"Can I sell my FBA business? "As an FBA broker, this is often the first question I hear from clients, but unfortunately the answer is: it depends.
Although every company is different, there are certain factors that make selling your business easier or more difficult. I help people like you plan and sell their Fulfillment through Amazon (FBA) businesses to find the solution for their specific businesses.
In this article, I'll go over how to figure out if you can sell your FBA company, how to figure out how much it's worth, and how to increase its value before selling. Then we'll talk about whether you should keep and wait for a better opportunity or sell now and cash out.
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Deciding to sell raises a whole new set of questions, such as, "Who would buy my business?", "Where can I find you? "and"
What is the selling process?"
- What is the selling process?"
- Is it possible to sell my FBA business?
- What is my FBA business worth?
- How do I find a buyer?
- How long will it take for me to sell my company?
- Common hurdles
- How do I transfer my business?
- How do I get paid?
As an FBA broker, I'll share my knowledge and provide answers to help you navigate the process of selling your FBA company. I'll also go over how to get past some of the most common sales roadblocks.
I'll spend the majority of this post explaining how to plan your company for sale by thinking like a buyer. Your business may be listed for sale but never sold if there isn't a buyer, so it's critical that we understand their perspective!
Is it possible to sell my FBA business?
There are three factors that can help you decide whether or not you can sell your company:
a. type of business
b. age of the business
c. seller discretionary earnings (SDE) / earnings before interest, taxes, depreciation and amortization (EBITDA) (net income).
Each one of these factors plays an equally important role in determining saleability. Let's take a closer look at them.
1. type of FBA business
There are three main types of FBA businesses:
- Own brand
- Own products
The buy box is contested by resellers. They buy in bulk and sell on Amazon at a profit margin. Retail arbitrage is a term used to describe this.
Resellers are difficult to sell and almost impossible to sell, even though the company is profitable. This form of FBA company is less appealing to a customer for a variety of reasons:
1. it is very volatile - there is often no limit to the amount of competition.
2. delivery can be a problem - everything has to be purchased individually and for sale, and there is surely no guarantee that a particular item will always be available for sale.
3. Nothing is proprietary; a customer is essentially purchasing access to your Amazon Seller Central account.
It could be easier to market the company if you have exclusive arrangements with wholesalers to sell on Amazon.
Printed on a private label
You have your own brand, but the same product is available elsewhere.This type of deal has some leverage and can be more attractive to buyers because the offer is consistent and the item has a history, there's a good chance it will sell on.
This is the gold standard of FBA companies, as only your company sells that particular item. Buyers often pay a premium, and this makes your business more defensible in the long run.
Let's say you're selling a supplement where you created the formula or improved a popular product. If it's exclusive to you and your brand, it shows potential customers that your business will continue to stand out in its field.
A buyer wants to know the history of your business revenue to estimate how long it will take to pay back their investment. The longer the history, the better the offer you will get as a seller.
For example, you may be selling a business that is less than a year old, but a buyer will want a discount if they take the risk of not knowing how a full calendar year will affect revenue.
3. SDE/EBITDA (net income).
Before you can sell your business, you must first understand the numbers. A buyer can make a bid for your company based on a multiple of your annual net profits (also known as EBITDA). To put it another way, the bid for your company is proportional to your net profit.
SDE estimates net profit, which serves as the foundation for a company valuation. When revenue is $5 million to $10 million or less, SDE is used; when revenue is higher, EBITDA is used.
SDE = Revenue Expense + Add-Backs.
Merchandise costs, Amazon fees, staff, software, delivery systems, and shipping services are all examples of business expenses. Any personal income, on the other hand, should be included. Add it back in if you pay yourself a wage as a business owner. Require company taxes if you pay them and you don't know how the buyer's taxes would be structured. Personal expenditures that aren't truly business-related, though, cannot be refunded. A vehicle leased by the company but not used to operate the company, for example, is not a valid cost for these purposes.
It's crucial to keep accurate and up-to-date records. Keep reliable, current records, if you haven't already: This is the most common reason for a buyer to leave your business. When a customer examines the profit and loss statement (P&L), they're searching for patterns. Are your goods, for example, seasonal? Are sales going up, down, or staying the same? Savvy shoppers can also check your Amazon bestseller rating to see how your company is doing on the platform as a whole.
