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How to Sell Your Amazon FBA Business in 2020

Posted by Izach Porter in Resources

So, you’ve already had substantial success with your Amazon FBA business and are now looking towards a future for what you hope to accomplish. Maybe your Amazon FBA business is no longer on your radar at that point in time because you’re hoping to move on and accomplish something different. If you’ve done the necessary legwork, structure thinking and strategy, you should be able to find a buyer for your Amazon FBA business especially if you have partnered with the right brokerage to help you sell it. A lot of work goes into running an Amazon FBA business and it’s certainly a natural occurrence that you might decide that you no longer want to run your business because you have other priorities that are front and center for you. This doesn’t mean, however, that you have to walk away from the business completely. In fact, an experienced professional who is interested in capitalizing on all the hard work that you already did might be interests in purchasing the company. As you might already know, however, not all buyers are created equal.

You need to be prepared for the entirety of the buying process and having an experienced business broker at your side can make a big difference in how you approach listing your company and finding the perfect buyer. As a busy Amazon FBA business owner, you probably already have plenty of things to do and don’t want to add to that list finding a buyer, going through the due diligence process, arguing over valuation, and negotiating the final sale. This is one of the biggest reasons why you might choose to partner with a business broker to help you. You’ll need a business broker who is especially savvy about selling Amazon FBA businesses.

Why Amazon?

The Amazon marketplace is one of the most powerful tools for consumers to find the products they want and it has made it so much easier for sellers to break into the process of owning a business quickly via the Amazon FBA third party seller marketplace. FBA allows approved sellers to start on the program by leveraging Amazon’s global network and big reach with consumers. There are hundreds of fulfillment centers in Amazon’s global network and as many people have been spending more time at home, business for Amazon has picked up even more. This means that a savvy Amazon FBA seller who finds the right niche and gets their company set up quickly stands to win big. It isn’t just about winning big when your company is successful either. If you structure things the right way, you’ll be able to sell your company effectively when you can show that you’ve done all of the legwork making it even easier for a buyer to step in and continue running an already profitable business.

Types of FBA Sellers

There are three primary types of Amazon FBA sellers; a reseller, a proprietary product seller and a private label seller. A reseller involves finding products in person or online that can be sold on Amazon for a profit. This is essentially a form of trading because you’re buying wholesale and selling retail. This is the simplest kind of Amazon FBA business to build but there’s unlimited competition that might outweigh your low barriers to entry. The pros to this are that there are low startup costs and it’s easy to develop a business and it’s simple to gauge how well the items are selling before you buy them. Retail arbitrage is in fact one of the most common ways for people to jump into an Amazon FBA business so that you can see whether or not you like it without having major risks on the line. There are downsides to working as a reseller, however, because of the high level of competition and reliable supply being a problem.

A private label business on Amazon involves taking existing products and applying your own brand to them. Plenty of manufacturers offer this form of white label products where you can rebrand their product to your own individual requirements. There’s potential competition, the increased trust from branding and convenience all to consider. The high level of reliance on Amazon is one major con for going this particular route. The own brand and proprietary product on Amazon FBA business is one of the most profitable to list for sale. It is much harder to succeed in this marketplace compared to a private label or reseller business but it does generate lasting value, which means your company is especially appealing to prospective buyers.

This is time and cash intensive, has the potential for word of mouth promotion, develops loyal customers and has much less competition simply because fewer people are willing to put in the work to make this a success. It can take a long time to develop a trusted brand, so there is a good chance that you’ve already been in business on Amazon FBA as a seller for quite a long time before making the decision to sell. Bad reviews early on can spell big trouble for the person who is attempting to build their proprietary product business.

You need to have good reviews and consistent customer feedback to make it a high chance that someone is interested in buying your company. Recognized and established brands can add significantly more value than other types of Amazon FBA businesses. This is because they attract loyal customers and have much better staying power in the market. When it comes to a potential buyer, this is the perfect situation because this can allow you to demand a significant premium or have multiple buyers interested in the company.

How Much is My Amazon FBA Business Worth?

