Amazon has grown over the past 2 decades to be as equal a part of the daily routine as picking up your mail from the mailbox. What started as an online destination for books, has grown to be a one stop shop for both everyday and unique items, along with professional services. This opened the door for merchants of all kinds to join the marketplace which now make up a considerable portion of Amazon’s revenue – more than 50%! There is substantial opportunity for making money on Amazon, and knowing when to cash out at top dollar for your Amazon FBA Business is critical. Here are a few tips to get the most out of your business when it is time to sell.
Set Your Goals Upfront – and don’t be afraid to stick with them! Going in with a floor on what you are willing to accept for your business is a good way to ensure that you aren’t persuaded by buyers looking to take advantage. Often times the fastest deal is not the best deal. Private Equity Firms or FBA Aggregators seek out Amazon FBA businesses because they are an easy addition to their portfolio. Most are offers in the 50% to 60% down and 10% to 20% note and rest an earn out. The goal should be 90% – 100% cash as closing, as opposed to taking half upfront and the remainder in a note or large earn-out. Working with a business broker is a sure-fire way to avoid falling into traps like this and advise on the best deal structure.
Understand the Valuation – There are a lot of factors that go into a valuation for an Amazon FBA business. FBA businesses are valued in the same way as most online businesses, using a multiple of seller discretionary earnings (SDE), but understanding how sellable the business is will determine if you can get top dollar or not. Age of business, historical revenue, risk and type of FBA business play a very important role. A new business without much history will be looked at as high risk. The longer the history, the better the proposition you will receive. You can certainly sell a business without history, but the offer will likely include a discount to account for the risk. In addition to these items, one of the most overlooked areas are the add backs and how they contribute to the valuation of a business. Any expenses not related to the business such as owner salary, owner health insurance, personal auto and personal travel, etc are considered add-backs.
Make Sure Your Business Stands Out – While profit may be the leading indicator of a business’s success, buyers of Amazon FBA businesses will also look for seller ratings, product ratings and positive reviews – especially in a commodity. Inherently these factors also determine the amount of risk. Having the coveted “Amazon’s Choice” label on the product you are selling translates well in the eyes of a buyer. Consumers heavily rely on reviews when making purchase decisions. They also look for brand credibility. Having an internet presence outside of Amazon, such as a branded website, helps to solidify that and reinforces trustworthiness for the consumer.
Once you understand how to get top dollar, it will help you figure out when is the right time to sell. For more information on this topic, check out our article here about selling your business in 2022. If you are ready to sell now, and looking for an online business broker, we are here to help. Acquisitions Direct is a nationally recognized internet business brokerage firm that brings together Buyers and Sellers of Internet based businesses. With over 375 successful business transactions in the past 15 years ranging from $100k to over $20 million, our team of experienced business brokers have what it takes to ensure a smooth brokerage process for our clients. Our brokers and advisors have all created, managed and sold their own online businesses giving them the experience needed to guide you every step of the way.