Even though each business is different, there are some factors that will make it easier or harder to sell your Amazon FBA business.
In this series of articles, we’ll cover ways to determine if you can sell your FBA business,
figure out what it’s worth, and how to make it worth more before you sell.
Deciding to sell will raise a whole new bunch of questions, such as, “Who would buy my business?", “Where do I find them?”, and “What’s the sale process like?” We’ll also cover how to overcome common hurdles in the selling process.
This series of articles explains how to prepare your business to sell by considering the perspective of the buyer. Without a buyer, your business could be listed for sale but never sell, so it’s important for us to get to know their viewpoint!
Let’s get started with Part 1...
Can I sell my FBA business?
Three things can help you determine if you can sell your business:
Type of business
Age of business
Seller Discretionary Earnings (SDE) / Earnings before Interest, Tax, Depreciation, and Amortization (EBITDA)
Each of these factors plays an equally important role when determining saleability. Let’s look at them in more detail..
1. Type of FBA Business
There are three major types of FBA businesses:
i. Resellers
Resellers compete for the buy box. You buy wholesale and make a margin selling retail on Amazon. This is sometimes referred to as retail arbitrage. Resellers range from hard-to-sell to impossible-to-sell, even if the business is making a good profit. There are a number of reasons why this style of FBA business is less attractive to a buyer:
It’s highly volatile — there is often no limit to the amount of competition.
Supply can be a problem — everything must be bought individually and on sale, and there is no guarantee that a specific item will always be available on sale.
Nothing is proprietary — a buyer is really only buying access to your Seller Central account on Amazon.
However, if you have exclusive contracts with wholesalers to sell on Amazon, this could make your business easier to sell.
ii. Private Label
You have your own brand, but other people can buy the same product elsewhere. This type of business has some leverage and can be more attractive to buyers because supply is consistent, and since the item has a history, there is a good chance it will continue to sell.
iii. Proprietary products
This is the gold standard of FBA businesses, as only your company sells this specific item. Buyers will often pay a premium, and this makes your business more defensible long-term. For example, let’s say you sell a supplement where you created the formula or made a popular product better. If it’s unique to you and your brand, then this shows buyers that your business will continue to stand out in its industry.
2. Age of Business
A buyer will want to know the history of your business earnings to estimate how long it will take to make their investment back. The longer the history, the better the proposition you may receive as the seller.
You can sell a business that is under a year old, for instance, but a buyer will want a discount for taking the risk of not knowing how a full calendar year will impact sales.
3. SDE / EBITDA (annual net profit)
You need to know your numbers before you can sell your business. A buyer will use a multiple of your annual net profit (also called EBITDA) to formulate an offer for your business. In other words, the offer for your business is directly related to your net profit.
SDE calculates the net profit, which in turn is the basis of a valuation of your business. SDE is used if revenue is $5 million to $10 million or below, EBITDA if it is higher.
SDE = Revenue − Expenses + Add-backs
Business expenses include the cost of goods, Amazon fees, employees, software, fulfillment services, and shipping services. However, you should also include any personal income. If you’re paying yourself a salary as the owner, add that back. If you’re paying company taxes, include that, since you won’t know the structure of the taxes for the buyer coming in. But be aware: Personal expenses that aren’t really business-related can’t be added back. For example, a car leased through the business, which isn’t used to run the business, isn’t a valid expense for these purposes.
Accurate, current accounting is critical. If you’re not already doing so, keep accurate, current records: It’s the easiest reason for a buyer to turn away from your business. When a buyer is looking at your profit and loss statement (P&L), they will look for trends. For example, are your products seasonal? Are sales trending up, trending down, or steady? Savvy buyers will also look at your Amazon Best Sellers Rank to get a sense of where your business is trending as a whole on Amazon.
Once you know the type of business you have, the age of your business, and your EBITDA, you can begin to determine a sale value.
In our next article in this series, we will discuss how to think about the value of your FBA business!