Once you know the nature of your business, the age of your business, and your EBITDA, you can begin to determine a sales value.
What is my FBA business worth?
If you've determined that your company is sellable, the next logical step is to decide how much it can be sold for. You won't know how much your FBA company is worth until anyone buys it. But I can give you an estimate of how much your Amazon FBA business could sell for.
When determining the value of a business, it is beneficial to compare consumer patterns using historical sales transactions. We tracked 69 FBA businesses listed as sold in the first half of 2018, with a list price of $127 million. SDE was multiplied 3.1 times on average. In 2017, we tracked 174 properties that were listed as sold, with a total list price of $329 million. 3.25 times SDE was the median multiple.
When determining the selling price of your company, there are numerous factors to consider. Take your yearly net profit or SDE and multiply it by two as a rule of thumb.
Estimated Price List: $500,000 (net profit or SDE) x 3.2 (median multiple) = $1,600,000.
Let's assume your SDE is $500,000, as an example. It's possible that your company is worth $1.6 million.
Remember that a buyer is buying the inventory at cost, which includes the cost of delivering it into FBA warehouses, in addition to the purchase price.
How can I increase the value of my company?
If you're concerned that your Amazon FBA business's selling price is too low to sell right now, the good news is that there are a few things you can do to boost its value to a buyer.
Here are six factors that can help your Amazon FBA company grow in value:
1. type of FBA business
2. age of the business
Despite the fact that we've already discussed the first three, let's revisit them through the prism of what matters most to a consumer. The last three are variables that you can immediately apply in your own company to boost its value.
1. FBA business types
From most valuable to least valuable, a buyer considers the following factors:
- Unique product and brand-for example, supplements that are a custom formula.
- Private label-unique is better in some ways than another label on the same product.
- Reseller-these deals are super risky and even unsellable in most cases.
Buyers appreciate companies that are older, but here's an idea of the hierarchy of value they place from most to least valuable:
- Over three years -- great
- One to two years-good
- Under one year-not great; expect low-ball offers or wait for sales to come in
It is typical for a product brand to have this type of trajectory: The first year focuses on the discovery phase and finding what works, the second and third years invest in growth, and the fourth year is dedicated to optimizing net profit sales.
3. EBITDA (net profit)
You need to make an actual profit to be considered by buyers.
It is best to use accrual accounting to find out if you are profitable each month. I often talk to business owners who find that their monthly net profit is half of what it actually is. The only way you'll find out is with a proper P&L statement.
The amount of profit your business makes determines the type of buyer that is attracted to your offering.
For example, a typical buyer type is an executive looking to replace a low to mid six-figure salary. For them, buying a company that only makes a few thousand a month won't help them reach their goal. Instead, they might look at a company that is already making a six-figure profit per year.
We choose to work with businesses that generate a net profit of at least $300,000 per year.
How simple is it for a rival with a similar product to invade your market and steal your customers? It all depends on how difficult it is to find your product in the first place.
If your product is available to be sold on Amazon or Alibaba, your rivals have virtually no barriers to accessing your market share. If your product is extremely simple to locate, all anyone has to do is create a new listing and they will have the very same product as you.
On the other end of the spectrum, if you own a patent for your product, this increases the value of the deal and could see your multiple when calculating your sales price increase.
These factors increase your ability to defend yourself:
- Customer loyalty to your brand.
- Own products
- Inferior quality of your competitors' copycat products.
Even the most advanced FBA rivals would have a difficult time selling or outselling a patented product with a clear name. This will help you maintain market share and make your company more appealing as an investment. The more defensible a commodity is, the more it will be valued by a consumer.
Diversification can give the valuation of your business, and offers you a real boost.
All buyers try to minimize their risk. The biggest risk in owning an FBA business is Amazon account suspension; The next risk is losing rankings within Amazon.
If you can show how your company will continue to operate even if one of these worst-case situations happens, you can give the customer peace of mind and increase the likelihood of your business selling for a higher price than its current value.
Diversification takes place on many levels:
- Other than Amazon, there are a variety of products, niches, and traffic sources to consider.
- Amazon's niches and traffic outlets
- There is only one type of commodity, niche, or flow.
Here are some steps you can take right now to diversify your company and increase its potential value:
- add traffic sources outside the Amazon ecosystem, either from your website, social media platforms, email marketing or others.
