Are you considering selling your Amazon business? Many may be surprised that a lot of Amazon sellers decide to sell their businesses after a few years of running it. While this is not always the end goal for many sellers, especially for those who are just starting, there are a lot of Amazon sellers who do this.
I, for one, had recently sold my Amazon business, and it was a very good and exciting experience. The amount I received was life-changing. I don’t see it as the end for me, but actually just the beginning, so I can start with my new brand and grow it.
But why do people sell their Amazon business, and how do they know if their business is sellable or not? You probably have more questions like how to prepare your business for selling, the process of selling it, and are there any exit tips for a successful sale?
I will try to answer all of those questions in this article and share my own experience as well, so read on.
Why Do People Sell Their Amazon Business?
There are many reasons why Amazon sellers sell their business. Some are personal reasons, others from a business perspective, and for some, it’s to retire early. But here are some of the major reasons why people sell their Amazon business.
To Avoid Getting Shutdown
Imagine putting all the hours, the money, and sleepless nights, then suddenly something goes wrong with your Amazon business. Whether it’s an honest mistake or you’re aware that you went against one of Amazon’s Terms of Service (ToS), all of your hard work will be for nothing if Amazon decides to shut you down.
Sometimes Amazon makes mistakes, and even honest sellers who are not involved with any gray or black hat tactics and do everything by the book can still get suspended. It can be a long process to prove your innocence and have your account reinstated when this happens.
Sellers need to write an Amazon appeal letter to get their account back. In some cases, they might even need to hire a lawyer depending on the severity of the situation.
It’s a tedious process, and that’s why some sellers prefer to sell their business before something like this happens to them. It’s also one of the reasons why I sold mine, although I was never involved in any gray or black hat tactics since they’re against Amazon ToS, and they are not sustainable.
But of course, there’s always the bright side to look forward to. Like a large amount of money you can get from selling your Amazon business. For example, suppose your operations give you $400,000 in annual profit and sell it at 2.5 multiple which is at a low end. In that case, you multiply $400,000 by 2.5 and you get at least $1,000,000.
Of course, the amount will still depend on the value of your business, and it can be lower or much higher than that. But you’ll get an idea of how much money you can get from selling your business. It would probably take you more than two years to get that amount if you decide to continue your business and not sell it.
Running an Amazon business is challenging, demanding, time-consuming, stressful, and at the same time, risky. This is another reason why sellers tend to sell their Amazon business, because of all the risks involved.
This is also the other reason why I sold my Amazon business. But aside from that, my biggest reason is to cash out and enjoy the fruits of my success and to take some of it into the next business and much more money to reinvest while still enjoying it.
Is Your Amazon Business Eligible for Sale?
Before you get excited about selling your Amazon business, you need to assess if your business is eligible for sale or not. Buyers have metrics when they scout for Amazon businesses to ensure that the business is worth buying or not.
Type of Amazon Business
One of the things they will look for is the kind of Amazon business you have. If you’re running a private label business, you get a better chance of selling your business than those in wholesale since you have better control of the business.
Age of Your Business
Another thing buyers consider is the age of your business. If your Amazon business is fairly new, like less than a year, it will not attract buyers compared to those who’ve been in the business for at least three years. Some of the clues they look for are solid rankings and positive reviews. Your business should be running for more than a year to achieve that.
Basically, buyers will prefer a business if they can look at sales data over the past years. If your business is just 6-months old, it would be hard for them to predict the return on investment since the data is inadequate.
Net Profit of Your Business
Lastly, your net profit. No buyer will be interested in your business if it’s not earning monthly. The bigger your monthly net is, the more attractive it will be to buyers. When we say monthly, it’s not just the best two or three months of sales, but all year round. Let’s say your best months are February and December only and the rest of the months fall flat, then buyers will not come to you.
How to Prepare Your Amazon Business to Sell?
If you have decided to sell your business in the future, you need to prepare for it. So, here are some of the things you need to do to ensure a smooth exit.
Prepare Amazon Financial Statements
Your financial statements play a big role in your business because buyers will base their decision on whether or not your business is worth making an offer. So if you’re planning on selling your business, you need to start getting all of your financial statements and organizing them. Please make sure they are readable, accessible, and easy to go through.
It would be best to prepare some financial statements such as invoices, tax returns, profit-loss statements, loans and debts, employee salaries, and other business expenses. Any potential buyer would be interested to know all your investments and expenditures, so be sure that you have them handy when they look for them.
It is best to hire an accountant to keep your finances in order. They can help you with Amazon FBA taxes, how you can save money, and also with any bookkeeping concerns.
Calculate Seller’s Discretionary Earnings
The Seller’s Discretionary Earnings (SDE) is a metric or benchmark to determine a business’ historical cash flow to find out its value. When calculating SDE, it will include the net profit for the year before taxes and other non-essential expenses acquired over the year.
SDE is critical to your exit and must be computed properly, as it will influence the final price of your business.
Choose a Method on How to Sell Your Amazon Business
There are different methods to sell your Amazon business, and it is essential to find a suitable method to get the most offers and serious buyers. Some of the common options are direct sale, marketplace, broker, and auction.
Using a brokerage is the most common method that sellers use since they can easily connect your business with several investment firms and potential buyers. However, it may not always be the best option for some sellers.
Try to find out how each method works and choose which one is more effective and suitable for your business. For example, I sold mine using an investment banking firm, and they were very helpful, especially in giving me advice on the right time to sell the business and finding the right buyer.
What is the Process of Selling an Amazon Business?
