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The scariest part of facing the endgame for your FBA business is not knowing what to do next.
Do you just walk away and let the business deteriorate on its own? Do you set metaphorical fire to it so it’s done with? When things are ending, does that mean the cash just stops too?
Thankfully, there is another option, one that takes away any fear of saying goodbye to your FBA business and turns emotions into a sense of excitement.
A surprising number of business owners have no idea they can sell their business and make an average of two to four years of profit upfront. It makes the process of walking away from your business a profitable one.
Getting the most out of selling your FBA business is a measured process but one that can handsomely payout. Let’s dig into how selling your business works and how to maximize the earnings from your business.
If a business is running fairly hands-off and making money each month, why would you sell it?
That’s a question we face fairly often as online business brokers. It may seem like a strange idea to many who are new to the industry that selling off a profitable business is a good idea. But, if there were no good reasons to sell, we simply wouldn’t exist.
Entrepreneurs come to us to help sell their businesses for several reasons. Many would like a windfall to use for other opportunities like buying a house, starting another business, or living and working remotely. Rarely in life do we get an opportunity to make a large amount of money at once, and selling an online business is one of those golden chances to do so.
Another strong motivation for entrepreneurs to sell is that they’re simply tired of running the business. Even if a business is passive, it takes up mental energy that might better serve the business owner in other endeavors. Selling gives them a way out of the business without losing money.
It’s also possible for a business to outpace the business owner’s capital or capabilities to run it. If the owner finds themselves stuck and unable to move the business forward, deciding to pass it along to someone else might be the best move.
Whatever the reason, many FBA sellers have started to realize that they have more options than ever to maximize earnings from their business. Now, selling isn’t the last resort option for sellers, but a milestone to shoot for.
You have two options when you want to sell your business: either work with a broker or sell the business on your own.
Bias aside, the easiest way to go about selling is to work with a trusted broker and marketplace. Here’s a few of the pros of working with a broker:
Selling the business on your own is entirely possible, but you just lose all the benefits of a trusted marketplace. This means finding a buyer for the business, negotiating your own deal structure, implementing the necessary legalities, and manually transferring the necessary links, listings, and assets over to the buyer on your own.
No matter which way you choose to go, the things you have to prepare stay the same.
First, you’ll have to ensure that any documentation needed to understand or run your business is up to date and in order. That means that financial statements like your profit and loss (P&L) should be accurate, and any contracts with suppliers or employees should be able to be passed over to the buyer.
Any data and analytics for your business should be up to date, as this will help you to clearly advocate for your business’ traffic and revenue. Any missed steps here could result in a lower valuation for your business, so it's key to make sure that all your numbers are in order!
Since inventory can be the biggest pain for some FBA sellers, it requires extra attention and note-taking so that the inventory count is correct and you can sell off your inventory for an appropriate amount. Note that many brokers require inventory to be sold outside of the sale price for the actual business, so that is something that should be carefully taken stock of and negotiated with the buyer.
To sweeten the deal for the buyer, you should draft standard operating procedures (SOPs) that act as guidelines for your business. An easy-to-follow SOP incentivizes new buyers to acquire your business and helps your valuation since it shows that running your business can be easily broken down into comprehensible directions, therefore making it easier for the buyer to take over.
Now that you have an idea on how to sell, let’s talk about how much you can make from an exit.
Valuations are one of the most anticipated elements of the deal process. The valuation determines how much your business is worth and how much it could list for on a marketplace.
A valuation will be a multiple of either your monthly or yearly revenue. Some brokers use only yearly multiples, while others use monthly multiples. A yearly multiple might be 2x or 3x, and the same multiple in monthly terms would be 24x or 36x.
Our multiple is 6-12 months’ Average Net Profit multiplied by 20 to 60+, depending on the state of your business. The multiple is dependent on a number of factors, including business age, social media followers, email list subscribers, and traffic diversity.