- Aim to get no more than 70 percent of your income from one product or niche.
- List multiple products in multiple niches.
- Create profitable paid traffic in Amazon (sponsored ads / pay-per-click).
Do you have a lot of sophisticated FBA retailers, such as iPhone cases, as competitors? This will put buyers off. If there's a good chance you'll lose your rankings overnight, your income will drop just as quickly.
Buyers are farmiliar of this possibility, and any offers you get, or lack thereof, represent the perceived risk of purchasing your business.
Are you selling garlic presses on Amazon with a slew of competitive FBA sellers vying for first place? Being in a market with a lot of sophisticated FBA competitors may put off potential customers because there's a good chance someone will take your spot (causing your sales to drop overnight).
If only one or two of your goods have this problem, but your company is well-diversified, this may help reduce the buyer's risk.
Should I sell or hold my Amazon FBA company now?
You may be wondering whether you should sell now or wait a while now that you've seen what it takes to decide whether your company is salable and have calculated an estimate for its value (or potential value).
This is a great question I also ask myself before selling income producing assets. I like to evaluate a number of things before I consider selling:
- Am I working on something more exciting?
- Do I find that managing the business is a chore?
- Could I convert the capital from the sale into a new business?
- Do I simply want the safety of having more money in the bank?
If you replied yes to all of these questions, it's possible that now is the best time to sell.
If you replied no to all of them, you should probably stick with it for the time being.
That beng said, if you're working on something more exciting that diverts your attention away from your FBA company, it might hurt your profits. Even if you're focused on something else, trying to sell a failing company would only result in low-ball deals in this situation. At this point, we never suggest selling.
If selling sounds appealing, but your company's profits have recently suffered, it's time to hang on to it, patch the broken link in the chain, and get it ready for sale so you can get the price you deserve.
But let's say you've decided that now is the right time to sell because you've given it some consideration and calculated that your company is in a position where a buyer would notice it. The next question in your mind would be ....
Who is buying my business?
There are several different types of customers, so let's look at this from the perspective of your business's high level sales price.
The sale price is less than $500,000.
If you're selling a company for less than $500,000, the buyers are usually private investors looking for a higher return on investment than placing their money in the bank. Individuals or partnerships using their own funds are more likely to be involved.
The majority of these consumers will be executives in high-paying, long-hour jobs with cash on hand in the low to mid-six figures. Dealing with this buyer has its drawbacks: they are emotional, and they are investing their own money, so their risk appetite is generally poor. The other aspect of this category is that it contains the majority of the offers, making it a buyer's market at that price.
Buyers in this price range are likely to be new to Amazon sale or even to online business/marketing in general. They may be wealthy retirees, high-paid executives, or multi-business investors searching for more consistent income and higher returns than a bank or mutual fund would provide. They aren't looking for a full-time job for the most part, so the less time it takes to run your company, the better.
They are not concerned about losing their money because they are using their own funds. When they're looking for bargains, they'll look for some excuse not to buy. They want to buy a company, but their main reason for doing so is to avoid losing money.
This customer is searching for the best offer inside their budget. This means they'll concentrate on companies that are more developed and defendable (proprietary goods, own brands).
However, a variety of online advertisers, e-commerce business operators, and FBA sellers are now looking to purchase other FBA businesses.
$500,000 - $1 million
There are fewer private buyers in this space willing to put that kind of money into a deal, but it's still too small for strategic and private equity groups like family offices to get to that level. The deal is just not big enough. As a result, the price point is a bit of a business black hole. It takes a long time to find a buyer, and the terms of the deal are typically fairly standard—buyers use seller financing, and offers are poor.
$1 million - $5 million
Since there are a lot of companies raising money to buy a brand or products in this price range and beyond, this is the hottest segment of the market right now, so it's certainly a seller's market.
If you have the correct kind of company, there are a lot of cash buyers in that price range above $1 million. There are also a lot of buyers who want to use Small Business Administration (SBA) finances that don't go above a $5 million deal, so there's that option as well.
To qualify for SBA loans, your business must have paid taxes in the U.S. for at least two years and it must be a U.S. business. The buyer must also qualify for the loan, but the government backs the debt for the bank, so it's easier to get this type of financing.