Here’s the process of how I was able to successfully sell my Amazon business.
Determine if Your Business is Sellable
The process of selling an Amazon business would start by determining if your business is sellable or not. Consider the criteria mentioned above to determine if your business is ready and marketable. After that, prepare your business.
Be ready to provide your financial statements, compute your SDE, and make sure to find the right method on how you want to sell or market your business.
Assess Buyers and Aggregators
Once you’ve done all that, you will start to get emails from different buyers and aggregators. The number of emails you’ll receive can be overwhelming but try not to sell your business to the first buyer that sent you an email.
Please note that you’ll only receive these emails if you choose to deal with direct buyers and aggregators. But since I’ve used an investment banking firm, the emails went directly to them.
Keep the offers coming, read through them, and find as much information as you can about these potential buyers.
You’ll be surprised to find out that not all of them are serious buyers. Some are there to take a look at your accounts, see what’s going on in the market, and get some data, but they don’t intend to buy your business.
I did receive from a couple of aggregators some emails whose intentions are just to get information and are not really interested in buying my business. It can be a waste of time, so be careful with aggregators like that.
When a buyer sends out a Letter of Intent (LOI), that means they are serious about buying your business. LOI is different from a close LOI. With LOI, you get the number, the deal, the structure, etc., but it’s not the final contract.
However, once you sign the LOI, it means that you cannot negotiate with other buyers. From that point, the buyer will do their own due diligence and final negotiation, and when you come up with an agreement, you both sign the final contract.
Please note that the whole negotiation process can take months, and you would have to deal with several potential buyers first before you find the right one. So be patient and trust the process. At the end of the day, you’ll be thankful you didn’t say yes to the first buyer that showed interest in your business.
Exit Strategy Tips For a Successful Sale
Not everyone who exited from Amazon was happy with the end result. Some regretted selling their business right away or felt that they could have earned more if they didn’t sell it to the first buyer. So, to avoid any of these, here are some exit strategy tips to remember.
Have a Goal or Plan
Before you decide to sell your Amazon business, you need to plan how you want to do it and a clear goal of what you want to achieve. You can’t just decide one day that you want to exit Amazon and then find a broker to market your business. Exiting Amazon needs preparation like what was mentioned above.
It’s best if you also had a clear picture of how much you want to get from your business and what your next plans or goals are once you have the money from the sale. Having a plan and goal would make you appreciate the money you’ll receive from the sale and would push you to achieve bigger things in the future.
My plan was to enjoy some of the money that I received from the sale, reinvest it, and grow more brands. I’m currently working on another brand, and my goal is to build an eight-figure business from scratch.
Know the Right Time to Sell
Right timing is the key to a successful sale. All your planning and efforts preparing your business will all be for nothing if you don’t wait for the right time to sell it. I received an LOI, and at the time, I entertained the idea of selling my business. I almost signed the LOI and started the process, but last minute, I pulled out.
I thought that it was better for me to wait and get a higher multiple a year later because that was the prediction. Businesses will go up, and I can take advantage of it. I’m glad I waited, and I was able to increase my numbers.
Don’t sell your business when it is still young. Wait for it to be at least more than a year. Buyers prefer this since they can study and get more information about your business. They’ll have a better understanding of your company’s profits.
It is also best to track current trends in Amazon FBA acquisitions and see if the market is stable. Best to time your sale when the market is rising to get the best value for your business. While waiting for the right time, use it to prepare all your numbers.
Don’t Sell to The First Buyer or Aggregator
Selling your Amazon business is both exciting and scary at the same time. However, don’t get too excited to sell your business to the first buyer or aggregator. Try to get more potential buyers first and weigh and compare their terms.
Also, most of the time, these aggregators are not that serious about buying your business. Sometimes, they just send as many emails as they can and catch as many leads as they can. Then from there, they will choose which business will be good for them.
So just let these buyers or aggregators come to you and choose the best one that you think can give you the best offer and, at the same time, can continue growing the business you started. Best to do research first on the aggregators that come to you to make sure they are legit and reputable. You wouldn’t want to be scammed or leave your business in the wrong hands.
Focus on SKUs that are Working (Get Rid of Ineffective Products)
While preparing to sell your business, check your inventory and find out which SKUs are not contributing a lot to the bottom line. Then, get rid of ineffective products, double down on SKUs that are working, and add some variations.
Improve the Value of Your FBA Business
Buyers would also look into the value of your FBA business. Don’t have a mindset that since you’re selling your business that you don’t need to work on increasing Amazon sales and improving its average revenue. I, too, spent at least a year improving my business.
Instead, think of it as the higher your business’s value, the bigger your payout will be. You can improve the value of your business by investing in improving your brand awareness, simplifying your production process, improving your seller rank, and securing exclusive contracts with your suppliers or manufacturer.
Resolve Any Issues Within Your Business
If you have any backlogs or any issues, make sure to resolve them before selling your business. If you are fighting any legal battles, having issues with unreliable suppliers, or any problems with your employees, make sure that you tie any loose ends before leaving your business to the new owners.
Doing this will ensure a smooth operational process and help the potential buyer avoid any future problems and expenses.
The process of selling an Amazon business is not easy. It can take you years to sell your business, and that’s okay if it means you can grow it and make it more attractive to buyers. I know these tips work because I was able to successfully sell my Amazon business.
There were lots of stressful moments, but I believe that everything happens for a reason, and the key is always looking at the positive side of things. It was an amazing journey, and the experience changed my life in a way that I became more confident about what I could do and achieve more in the future.