Selling an Amazon business: What you need to know

Selling on the world’s biggest marketplace can clearly make for a lucrative business – and we work every day with people who are unlocking the potential of Amazon. Yet, it’s only natural that you might get to a stage where you want to sell your business. After all, proactive entrepreneurs are always looking for the next opportunity and want to be able to divert their focus, skills and efforts wherever they think they can get most value.

Quite often, when you’ve seen an idea through from birth to success the next stage is to look for a buyer who can take it to the next level and reward you for your entrepreneurial efforts – that’s the case for any business, on Amazon or not.

Indeed, the number of businesses being bought is on the up – with a 27% increase in transactions reported by brokers in the US in 2017 alone. There’s clearly an appetite among investors to purchase up and coming companies that can deliver strong growth and profits.

That trend has been replicated in Amazon too, with Digital Exits showing that across 75 sales for Amazon FBA businesses in 2017, the average sales price was just under $1.5 million. The total transaction value for the businesses was more than $110 million, with the median value of $349,000.

Those numbers alone should be enough to grab your attention, but it’s also worth considering the following. More than half of the money you put in your pocket from your business will actually come when you sell it – and quite often there’s more money to be had from selling your business than there is from actually running it.

Want to find out more? Here’s what you need to know about selling your Amazon business:

Can I sell my Amazon business?

First things first, you might actually be worried about whether or not it’s actually possible to sell your Amazon business. After all, many people may have read that ‘seller accounts generally are not transferable’ on Amazon Seller Central and feared that this bars them from making a sale – or at least a sale without losing a hard won reputation of ratings and reviews. Yet this does not mean that you cannot sell.

The important thing to do, once it comes to selling, is to contact Amazon Seller Support and work closely with them to ensure that you provide the right paperwork and details required for the sale to go through. Amazon wants to keep control of the process and have the chance to bar people who have transgressed the rules. Successful established businesses which are run properly should not encounter problems when it comes to this.

First steps to selling your Amazon business

Successfully selling an Amazon business relies first and foremost on changing your mindset. You need to start to see your business as an asset that you are building up and adding value to. It’s not a question of whether or not you wish to sell – it’s about how much you want to sell for when the time comes. If you look at it that way, you’ll easily answer the ‘when is the right time to sell my Amazon business?’ question that we regularly see being asked. Simply, you should do so when you’re able to sell for the value you wish to achieve.

The trick is to picture the buyer as your ultimate (and final) customer and work on charting a path towards achieving their custom.

It’s also important to realise that much of what you should see as ‘best practice’ when it comes to running your business will actually stand you in good stead when it comes to selling. Having accurate up-to-date accounts, reliable suppliers and a sound inventory are all conducive to a smooth running business as well as an attractive acquisition prospect.

Provided that your business is running smoothly and your mindset is right, you are well set to begin selling your Amazon business.

How much can you sell your Amazon business for?

It’s not uncommon for an Amazon business to be able to sell for two to three times its annual gross margin plus the cost of its inventory. However, you need to be able to look at three key things in order to get an accurate valuation for your business.

  1. The true product profitability. This means looking at a figure for the return on the cost of goods sold for each of your listings – taking into account fees and taxes. This will show you how much money you make for every dollar, pound or euro you spend on your products. You can also look at the profit margin for your Amazon listings after you’ve accounted for marketing costs.
  2. The current value of the company based on historic performance. This is best done by moving from a cash based accounting system to an accrual basis. This allows your company to be viewed through the eyes of the buyer, recording income when it is achieved and costs when they are incurred. Don’t forget to consider addbacks here. Things such as your wages and taxes or travel expenses can be added back on to your profitability figures and show what’s known as the Seller’s Discretionary Earnings (SDE).
  3. Forecast based on potential profitability. While historic performance is instructive, it pays to remember that buyers are only really interested in the future, since that’s when they hope to reap the rewards of taking over your business. You should calculate the potential growth for each of your products, based on sales forecasts. These should reveal the potential for growth in your business, but also the potential overall value of your business in 12 months’ time and beyond.

We can work with you to help you fill in a proprietary valuation workbook which helps to pull all of this information together. We’ll help you to understand the numbers – with clear colour coding to help you pinpoint the most profitable items in your directory. We’ll also be able to show you which areas you need to focus on when it comes to growth in order to improve your forecasts.

Other factors that will come into the calculation when it comes to valuing your business include:

  • Age: Businesses that have a longer track record of success will be more attractive to potential buyers.
  • Consistent growth: Similarly, businesses that have delivered consistent, strong rates of growth will also be attractive.
  • Type of business: Generic reseller or private label Amazon businesses without a carefully created brand are less attractive as the products you sell are not specific to you and could be sold elsewhere. Buyers will want to pay more for businesses with their own unique products.
  • Diversification: Businesses with an over-reliance on one or two key products are more prone to a drop off in growth.
  • Competition: Fighting for attention with a strong band of rival sellers can be off-putting, since it’d be easy for your growth to be knocked off course even if you’re currently a best seller for a product.
  • Supply: A strong network of trusted suppliers are an important part of a robust FBA business model.
  • Reviews: If customers trust your products and recommend them to others then they should continue to sell well. It’s important that buyers can see that your products are popular.
  • Health status: This is particularly important if you sell in a restricted category such as beauty or health. In order to continue to sell in restricted categories you should have an order defect rate below 1%, a pre-fulfilment cancel rate of below 2.5% and a late shipment rate of less than 4%.
  • The state of the market: Some things are out of your control of course. The state of the wider economy and the tastes of customers and health of your sector are all important factors when it comes to the long term prospects of your Amazon business.

Even if you don’t plan to sell your business right away, we think it’s good practice for businesses to be able to run these calculations on a quarterly basis and have a goal in mind for how to grow these figures.

You also need to have a long term view on this since sales can take several months – especially if you are looking to sell for a higher amount. As a general rule of thumb, the higher the sale price the longer it is likely to take to go through. You need to still have the passion or drive to be able to run your business successfully while you are in the process of preparing it for sale – so don’t wait until the spark has gone out to make your move.

It’s on the basis of these numbers – which come from sound, demonstrable accounting evidence – that you’ll be able to set a valuation for your Amazon FBA business.

 

Who will buy your Amazon business?

Once you’re clear about what you want to achieve from selling your Amazon business – and have clear figures set out to put an accurate valuation on it – it’s time to find a buyer.

There are four typical routes taken by Amazon sellers in this regard:

  • Marketplaces: Sites such as BizQuest and BizBuySell are able to list your business for sale. These tend to be a low cost option, but it can be tough to stand out from the crowd and find the buyer you need.
  • Auctions: These sites are similar to marketplaces but with an auction element that might help to foster competition. Sites such as Flippa offer this service – but tend to best suited to lower value businesses.
  • Broker: A professional broker will likely cost more than the above two options, but they will handle the whole process for you and are able to use their experience to identify the right buyer for you.
  • Direct: You could, of course, find a buyer yourself. This reduces the cost – but does place the administrative burden on your shoulders.

Selling a business allows you to cash in on your success – and for you to walk away with your head held high having done what you set out to achieve and rewarded yourself a tidy sum for doing so. Get in touch with us today to see how we can help you to get the most from selling your Amazon business.

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