In simple terms, this breaks down to:
Monthly Net Profit x Multiple = Valuation
In the 2020 Empire Flippers Industry Report , we amassed data from all online businesses sold on our marketplace and found that Amazon FBA businesses sold for an average multiple of 26.2x. So imagine whatever your FBA business is earning monthly right now, then multiply that by 26.2. This sum attributes to 2.5 to 4 years’ worth of profit upfront, as mentioned previously.
The average multiple is by no means the highest benchmark to shoot for. There’s always room to sell for much higher multiples when your business is optimized correctly. Let’s explore how you can achieve your highest possible multiple.
Now that you have a sense of how valuations work, let’s go over the ways to boost your valuation and get even more money from selling your business.
Establishing a brand for your products is essential to overcome competition on Amazon. Brands communicate professionalism and trust, giving customers businesses they can identify with and want to continue buying from.
Amazon has encouraged brand-building through its Brand Registry to help you trademark and protect your brand from copycats, and Amazon A+ Content to create visually driven optimized listings using video, graphics, and photos.
A brand can grow further off of Amazon through social media and an email list. All of these brand-building tools help solidify your brand and ensure a stronger sales price.
Bad operations is one the single biggest deterrents to a good valuation for an FBA business.
Bad operations might look like quality checks on products by yourself in your garage, spending 60 or more hours a week to maintain the business, or having a problematic supplier. All of these are operational headaches. Almost no buyer would want to fix these issues themselves; they’re going to want a business they can operate with ease.
Simplified operations mean the business can run hands-off. If your business is self-sufficient, its salability and overall value will improve.
A low SKU count is a reasonable SKU count, and that’s what most buyers are looking for.
Lower SKU counts with solid performance are in high demand because there are fewer products to oversee, leaving you with more energy for optimizing a lower number of listings compared to businesses with hundreds or thousands of SKUs.
If you can operate from a sweet spot in terms of SKU count (just enough SKUs to maximize performance and opportunity within the niche), this will present a prime opportunity for buyers and help your valuation.
Having a team in place to support your business can also help sweeten the deal for buyers.
A team of virtual assistants (VAs) willing to stay on with a new owner allows the buyer to take advantage of a team that already knows how to run the daily operations without much oversight. Having an established team of VAs and easy-to-follow SOPs in place means the business can run as usual, even under new ownership. Knowing that the business can run right out of the gate may make a buyer spring more quickly to buy your business.
The old saying “never put all your eggs in one basket” applies to how you build a supply chain for your business. If you rely on one supplier, any problem they have in fulfilling orders entirely stops your ability to deliver to customers. Working with diverse suppliers is an absolute must.
With two or three well-trusted suppliers, you should have a safety net for your inventory. This, in turn, makes your business more valuable to buyers by making it less risky to take on. More value to a buyer leads to a better valuation and more money in your pocket.
Even if your business is doing well at less than a year old, it may be too young to sell.
Young businesses, even if they have consistent earnings, don’t have enough history to prove that they can keep earning in the future.
A business needs to be able to prove itself through data collected over time and show average earnings that inspire trust. By holding out, you can let your business grow and earn more for a couple of years, resulting in a much higher multiple for your business valuation.
You now have a roadmap for selling your business and know how to maximize your valuation. All that is left is for you to decide the right time for your exit.
Now is a good time as any to start implementing changes, big and small, to your FBA business so you can watch it reap higher dividends on your monthly profit and set yourself up for a stronger valuation when you are ready to sell your business .
Thanks for reading,
Sarah Nuttycombe (Empire Flippers)
Sarah is a Content Specialist as part of the Empire Flippers Marketing Team. Before joining Empire Flippers she spent five years as an editor and producer for documentary films, working on shoots around the US, Europe, Australia, and Asia. Over the years she has bounced between her native Richmond, VA and 30+ countries for work and personal travel. Sarah is passionate about the digital nomad lifestyle so you’ll likely never find her in one place for too long.