When it comes to valuing a business, there are multiple different kinds of metrics that we take into consideration. For the sake of simplicity, we’re going to narrow these down into four categories.
Using these categories, we’re going to show you in this article what makes an Amazon FBA business valuable. This will help you to determine how saleable your own business is right now and, if it isn’t saleable at all, it will help you to work out what to do next in order to bump up its value.
Ready? Let’s make a start.
A business isn’t really valuable at all if there’s no indication of growth.
But that’s not all. Growth has to be year-over-year in order for it to improve the value of your business. For example, this year’s March has to be better than last year’s March. Last year’s March, meanwhile, has to be better than the previous March. You get me.
As well as year-on-year growth, we can also take into account month-over-month growth.
See, it’s normal for a potential buyer to be attracted to your business when he or she can see year-on-year and month-over-month growth moving in an upwards direction. If they can see that, they can then safely assume that there’s no reason this trend won’t continue in the future. Thus, your business is clearly going to make them money.
On the other hand, if your growth is down year-on-year and month-over-month, it’s going to put most (if not all) buyers off.
There are two kinds of risk:
Naturally, an Amazon FBA business looks inherently risky on paper because its business revenue often comes entirely through Amazon. That’s just one channel, which basically means that if Amazon pulls the plug on your business (which they can do at any minute), you’re kinda screwed.
It’s the same if you’re sourcing all your products from one location, such as China.
However, this is still good risk. It certainly isn’t bad risk. This is because you’re still in a position of strength. As long as you play by the rules and fight off the competition, your Amazon FBA business should look pretty swell.
Bad risk, on the other hand, is – as its name suggests – bad news. An example of bad risk is when there’s just one person (such as you) who knows the business inside and out, and whose absence would cause the business to fold
Another example is having just one supplier. If you rely on a single supplier and no backups, you’re at their mercy. What happens if they vanish overnight?
A further example of bad risk is selling just one product. Again, what happens if things go wrong, such as an understock or Amazon pulls your listing?
One of the things that makes an Amazon FBA business super valuable is transferability.
What does this mean?
Transferability refers to how easy (or hard) it is for you to transfer your FBA business to the buyer once the sale has gone through. The easier a business is to transfer, the more valuable it is because there is less risk of revenue being lost.
How do you make your FBA business more transferable, and thus more attractive to buyers? There are a few things you can do:
Include your Amazon account with the sale/business. This alone can massively boost your businesses transferability
Simplify your contracts and payment terms with manufactures so that they’re easier to transfer
If you have employees, let them know in advance about the sale and ask if they want to keep working for the new owner. If so, go out of your way to introduce each other and get everyone up to speed with what’s going on
Take a look at your accounts and other assets that can be transferred, and see how you can simplify things
Naturally, there’s a bit more to it than this. But the main thing is that you need to make your business as transferable as possible if you want your FBA businesses value to reflect the time and effort you’ve put into it over the years. To boost transferability, it’s a smart idea to work with a broker.
Lastly, your value will plummet and no one will buy your business if you make all kinds of wild claims that you cannot verify.
That said, one of the best things about being an FBA seller is that Amazon essentially verifies everything for you in your Seller Central account. If a buyer wants to take a look at your metrics, they can just pop into your Seller Central.
However, there are still a few things that you need to take care of independently of Amazon.
For example, your books need to be clean. This means a correct profit and loss statement and zero unrelated expenses. Not sure how to clean up your books? Hire an accountant.
Another thing you might want to look into are written agreements. While these aren’t necessary, and while some buyers won’t care if you don’t have them, some buyers will.
Tax returns, on the other hand, are pretty much mandatory if you want to sell your business at a good price. You need to have to hand the last 3 years of tax returns for any buyer to verify, and they need to match your P & L statement.
These are four things that make an Amazon business more valuable. Looking to sell your FBA business? Don’t forget to check out our guide all about how to sell your FBA business here.
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