- Posted on April 6, 2022
- by Benedict Dohmen
How To Sell Your Amazon FBA Business?
Starting and growing an Amazon FBA business from the ground up isn’t easy. You’ve put in the hard work, and you’ve done that most daunting of tasks – building a successful business.
However, priorities can change, and you’ve now decided the time has come to sell Amazon FBA business and move on to the next big thing.
First of all, you’ll want to ensure you have the best terms and conditions for your sale, therefore our guide is tailored to provide all the answers – as well as the best strategy for your Amazon brand sale.
Table of сontents:
How do I sell my Amazon business?
To sell your Amazon business, these are the steps you need to take:
- Prepare an Amazon exit plan
- Do a valuation of your business
- Decide if you will hire a broker or sell on your own
- Find an Amazon FBA buyer
- Sign an LOI
- Undergo the assessment process with the buyer
- Negotiate your price
- Payout
- Transfer of a seller account
What is an Amazon FBA exit plan?
Amazon FBA exit plan is the process of addressing all financial, legal, product, personal, tax, and value aspects of your Amazon FBA brand and creating an exit strategy for maximum profit.
The exit plan is usually 1 year long and the owner of the business creates a strategical roadmap of increasing the brand’s value, addressing all issues and preparing for a smooth transition.
How to get started with selling an Amazon FBA business
To sell your Amazon business, you simply need to find a buyer, sign a contract, and transfer the Seller Account. However, there’s a lot of factors that will influence the value of your brand, the way you sell it, and how difficult it is to sell a brand.
What are the buyers looking for?
For starters, it’s important to put yourself in a potential buyer’s shoes. When an interested party is looking into your business, they will pay attention to a few key factors.
Let’s outline how they’re measured, and how they can impact the success of your sale.
Type of Amazon FBA business
First of all you will need to determine your type of business.
There are three main types of FBA businesses, all with different specifications:
Reseller
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.
Additionally, supply may be an issue. If you own this type of business, the best way to increase your Amazon FBA value is to make an exclusive contract with wholesalers who don’t have a direct relationship with Amazon.
Private label
Private label businesses are essentially brand businesses. If you have a brand that sells a certain type of product, you are considered a private label. These businesses are very attractive to Amazon FBA buyers because each item has a unique value, and product supply is constant.
However, competition can be a big issue for private label businesses. To beat competitors and become more attractive to Amazon aggregators, it’s important to establish an online presence outside of Amazon.
Proprietary products
Proprietary products are businesses that sell only one unique product. If you’ve 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.
Age
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 can’t sell a business that’s one year old or less, but the Amazon roll-up firm 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, and could command a higher price.
Profit (Earnings)
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 document ready will benefit you as well when calculating your SDE.
Reliable suppliers
The goal is to make your supply structure as easy and efficient as possible, so the buyer experiences a smooth transition once the handover is complete.
Multiple supplier contracts can overwhelm your potential buyer. If you automate these processes or outsource, they will help to increase the value of your business. Doing business with well-respected suppliers and cultivating good relationships will help ensure a stable supply of goods, long after you leave the company.
Remember – no buyer wants to waste their first few weeks of sales on inventory management issues.
Product reviews and rating
A large part of securing a good deal for your business depends on reviews – they’re a clear indicator of how solid your brand identity is, and how well your marketing and design teams function.
Product reviews should always be real, honest, and describe your product in detail.
Trademarks and patents
It’s clear to any Amazon FBA business buyer that is investing in a business carries a certain degree of risk – especially when the company is known for selling a single product.
Therefore, securing a trademark and patent for your products before you decide to sell your Amazon FBA will greatly benefit you and the buyer and you will score a higher valuation.
This is just a small bit of ways how to increase your Amazon FBA value. We have put together a whole guide with practical things you need to take into consideration.
Finding a buyer
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 Business. These are all characteristics you should be looking into, and all the small details it’s vital to pay attention to.
Generally speaking, while selling an Amazon FBA business, you’ll come across one of the following three kinds of entities – each with its unique features.
Additionally, it is very important to do a background check on the buyer and prepare a list of questions to ask. To get you started we prepared a list with some of the key questions you shouldn’t omit:
Aggregators
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
Brokers are individuals or firms who assist you during the entire process of the sale. They negotiate, and will be with you from start to finish – depending on the niche you’re in and their skill levels, they can either help you get a truly fair deal for your business or waste your money.
Brokers will take a percentage from the sale, to compensate for their service.
Private equity
Perhaps the most different from aggregators, Private Equity firms raise capital from different investors, aiming to maximize their wealth gain across a long period – usually ten years.
While private equity offers usually quick and painless buyouts, they’re often more interested in turning an overall profit than taking your company to the next level. Often, they will try and keep you attached to the company, instead of ensuring a large payout.
Valuing the sale price of an Amazon FBA business
The most important thing that you’ll be asked at a negotiation table is, of course – ‘how much?’
Here are some details to help you understand the worth of your business when it goes on sale.
How much is an Amazon FBA business worth?
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, 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 can take from 24 to 48 hours, depending on the buyer you are working with. Every buyer has their valuation formula and checklist to go through – so stay patient, and make sure your documentation is in order.
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 value of your Amazon brand (SDE)
SDE refers to a key metric called ‘Seller Discretionary Earnings’. In simple terms, this equals the amount of revenue and benefits the business has generated over a certain period.
