The Pitfalls of Selling your Amazon Business.

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Scott Deetz on Selling your Amazon Business

How to get a premium valuation on your company when you sell
In your own mind understanding the concept of lifetime business value
Having run your business for a 3-4 years, what % of the money that you put in your pocket is comes from the entire time that you ran teh business and how much of that comes from when you sell the business
More than 50% of the money you put in your pocket comes from when you sell the business
That’s because you are continually re-investing in the business when you’re running the business
If more than half the money comes when you sell, how many hours are you committing to the sale of the business
Usually next to no time is spent on the selling side to sell the business

In Numbers this means

I’m an Amazon seller and I’m doing £100k in revenue per month and making 20%, $20k / month
Circa $250k a year
Not taking out that full $250k, probably $5k / month giving $100k per annum
Take out $100k / year for 4 years = $400k
That $250k business on multiples would get 2-4 times earnings.
Say 3 times x $250k per year gives $750k in total valuation for sale
So you get out $400k but your sale gave you $750k – a lot more

Once you understand what a buyer values you can time your exit correctly
Big three metrics
- Profit % must be 20% min ideally 25-30%
- Growth %, this varies and 20% growth is pretty flat growth in the eyes of a buyer
- Size of earnings, higher multiple on your valuation the higher your earnings are

Plan on 6-9 months for the sale to happen
Your growth rate needs to be continually increasing throughout that time period
Once the growth rate starts to slow then the multiples go down
You want to sell on the way to the top as the buyer wants to see the future profits
Not when you’re on the top as it’s too late and future profits will not be as high
You want authentic growth too – buyers are smart
Hollow calories – using ad spend to drive a bunch of revenue but not adding anything to the bottom line

A huge issue as it’s something you can’t control and it affects selling your Amazon business
If it hasn’t happened to you:
- Think about selling when well because there can be outside factors that come in and make things not go well
- Client with $4m in revenue making $800k per year
- Valued at $3-5m depending
- Got hit with account suspension and patent issue
- This business is now down in value and will take time to build up again
When you get to a number that would be good to cash in – don’t be too optimistic and wait too long
If it’s your first time selling your business, think hard about getting that first one under your belt
It’s a big risk factor in these kind of businesses
Don’t think suspension makes your business not saleable, but needs to be explainable

If you’re doing things that are black or grey hat then a buyer is going to grade you on the business practices
Might be making more money today, but costing yourself money down the road
You might get suspended for many reasons that are explainable (unknown patent issue, competitor bad practice)
You will have dip in profitability and growth, so take the time to resolve and grow again
Get 6-12 months out from any issue to have recovered your financials
As long as you document what you did and have recovered from it then you should be okay
The pitfalls are that they don’t disclose to the buyer , when they find out they walk away
Or they try to recover too quickly

If I can save a $1, I put it in my pocket and it’s worth a $1
Your value based on your previous 12 months earnings (Seller Discretionary Earnings) basically your profit and add back owner expenses
Have $100k making, valued at 3 x Seller Discretionary Earnings valued at $300k
If I saved $10k in the year before I sell, the $10k I put in my pocket but I increased the valuation by 3-4 and that $10k turns into $40k in the sale
In the year before Scott looks at how you can make that saving to maximise the profit without sacrificing growth
This makes a big difference to your sales price when selling your Amazon business

When going to the Buyer table, you must understand the rules of the game in selling your Amazon business
Buyers are sophisticated and will use all means to beat down your price
We don’t buy based on future earnings, we only buy on historical earnings
It creates a mentality in the seller that it’s true and it’s not
Buyers only really care about future earnings as that’s the only profit they are going to get
Example is:
- Trailing earnings is $500k and doing well
- Buyer says they value at 3 x Historical earnings and value at $1.5m
- But if you’re growing rapidly, then calculate the ‘buyers effective multiple’ the amount they paid divided by the earnings that they make in the year after they sell
Unless you show them what the potential of the business is, then the buyers just say they’ll pay on the historical rather than the future earnings and growth
Understand what your future profitability is, divide your future earnings by the price your asking and bring that to the table in the negotiations