You’ve built a successful Amazon FBA business that distributes products around America, or perhaps even further afield.
“It’s time to sell” you might say to yourself…
But what’s next? How do you go about finding a buyer for your FBA business? How do you value your FBA business? Are you even allowed to sell your Amazon seller central account in the first place?
These questions are answered, along with so much more valuable information in our latest eBook, “how to sell your Amazon FBA business”.
There are a number of ways to sell your Amazon business - using a marketplace (such as BizBuySell), hosting an auction (Flippa is a great place for selling low-value online businesses), engaging a broker or doing it yourself. Although the specific process varies depending on the nature of your business, and the method that you use to sell your Amazon business, there are a number of important steps that will be required no matter which avenue you choose:
Getting a valuation for your business:
Amazon FBA businesses tend to be valued according to a multiple of gross earnings before tax, plus the cost of stock in Amazon warehouses (including the cost of getting stock into Amazon’s warehouses).
For the purpose of valuations, the only expenses that are taken into account are the cost of goods sold, and necessary expenses required to run the business. A common industry term that refers to this earnings calculation is “Seller Discretionary Earnings” (SDE).
The most common way to value an Amazon FBA business is:
(SDE x valuation multiple) + inventory at cost + cost of getting stock into Amazon warehouses
Generally speaking, FBA businesses tend to be valued at around 2-3 times SDE. However, the valuation multiple can vary significantly. Businesses without a unique offering or exclusive products, or sold with an immediate urgency for cash may fetch valuations closer to 0.5-1.5 times SDE. Those businesses with a strong brand and unique, highly demanded proprietary products and strong growth potential may fetch valuation multiples well above 3 times SDE.
Developing a prospectus and searching for buyers:
When developing a prospectus, it is important to keep in mind the type of buyer that you are looking to attract. For smaller Amazon businesses (i.e. valued at less than $2 million), the type of buyer will have much different priorities and requirements than purchasers looking for larger scale operations.
Buyers of smaller FBA businesses normally have a set amount of money they are looking to spend, and are therefore after the best deal within their budget. Some examples of individual buyers might include corporate employees looking to replace some or all of their current income, digital entrepreneurs with experience in the field who are looking to grow their portfolio, or owners of more traditional businesses that wish to move into the online space. Here, the primary concern tends to be loss aversion. If you are targeting individual buyers, it can be a good idea to place emphasis on how defensible the business is in the face of increased competition.
For larger FBA businesses, the priorities and concerns are more focused towards strategic outcomes. The two most common types of buyers here are companies and private equity. Companies will often be looking to acquire their competitors, suppliers or other strategic businesses that can add to their value offering. Key considerations are where the synergies lie, and how they can combine their resources to grow the overall business operation - be it entering new markets, taking on new product lines, reducing competition, reaching new customers or acquiring proprietary technology.
Private equity and investment funds are driven by the requirement to provide a return to shareholders. They need to be acquiring companies, as cash sitting idle in a bank account doesn’t make investors happy. Investment funds have the ability to act fast on quality deals, and can access lines of credit should they be required.
Completing the deal and handing the reins over to new management:
Once you have found a purchaser and negotiated a suitable agreement, it’s time to hand the business over. This involves transferring the assets of the business to the buyer, receiving payment (normally via an escrow service) and training the new owner on how to operate the systems.
For training and transitioning, sellers will generally offer up to 40 hours of service within the first 90 days. However, this can vary depending on the complexity and scale of the business. Training and transitioning normally happens via telephone, screenshare and email. Generally, buyers don’t need all 40 hours, as running a successful Amazon business is quite easy once set up.
In our “how to sell your Amazon FBA business” eBook, we take a deep look at the ins and outs of selling your Amazon business. Topics such as calculating seller discretionary earnings, ways to increase the value of your Amazon business, whether now is a good time to sell and practical considerations associated with selling your Amazon business are covered in detail.
Get your free copy here.
This is a guest blog post from Denym Bird, Marketing Manager at A2X.