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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
Contact
- TheFBAbroker.com
- TheFBABusinessPriceGuide.com – signup for the marketwatch email