Valuation is a key component of listing your business for sale and walking away with maximum profit from the sale. Amazon FBA businesses are typically valued on a multiple of gross earnings prior to tax, in addition to the cost of stock inside any Amazon warehouses at the time. The only expenses usually taken into account are the cost of goods sold and those expenses that you rely upon in order to run the business. An important term you should become familiar with when selling your Amazon FBA business is seller discretionary earnings. Valuation multiples are typically calculated based on this SDE number. For those businesses in high growth periods, however, or those that have been declining over the past several months, it can be better to using multiple of monthly SDE.

Annual SDE, however, is typically preferred because it takes more data into account. Make sure that you record any justifiable expenses in your business that reduce profit when you are completing your bookkeeping. This is helpful not just for keeping clean books now but for making the case for selling your company in the future. Buyers of FBA businesses have all kinds of different circumstances and might or might not need all of the expenses that you have been using to run the company. Costs like rent on offices, salaries for employees and vehicles and insurance costs should not be included in your SDE calculation. When you are valuing your FBA business, you can use information from the existing financial statements that you have for the company and account for any expenses that are not required or could potentially be adjusted by a different buyer. SDE is calculated as follows: revenue – the cost of goods sold – operating expenses + add backs. To determine whether or not an expense in your business qualifies as an add back, ask yourself the question, do I absolutely need to spend money on this expense to continue operating the business? Some examples that are typically classified as add backs when determining your Amazon FBA business value include;

  • Vehicle expenses
  • Owner’s salary
  • Meals and entertainment
  • Loan interest
  • Travel expenses
  • Mobile phones
  • Patent and trademark application costs
  • Consultancy and web design fees
  • Rent on buildings

One common question that emerges for Amazon FBA sellers who want to list their company is whether or not accrual accounting or cash accounting makes sense. Accrual accounting refers to recording these at the time of transaction and provides greater accuracy, but cash accounting is recorded when money changes hands, making it harder to known the bottom line. Cash accounting typically underrepresents profit levels in an Amazon FBA business, which could potentially reduce your overall valuation. Amazon FBA businesses are typically valued at around 2-3 times the SDE, although your valuation multiple can vary and also can depend on the type of business broker that you hire to help you. An experienced and knowledgeable business broker like those working at Website Closers are there to guide you through the entirety of the process and assists you with determining a reasonable multiple based on the value of your company. Patterning with the wrong business broker could have catastrophic consequences for your company, so it is strongly recommended that you partner with someone who knows what they are doing. Businesses without a unique offering or those that are sold because the owner has an urgent need for cash might have valuations that are lower, whereas businesses that have a unique proposition and a strong brand can demand higher multiples. There are many different factors that can be taken into account when determining the multiple of a business.

Valuation Drivers

Ether are many different kinds of valuation drivers that can affect the amount of money you are able to recover in your business. Examples include the type of business, operations, suppliers, web traffic, industry competition and customers. Other things to consider in determining the possible value for a company include whether or not there are any location based or responsibilities or physical assets, how many suppliers your business works with and your account health matrix inside seller central. A business broker who understands and values all of these different factors will be able to help you better position your company for sale when you list it. It is critical to have a relationship with an established business broker who can help you prepare on the financial side. Financials will be looked at carefully but ultimately your business can only be sold for what a buyer is willing to pay for it, therefore, it’s your responsibility to present a compelling offer as to why the company should be valued as high as you are requesting. Some of the key financial metrics that will be looked at by a prospective buyer of an Amazon FBA business include;

  • Earnings
  • How clean are the books and accounting?
  • Whether or not seasonal products are a huge portion of your revenues
  • Earnings trends
  • The age of the business
  • Margins for each product
  • Trends in earnings

Businesses that have proprietary products are much more likely to command a higher valuation multiple than private label businesses. Resellers, however, are likely to receive the lowest type of valuation multiple but of course, this will depend on the specifics associated with your business. The more you can do to tweak the current structure of your business and operationalize as much as possible, the easier it will be for someone else to step in and be successful, therefore making your company that much more likely to sell for the right price.

Finding the Right Broker

In order to be successful with selling your company, it’s important to partner with a broker who has extensive knowledge of the FBA Market. Well you can certainly attempt to sell your Amazon business on your own, this could set you up for failure due to lack of knowledge about the types of things that buyers care about the most. Furthermore, there might be some things inside your business that you could take steps to fix prior to listing it for sale.

