5 Steps Of Exiting an FBA Business

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Exiting your Amazon FBA business is a huge step for every owner. It’s a difficult step to take, but it can be the best decision you’ve ever made!

We fully understand the internal struggle, and we support your decision to sell. To make things as easy as possible, we’ve prepared this Amazon FBA exit guide to let you know exactly what to expect from the process.

Our guide covers: 

Table of сontents:

Financials

Your financial statements are the first thing you should be looking into when you decide to exit any business. Profit-loss statements, Invoices, employee salaries, loans and debt, business expenses, tax returns, etc. need to be neatly organized and structured.

The buyer will first look at your financial statements – if you aren’t able to justify the cost or explain why that expense is necessary, they may back out of the deal. Also, the buyer will ask for financial statements from the past 2 years, so make sure you keep all the receipts and can recall past purchases if asked. 

It’s always best to clearly state in your records if you’ve been charging personal expenses on your business card, or if your business has been paying for family vacations and expenses. With the benefit of hindsight, personal and professional expenses shouldn’t be mixed, but if they have then it’s crucial to be upfront about it. Make sure to include the ‘Personal Expenses’ category on your audit. 

If there are multiple owners or managers in the business make sure that the expenses of each owner are separated, and you can explain each individual’s role to the buyer. A good idea would be to buy out your partner; when you exit it will be easier to make the transfer to the new owner. If this isn’t possible, make sure you are aligned with your co-owner and upfront about every expense.

A buyer would be instantly repelled by multiple accounts and messy finances that take a lot of time to sort out and go through. The best option is to hire a professional accountant who already has experience with online business – they will be able to give you solid advice about how to put your finances in order.

Set up one account for your Amazon FBA business and have only business expenses on it. For all of your expenses, set up a personal bank account and transfer your salary there.

SDE (Seller's Discretionary Earnings)

Now that you have all of your financials in the order you will have to calculate your SDE – it’s the most important number in your exit, as it will determine the final price of your sale. To calculate SDE you will have to determine your Net profit and Add-backs.

Add-backs are expenses made by the owner that the business has paid for but they won’t transfer to the new owner.

We have a detailed guide on how to calculate SDE and a simplified table that will help you categorize the add-backs.

Operations

The third step is setting your operations in order. The buyer will look at elements such as your supply and demand, and if processes are running smoothly without micromanagement. They’ll also want to know if your brand aligns with your company values, if your marketing efforts are paying off, and if employees are happy and well paid.

From this and other information, the buyer will decide how much work your business would need after purchase. Generally, they will prefer a brand where all operations are automated and run smoothly, rather than one that requires too much management. Also, the owner needs to be just a supervisor and the processes should run under any management. Businesses, where the owner is an indispensable part of the process, aren’t usually favored. 

Another thing you should look into is solving any issues that you might have, such as unreliable suppliers or a legal battle with the co-owner. Other issues that could arise are employees not having clear guidelines, a competitor trying to overtake the market, or a product not selling. These can slow down or even block the brand, so it’s essential to look into solving these. 

Another crucial part of the operation process is the online store. Do you sell purely on Amazon, are your pages optimized so buyers can find you easily, and do you have a manager to overlook the entire process? These are all questions that should be answered. 

The most important thing you should also look into is securing any licenses, permits, patents, and international trademarks for your brand and your products. This will help the operational process because there won’t be any legal issues for the buyer to have to deal with, such as trademark issues. 

Increasing The Brand's Value

The fourth step – exploring ways to increase the value of your business. You might think there’s no point in changing anything last minute if you’re leaving anyway, but it’s the opposite – by increasing the value of your business, you increase your payout. Besides, when signing your Amazon Business exit LOI you will have a lot more things to bring to the table which is always a plus with Amazon FBA business buyers. 

You can also increase your value by diversifying your portfolio, investing in raising brand awareness, improving your Amazon Seller Rank, simplifying the process of production, and securing exclusive contracts with the manufacturers. 

Choose the Right Moment

Amazon FBA exit strategy isn’t an easy task. It requires a lot of time, effort, and planning – you need to wait for the right moment. 

To know the right moment, you should always look into what type of business the buyers are looking for. If your business is younger than one year, wait until it’s a year old so you can properly present your profits. 

If your business has messy financial statements, and you have been putting both personal and business expenses on one card, separate them into two different accounts and wait for 3-6 months so you can make a clear financial audit. 

If your business is in the middle of a legal battle it’s advisable to first solve the issue, and then advertise your business. Many pain points can slow down, delay, or even cancel the acquisition process, and any obstacles should be removed. On the other hand, you should also track trends with the Amazon FBA buyers – make sure that the market is stable and the buyer has the funding needed for the purchase. 

It can seem overwhelming but don’t worry – just create a checklist and go through each step one by one. 

 

If you feel that you’ve gone through all the steps and you are ready to sell, click the button Sell Your Business and we will contact you in 24h! 

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