SDE = Net Profit + Add-backs
Revenue is the total amount of income your business receives.
Expenses are all production costs, Amazon fees, employee payments, taxes, shipping service, fulfillment services, and any payment that goes from your business to a third party.
Add-backs are payments that aren’t transferring to the buyer.
By knowing how to properly calculate your SDE, you can stay two steps ahead of a 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 in your favor.
Let’s illustrate the way the SDE calculation works, with an example:
Let’s consider the income statement for a fictional company – let’s call them Appleseed Designs:
- Appleseed Designs records a total income of $2,000,000 in 20xx.
- The cost of their goods and services amounts to $500,000 – making their gross profit $1,500,000.
Now that we’re done with balancing income with the cost of sales, let’s take a look at Appleseed’s expenses.
- Everything from office space to utilities, employee wages, charity payments, and more come under this – let’s say that it totals $600,000.
This means that our SDE amounts to 1,500,000 – 600,000 = $900,000. Or does it?
What we’ve not considered so far are the add-backs. Appleseed’s founder and CEO, Sam Appleseed, takes home a $200,000 paycheck for his work – something that won’t have to be done if he sells the company.
Another expense could be donations – let’s say $30,000. This also counts as an add-back, as the buyer won’t need to worry about the expenses once the takeover is complete.
Adjusted for these add backs, the final SDE now amounts to 900,000 + 30,000 + 200,000 = $1,100,030.
This figure is what will be used on the negotiation table and is often much more complex than the example we’ve shown here – so don’t be afraid to ensure that all your statements are in perfect order before calculating your SDE.
For larger businesses valuing over around $10 million, you’ll have to rely on the more complex EBITDA formula:
EBITDA = Net Income + Taxes + Interest Expense + Depreciation & Amortization
How to increase the value of your Amazon FBA 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 Amazon FBA business and rank higher on buyer’s lists.
Some things you can do to get started are:
- Diversify your product portfolio by adding new products
- Simplify business processes by removing unnecessary steps or outsourcing
- Use an Amazon Marketing Agency to optimize your ads
- Get exclusive contracts with manufacturers and suppliers
- Invest into branding and grow outside of Amazon
- Get better reviews
- Check your Amazon Best Seller Rank
Signing an LOI (Letter of Intent)
An LOI is a document which the Amazon FBA buyer will offer to the Amazon FBA seller and contains all of the terms and conditions under which the deal will unfold.
Our guide – Understanding the LOI goes into depth about what you should expect from this document. However, be careful because often aggregators aren’t closing LOIs and this may become an issue for the seller.
Due Diligence process
After the LOI is signed by both parties the due diligence process started.
This is a standard procedure for all M&A companies but you should be prepared to show all of your financial documents, contact information from suppliers and manufacturers, legal information, and give access to your Amazon Seller Account so the buyer can verify that your business is valid indeed.
Proper preparation for the due diligence process is a must and we have prepared a detailed guide on
How to negotiate your deal
This will be one of the most difficult aspects of selling your business, so it’s important to keep a clear head, stay calm, and know your strengths and weaknesses inside out. The buyer will try to work within their budget to offer a price that works best for you – but always make sure you’re getting a fair deal.
Keep a calm demeanor
Selling a business is a deeply personal event, and it’s important to understand that no buyer can take into account all the late nights spent building up your Amazon Seller Account from the ground up, the difficult investments made, and all the emotions felt as your business experienced its highs and lows.
Buyers are on an agenda of their own, and may not value your business the same way you do. If you find yourself backed into a corner, remember to avoid reacting defensively – simply stick to the facts and reassert your company’s myriad strengths.
Understand your niche
Start by working out which seasons or events spike demand for your products, and choose the leading-up period for your sales negotiations – this will allow you to position your business at its strongest.
If that time has passed, draw up key facts and figures that illustrate how your business performs during peak conditions.
Our guide – How to negotiate an Amazon exit will turn you into an expert negotiator and you will easily get the price you desire.
Terms of payment
Congratulations – after weeks of wrestling with buyer expectations and possibly years of building your business, you’ve shaken hands over a price that feels right.
Now that you have the answer on “how to sell my Amazon business”? It is time to discuss payment.
That’s not where the nuance ends, however. It’s important to remember that how you get paid is almost as important as how much – here’s what to consider:
- Upfront Cash: You’ll be paid in full, right on the day of sale – no messy agreements.
- Stability payment: Here, both parties agree that the seller will receive some portion of the total sale on the day of sale, and will receive the other payment (usually at a premium), after a period of consistent earnings.
- Earnout: Here, the seller directly receives a portion of the business’s future earnings, for a negotiated period and amount
Key takeaway
From understanding a buyer’s priorities to valuing your business and handling negotiations, you’ve got all you need to sell Amazon FBA business.
We know that the main pain points for all Amazon FBA sellers are:
- Cash upfront
- Deal closing time
Therefore, If you’re looking for a safe, no-hassle option for selling your business, Benitago has a unique Price Match Guarantee – We match any competitor offers, and add $250,000 on top. To find out more, click the Contact Us button.
Now it is your turn – do you have a question for the Benitago team? Or maybe you want to start a conversation with like-minded individuals? Feel free to share your thoughts in the comment section below!
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