Starting and growing an Amazon FBA business from the ground up is a daunting task not many are capable of, but you did it and we congratulate you for that!
However, times and priorities change – you’ve decided that the time has come to sell your Amazon business and move to the next big thing. Selling an Amazon business is not an easy task, because you want to get the best terms and conditions.
Our guide is tailored to give you all the answers, as well as the best strategy for your sale.
In this guide, you’ll find answers to the following questions:
Despite many misconceptions and false information on the Internet, selling your Amazon FBA business is entirely possible – confirmed by a legal precedent and Amazon themselves.
To sell your Amazon FBA business, you simply need to find a buyer, sign a contract, and transfer the Seller Account.
However, many factors will influence the value of your brand, the way you sell it, and how difficult it is to sell a brand. Below we have explained what to do when it comes to selling your Amazon FBA business.
When a potential buyer is looking into your business they pay attention to three key factors: type, age, and profit. Here is how you can measure these:
To start with you will need to determine your type of business. There are three main types of businesses, all with different specifications:
– Private Label
– Proprietary products
Reseller Amazon businesses are businesses that buy products wholesale and sell them individually. Their profit is the difference between the buying and the selling price, also known as retail arbitrage. Dropshipping businesses fall into this category as well. Unfortunately, these types of businesses are very hard to sell. The seller doesn’t own the product and it is only a link between the product and the buyer.
Also, supply may be an issue. If you own this type of business, the best way to increase your chances is to make an exclusive contract with wholesalers who don’t have a direct relationship with Amazon.
Private label businesses are in fact brand businesses. If you have your brand that sells a certain type of product, you are considered a private label. These types of businesses are very attractive to the buyers because the item has a unique value and the supply is constant.
However, competition can be a big issue for private label businesses. To beat the competition and become more attractive to a buyer, try to establish an online presence outside of Amazon.
Proprietary products are businesses that sell only one unique product. If you have invented your product and registered a trademark for it, you are considered a proprietary product business.
These types of businesses are on the top of every buyer’s list – so be very wise when choosing a buyer. Many of them are willing to pay premium prices and are open to negotiations.
The age of your business is a very important feature in determining your brand’s value. The older the brand, the more valuable it is. This doesn’t mean you will be unable to sell a business that’s one year old or less – it only means that the buyer may try to lower the price and ask for a discount. Therefore, before committing – balance the potential earnings and losses. Decide if you should sell now or wait for a few more months when you have more data.
Profit is one of the most important aspects for a potential buyer to consider. Your financial portfolio will be looked at frequently by many different professionals, so it’s crucial to make sure all spending and earnings are properly showcased. Ensure there is no suspicious-looking data, and properly display some losses or unexpected gains in the past, as well as future financial predictions.
Knowing your numbers will be your strongest asset when negotiating a price for your business. Having a profit-loss list ready will benefit you as well.
The Value of Your Brand (SDE) SDE is Seller Discretionary Earnings.
In simple terms – the amount of revenue and benefits the business has generated over a certain period.
A simple formula to calculate SDE would be:
SDE = Net Profit + Add-backs
Revenue is the total amount of income your business
Add-backs are payments that aren’t transferring to the buyer
Knowing your SDE, and how to properly calculate it will put you ahead of the buyer. You’ll be able to know how the buyer thinks, which points they will be looking into, and what documents you need to prepare and present to speed up the process.
How To Increase The Value of Your Brand
After calculating your SDE you may decide that you aren’t in the best place to sell your business. Don’t worry – there are plenty of ways to increase the value of your business and rank higher on buyer’s lists. Here are few steps that you may take to improve your standing:
– Diversify your product portfolio by adding new products
– Simplify business processes by removing unnecessary steps or outsourcing
– Get exclusive contracts with manufacturers and suppliers
– Invest into branding and grow outside of Amazon
– Get better reviews
– Check your Amazon Best Seller Rank
The process of selling a business is long, requiring a lot of due diligence from both the buyer and the seller.
To sell your Amazon FBA business, these are the steps you need to take:
– Decide if you will hire a broker or sell on your own
– Do a valuation of your business (using the steps provided above)
– Receive an LOI (Letter of Intent)
– Do the due diligence process with the buyer
– Negotiate your price
– Transfer of a seller account
Finding an Amazon FBA buyer is very easy these days – a simple Google search will open a wealth of opportunities. Talking with someone who has gone through the process is also helpful because they can share their experiences and guide you in the right direction. Advertising online through various websites is another option to attract a potential buyer.
Once you decide to sell, you will be faced with a very important decision – should you go with an aggregator, a broker, or do it yourself via private sale?
We’ve prepared a comprehensive guide on How to Find a Buyer for My Amazon FBA Business. These are all characteristics you should be looking into, and all the small details it’s vital to pay attention to.
Aggregator vs Broker vs Private Equity Firms
Aggregators are direct buyers, just like Benitago, who buy your business but continue to grow it under their ownership. Aggregators work with you directly and negotiate the best possible price for your business.
Brokers are individuals or firms who assist you during the entire process of the sale. They negotiate and they are with you from start to finish. Brokers will take a percentage from the sale to compensate for their service.
Private equity firms buy and sell businesses. Their method of work is aggressive but probably your best option if you wish to stay involved in your business.
Whenever you enter into a negotiation regarding selling your business you may ask yourself:
The value of your Amazon business is its ability to make a profit. However, the final number will heavily depend on the type of business, attractiveness, age, product type, and financial statements. Also, the buyer will look into any legal issues, ownership transfer, reviews, past relationships with customers and other entities. The final value is a sum of a few measurable components, and each buyer will have a different approach.
The valuation process may take from 24 hours to 5 days, depending on the buyer you are working with. Every buyer has their valuation formula and checklist to go through.
The best way to find out how a buyer may value your business is to reach out to them and ask for their checklist and key components they will be looking for. Always make sure to have your financial and legal documents proofread, so they are error-free.
The best way to know your FBA business worth is to calculate your SDE.
By this point, you should have a clear idea of how to calculate the SDE, and it should be easy to come to an exact number. Remember to always be realistic with your number – and your expectations.
Every seller wants to know the worth of their business so they know what would be a good price to ask for when they are approached by buyer or they approach a buyer. To calculate the numbers we have prepared a simple example that would help you get a rough estimation and know what price to ask for.
Steps to follow:
1. From your financial report check how much you business made in sales for the previous year
2. Calculate your SDE
Your business made $1.000.000 in sales for the previous year.
Your SDE is $250.000
The market pays 2-4 times the SDE (this depends on the type of business)
Your business worth is $250.000 x 2 = $500.000
The minimum amount you can ask for your business is $500.000 and the maximum amount you can ask is $1.000.000. It is up to you to decide on which number between these two you can agree on.
Negotiating your deal is one of the hardest and most complicated things to do – it’s important to stay calm, and know your strong and weak aspects. The buyer will try to work within their budget to offer you a price that works best for you – but always make sure you’re getting a fair deal.
Benitago has a unique Price Match Guarantee – If your business fits our criteria we match any competitor offers, and add $250,000 on top.
To find out more, click the What’s My Business Worth? button at the top right corner.
Still thinking if you should sell your Amazon business? – Contact us to schedule a call today!