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Selling your Amazon Business the Right Way


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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

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