$5 million and up
Sales in this space are almost exclusively strategic buyers, private equity buyers and family offices - types of companies that want to acquire brands that have proven their model. This means that the brand has found a problem in the market, created a product that solves the problem for that demographic, and created products around that demographic.
These are the types of product brands are looking to acquire and then expand outside of Amazon and online sales. They can have brick and mortar, retail, wholesale-thousands of channels around the world that they take these products in. That's the kind of buyer above the $5 million mark. They usually pay more because it's harder to get a business to that level of profitability, so they're looking for a business that's already there.
How do I find a buyer?
It's exciting to see that your company has a market, but you're probably wondering where to look for your ideal buyer. There are several choices available to you: Ask other FBA sellers you know who may be interested in buying, or use online marketplaces and classified sites like Flippa.com, bizbuysell.com, or businessforsale.com to advertise your business.
Even if you use an online marketplace to sell your business, it is wise to use a broker. I have always used brokers to both buy and sell online businesses.
A broker handles it for you, so you don't have to deal with trolls or worse, people who just want to look at your goods and copy them or your brand, or even compete directly with you. (As Amazon becomes more competitive, this is becoming less of an issue.)
A broker helps you present your business in a way that is attractive to buyers. They find ideal buyers for you, help with negotiations, and then support you throughout the transfer process and make sure you get paid (which, let's face it, is the most important part).
A broker can charge a percentage of the selling price, varying from 15% on smaller deals to 10% on larger deals, depending on the profit level.
The broker charges 10% of the first $1 million, plus 9% of the second $1 million, plus 8% of the third $1 million, and so on, until the fee drops to 3% for every million over $8 million in the modern Lehman formula.
How long will it take for me to sell my company?
It all depends on how well the company matches the requirements of potential customers. Even if your company is a great match for a buyer, closing the deal could take weeks or months.
Remember, most buyers are primarily afraid of losses, so they will spend a lot of time doing due diligence to find the one reason not to buy your business and save their capital for another deal.
The average days on sale for each price range in 2018 are as follows:
- <$100,000 k is 66 days
- $100,000 - $500,000 for 118 days
- $500,000 - $1 million for 151 days
- $1 million - $2 million for 128 days
- $2 million - $5 million for 146 days
- >$5 million for 170 days
Each of these sales has its own set of issues. Getting ahead of them now will save you time and money in the long run.
These need to be addressed prior to a sale:
- Financial data: These need to be 100 percent accurate.
- Vendors: Hopefully, you've vetted them and found them to be quick to work with and trustworthy.
- Calls with buyers: You must be available to speak with potential customers. It's uncommon to sell a company for $100,000 or more without first speaking with a professional. They want to meet you and learn about your business.
- Buyers' questions: You'll be asked a range of questions by genuine buyers, which you'll have to respond to. A proper prospectus will help up front, but you will still need to answer questions as they come up.
- Preparing a good prospectus: do the work up front!
Although the toughest part is planning for the sale, the end goal is to sell the company, so the effort will be worthwhile.
How do I transfer my business?
Depending on which country you are in, the process of selling your company to a new owner differs. In America, it's probably easiest; in the UK and Australia, it's a bit more complex; and in Germany, it's almost impossible unless the buyer takes over the business themselves. If it's a stock sale and you're taking over the company in Germany, you can take over the account; You'll need to move the brand to a Seller Central account if you don't already have one.
We get the seller to ask Amazon for approval and then inform them that their company has been sold, regardless of where they are. The account must then be transferred to the new owner.
An account can be transferred in one of two ways. One is to directly pass the account, which Amazon explains to the customer at the time. The brand may also be transferred to another Seller Central account. The purchaser may have greater Seller Central accounts into which the brand should be transferred. It's possible that Amazon will demand.
How do I get paid?
The response to this question, at the end of the day, is what matters to you as a seller.
We recommend that our clients use an escrow service to ensure that they are billed. As a broker, I am always able to assist with this. As a third-party escrow provider, Escrow.com is a common alternative.
When you use an escrow service, the money is held securely by a third party. Only when both parties are satisfied and the transaction is complete is the money released via wire transfer to your bank account.
I'm happy to sell right now. What's the best way to get started?
Fill out our no-obligation business appraisal form. This data is used to equate the company to those that have recently sold. If we discover that your company isn't in the range we're dealing with, we'll give you advice about how to get it there.
The main thing you need to focus on is increasing the value of your business before selling.