Selling your Amazon Business the Right Way


We have Coran Woodmass The FBA Broker is with us to talk through Selling your Amazon Business the Right Way.

Been running two years selling Amazon FBA Businesses.

The Averages

  • Across the marketplace across all business for sale or sold
  • For most FBA businesses there’s a single core product and all the business relies on this
  • You don’t really want one product line to be over 30% of the total revenue

Valuations

  • Your net profit is what the multiple will be based on
  • The baby niche is pretty popular
  • The sold data and look at it by category
  • A rough idea of 2 to 2.5 times at $300k double would be $600k you would take home plus inventory at cost

Know your Numbers

  • Having a bookkeeper who knows Amazon and can give an SDE (Seller Discretionary Earnings) number
  • Typically Amazon Sellers are using spreadsheets or software to manage the numbers
  • Figure out the expenses that are related to the business and are transferable to the new owner
    • PPC Spend
    • VAT has to be added (in UK)
    • Maybe a VA helping out
    • Inventory going into Amazon

Net Profit is lower

  • Net profit can be 30-50% less than what the Seller is expecting when selling your Amazon business
  • Biggest expenses that people don’t understand is cost of goods sold
  • Product/Inventory Costs
    • Doing ‘accrual accounting’
    • Inventory is bought at different times of the year – we buy at different times of the year
    • Take into account the ‘Cost of Goods Sold’
    • All the costs to get the product into Amazon
  • Promotions and Rebates
    • The topline number can be affected a lot by PPC and Giveaways and Rebates
  • Staff or Fulfilment that you do yourself hides a staff cost for another new owner

Have a Bookkeeper

  • Preference would be for everyone to use a bookkeeper that understands the selling process when selling your Amazon business
  • Do you books twice, once for taxes and once for selling the business
  • Do it the right way
  • Add back the personal business expenses
  • Coran hasn’t found a software tool that can be used for running the business and setting the business up for selling

Flipping your Business – key things to sell in 18 months

  • What products are profitable
  • Brand strategy
    • One brand in one niche
    • One brand that can support multiple niches
    • Multiple brands
  • Exclusively about selling you would:
    • Brand that support multiple niches/verticals
    • Work out which are the profitable products to have
    • Scale as quickly as you can
  • First year put everything back in plus more to grow it as fast as you can
  • Six months before sale – optimize the business
  • Show 12 months of growing before you go to sell
  • Downside in this tight timeframe is you really want to optimize your net profit
  • Really 4-5yr mark is what we’re seeing for now to give the product range time to grow and breathe

What makes a business worth more?

  • What Buyers are looking for now…
  • Brand matters a lot
  • Do the products stand on their own
  • Can they be found off Amazon
  • Can they be put into retail now?
  • This is how a strategic investor could pick up your products and put them into their business right now

Proprietary Elements

  • How hard is it for someone to see this product and go source it
  • Longevity, History helps the product
  • Buyers will pay more for products that have been operating longer
  • Boost your multiple:
    • Repeat orders
    • Subscriptions through your website
    • Want a way to market to that customer again – reselling is cheaper than acquiring customers
  • Things you can do to your business now to make it worth more

Off-Amazon

  • Income only matters from a multiple perspective
  • If it’s selling 30% or more off of Amazon then it will matter
  • For most Sellers, if your infrastructure, team and strategic advantage in the marketplace is ON-Amazon then double down on that

Miss-steps in your Business

  • Year 1 was good but year 2 had some misses – how do you deal with this with Buyers?
  • Ideally you don’t want to be rapidly expanding when you have one eye on selling – two different goals
  • Only start to plan to sell when you’ve figured out your product mix
  • This is to get the best multiple
  • Best exit is when you’ve figured out the product mix and are growing only in the lines that are working
  • From a Buyers side – most buyers know you need to expand the product line to grow the revenue
  • But if you’re having quite a few misses, you don’t really want to be selling in that year

Selling in Under a Year

  • Under a year
  • Selling in under a year is not Coran’s area
  • Sometimes you try some stuff and got a couple that work and some don’t so you look to sell it
  • You get a low multiple and probably half you expect
  • Chances are you just want out and buyers will make a low-ball offer

Too Much Stock – bad time to sell

  • How much inventory are you holding at cost compared to your net profit number
  • Businesses with a lot of SKUs are holding a lot of stock as you have to
  • Apparel has lots of variations and colours
  • If your inventory number landed cost is above your net profit then something is wrong
  • Dead lines and maybe whole categories that aren’t selling through
  • An investor will go through all of this
  • When you’re going to sell then you want to optimise and sell-off dead items
  • Having too much stock is a horrible time to sell

Markets

  • Bulk of the market is in $100 to $500k mark
  • A lot of 1st Time investors are coming into the market at this price point
  • Looking for businesses that is already working and expanding on it
  • Most of these buyers are in the US and are cash buyers
  • They want some US income
  • In Germany and UK, Switzerland has a lot of really big cash buyers who want outside US too
  • Less Buyers for UK only businesses

Key Points to Selling

  • Don’t sell in less than a year
  • Make it defendable asa product
  • Give it 2-4 years to optimize the net profit to the buyer
  • Category also matters (Home and Kitchen, Health) can dictate multiple
  • Sexy items (adult) have less buyers
  • Sexy products though matters in the lower price pool – they want to talk to their friends
  • Higher price point $2m in revenue – then you’re attracting serious buyers who just look at the numbers not sexy
  • Sexy is better at the lower price points

Suspended Account

  • The lower level buyers have ‘fear of loss’ as a motivation to avoid buying it
  • Listing suspensions are talked about early
    • what happened
    • how they fixed it
    • how they stop it happening again
  • An issue with your whole account can be more difficult to sell
  • A supplement product line was halted as a whole category by amazon for reasons completely unrelated to the seller
  • The buyer in this scenario accepted but had to reverse out this product line from the business

Contact

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