A knowledgeable business broker will be able to tell you more about these strategies and what are some of the challenges in your current company that might jump out to a buyer. Knowing about this information and taking proactive steps to fix it could help you to achieve a higher multiple when you do list your company. 

There are some specific factors associated with starting and running an Amazon company. If you’re lucky enough to get a savvy buyer, they already know the ins and outs. But it’s probably more likely the case that your buyer is wanting to step into the business and build off of the existing structure that you have. This means they might not have the same background knowledge about what it takes to run an Amazon company- you’ll have to make sure the structure of the company is set up so that that particular issues does not matter as much. You’ll need to be able to show that you’re already successful and that your business is ready to hand over the reins to a new person. You can’t do that unless you have the right business operations plan and strategy already set up.

If you’re stuck on that, your business broker can ensure that a full evaluation of your company is completed in advance so that you know what to expect. If your broker can point out weak spots now, that information can be used to help you prepare for your own future by putting things in place to address those big issues.

Getting Your Financials Ready

To get the right multiple for your company, you’ve got to do your own deep dive into the financial structure of the business as it stands now. This means some work you might not be ready for if your books aren’t clean and already set up. You’ll want to get all active reports currently being run in the business and discuss things with your accountant or other financial professional. This is the only way that you can get a real read on where the business is right now.

Having a broker to assist you with the entire process gives you that objective perspective from a person who doesn’t have direct ties to the business. Their outside view can really help you when it comes to figuring out what is already in good shape and what really needs to be fixed. You’ve become attached to your Amazon FBA business and that’s a good thing, but you don’t want your personal connection to cloud the reality of the situation, either. Having someone less personally connected to this situation can make a world of difference when it comes to being realistic with room for improvements.

Once you know where you’re at financially, don’t stop there. Knowing the numbers is stage one, but you need to be able to show how those numbers can be used for small tweaks within the business that can help to enhance your multiple value.

While some of the challenges unearthed in this due diligence process that you undertake before listing will be more complicated and therefore might not end up on your list of things to do, others will require a more reasonable investment of your time and energy to get you the results that you want. Ultimately, this is the best case scenario for you because you can use this valuable information to present a much more appealing company to prospective buyers.

Think of it like having a realtor come look at your home before you list for sale. While your current home might seem like the perfect place for you and your family, a realtor sees it with fresh eyes. They walk through making recommendations about painting walls neutral colors or moving furniture not because they want to have a say on your interior design style, but because they are looking at your property from the perspective of the buyer.

That outside view is invaluable when selling a house- they are looking for the ways to dress things up or alter things that buyers will demand to be changed because the realtor knows that will help sell the home. In the same way, the deep dive into your financials is the first step in window dressing your business and putting your best foot forward to claim a high multiple.

After you’ve looked at the financials, it’s time to think about other things that a potential buyer would care about, such as your relationships with suppliers and your ability to remove yourself from the process. These are very appealing to outside buyers because they know they won’t have to do a lot of work to get things up to speed. They know that they can work with you to hand over the transition relatively quickly; no business buyer wants to spend months figuring everything out. They want to know that you’ve done the hard work already to make the business less reliant on you personally.

If you’ve done the right things, that shouldn’t be a tall order. But it is one thing you should discuss with your business broker if you have reason to believe that there are things you can tweak and improve on that end. When a buyer sees a fully operationalized business ready to go, they are much more likely to take it seriously and step forward with a real offer.

Need help deciding if now is the right time to sell your Amazon FBA business? Our business brokerage has a long track record of helping people with similar decisions. We’ll walk you through the typical process on a call together so you can get a sense of what’s best for you and decide if this is the best option for listing your company for sale. Even if you decide not to move forward just yet, you’ll know that you’ve done some of the initial legwork to accomplish your overall goals and that you have a trusted partner should you choose to come back and work with us again in the future.

Don’t rely on our word- consider the many positive reviews and testimonials we’ve received for our work as business brokers! Once you see why others have been so thrilled working with us, you might be ready to take your next step.