Because it just isn’t big enough for them yet.
As such, this price point is a bit of a non-starter because you simply won’t have that many buyers interested in you. Your business is too expensive for most private, salaried individual buyers, and not big enough for the private equity groups. You might find a buyer eventually, but it’s going to take you longer and you might not get the deal you dreamed of.
Now we’re getting into the big leagues.
This sector of the market is pretty hot, and it’s a seller’s market, for sure. Why? Because you’ll find that there are a lot of companies who are looking to purchase, not just one FBA business, but numerous ones in this price range.
If your business is worth more than $1,000,000 right now, there are multiple cash buyers who would be interested. Also, if you’ve got a $5,000,000 business, you’re in luck too, because buyers can use SBA finance to get a deal over the line (though this isn’t possible if your business is worth more than $5,000,000). To be applicable for an SBA loan, your business needs to a) be an American entity and b) it should have paid U.S. taxes in the last two years.
If your business is worth more than 5 million, first of all – congrats. It means two things. First, you’ve got a great business on your hands. Second, it means you’ve been able to prove that your business model works.
Essentially, if your business is valued at over $5,000,000, it suggests that you’ve identified a problem in the marketplace and provided a solution via a product that people want.
When it comes to the type of buyer you’ll attract at this point, you’d be looking at private equity buyers and strategic buyers. These are the types who only want to deal with businesses that have a proven model that works.
However, for your business to be valued at this price point, it needs to have a very high level of profitability. It’s not easy to get to this stage, and if you’re not there yet and want to be there – there’s still work to be done. But the good news is that it can be done.
Okay, so we’ve established that there are buyers out there who may be willing to buy your business. But where do you find them?
One of the first things you can do is turn to fellow FBA sellers to see if they know of any buyers who might be interested in your business, or if they know where you can find buyers. You’ve got the option of classified sites too.
However, an easier way to find, not just buyers but interested buyers is to use a broker. More specifically, use a good broker…like us.
Personally, I always recommend that FBA sellers should work with brokers. Why? Because they take care of all the hard work for you. If you’re a newbie when it comes to selling an Amazon FBA business, a broker is quite literally a godsend. They will be able to find interested buyers, and they’ll also filter out the tire kickers straight away.
Not just that, but brokers know how to present your FBA business in the most attractive way to potential buyers. They also help out when it comes to the negotiation process, and they’ll even be there to lend a hand as you transfer the business over. More importantly, they will also make sure the deal goes through and you get your money.
Of course, brokers are not free. It all depends on how much you make, but a broker typically works on commission, usually somewhere between 15 and 10%. For the bigger deals, a broker will probably charge around 10%, while for the smaller deals they may want 15% of the profit.
This all depends on whether or not your FBA aligns with what potential buyers are looking for. That said, your business might fit like a glove, but it could still take anywhere between a few weeks to a few months to seal the deal.
See, a buyer might be super interested in your business, but they’ll still be averse to loss. As such, they’ll want to spend a lot of time making sure everything is just right. As we mentioned before, buyers will sometimes look for reasons not to finalise the deal, and this sort of thing can slow things down.
Naturally, the higher-priced your business is, the longer it will take to sell. If, for example, you’re selling your business for less than $100,000, you can expect to close the deal in under 70 days. If, on the other hand, your business is valued between $100,000 and $500,000, it could take anywhere between 70 and 120 days to sell.
For businesses that are priced between $500,000 and $1,000,000, deals could take as long as 150 days to complete.
For businesses worth over $5,000,000, you may have to wait up to a year for the deal to close.
It’s important to remember that you’ll need to expect a few teething problems to crop up at some point. So, for instance, if you anticipate getting a deal over the line within 70 days, you’ll need to add a few weeks onto the end of that number just in case extra issues materialise.
What are these potential issues?
For one thing, your finances need to be 100% accurate. If they’re not, it’s going to slow everything down. Remember, a potential buyer will not do business with you if something is amiss with your numbers. My advice is to work with an accountant to reduce the risk of financial issues slowing you down.
Another issue is your suppliers. If your suppliers are untrustworthy or difficult to work with, any potential buyer will notice when researching your company. And it could prove to be a major stumbling block. This is why it’s super important that you sort your suppliers out before selling your business.
You’ll also need to be able to handle questions from buyers. They will want to chat with you, either in person or on the phone, and they’ll field a few questions. You need to be available to talk with them, otherwise, this will again slow things down. Some sellers aren’t able to answer all a buyer’s questions, and this itself is a problem. Preparing a good prospectus ahead of time ensures that you know your business inside and out.
How difficult or easy it is to transfer your Amazon FBA business really depends on the country you’re based in. Selling an American-based FBA business is far easier than selling a German-based one (where it can often seem completely impossible).
The situation isn’t too bad in Australia and the UK, but it’s definitely more complicated than it is in the U.S.
No matter where the seller is located, the first step is to get Amazon to approve the buyer. Then, you need to tell Amazon that you’ve sold your business, before letting the new owner take over your account.
When it comes to transferring your account, you’ve got two options. First, you can just transfer it (Amazon has a step-by-step procedure that explains how to do this). Alternatively, you can transfer your brand to the buyer’s Seller Central account. This works well when the buyer has a bigger Seller Central account than you. Moreover, it might be the case that Amazon requires you to do this.
Selling your Amazon FBA business can be as exciting as starting it, but it can also be very rewarding if you get the right price. Moreover, you can then move on to your next, exciting venture.
Use the advice in this article to sell your business at the right time, increase its value, and find the right buyers.
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