February 24, 2020
Growing a business on Amazon and using FBA for fulfilment is a great way to achieve freedom:
- Location freedom – you can run your operation from anywhere in the world.
- Time freedom – there are countless ways to reduce the workload required to manage your company through automation and building an outsourced team.
- Financial freedom – once you understand the winning formula on Amazon, the process of scaling your business is a matter of replication and multiplication.
But at some point, you may decide that it’s time to gain freedom from the business entirely and sell your brand. There are many reasons why Amazon sellers decide to cash out – new projects that require investment, a lack of interest or enjoyment, or perhaps the desire for a change of lifestyle.
When you get to this point, you’ll probably be asking the question ‘how do I sell my Amazon FBA business for the best price, with the least amount of stress?’
If this is you, then you’re in the right place. Our ultimate guide on how to sell your Amazon FBA business is designed to equip you with the tools and knowledge you’ll need to get top dollar for your company – without running into the common roadblocks that first time sellers often face.
This resource is also great for those who are just getting started, because “beginning with the end in mind forces you to focus on what matters – to build an efficient and effective machine.”
However, if you’re at the beginning of the journey, you might find our ultimate guide on how to become an Amazon FBA seller more useful.
In the chapters that follow, you’ll discover:
- The answers to some of the top frequently asked questions that people selling their FBA business ponder.
- The three main types of Amazon FBA businesses and things to keep in mind depending on which type of business you are operating.
- How to value your Amazon FBA business based on industry standards and best practises.
- Tips and tricks for increasing the value of your company and getting it ready for sale.
- Ways to sell your Amazon FBA business.
- What the sale process looks like when you work with a quality broker.
- Links to top quality resources for further learning and insight.
Frequently asked questions (FAQs)
Can you sell your Amazon business?
In short – yes, you can sell your Amazon FBA business. The answer to this question depends upon exactly what you are asking:
- Anyone can sell their business – after all, if you own a business, you can do whatever you like with the company (as long as it’s legal).
- Selling your Amazon Seller Central account is another story…
Although Amazon does state on their website that “Seller Central accounts generally are not transferable”, it is widely known that Amazon FBA businesses are bought and sold every week, and issues with transferring ownership of the Amazon logins are not very common.
“The fact is, Amazon does support transfers of accounts when selling an Amazon Business, but it is not widely advertised. Many support representatives don’t know this, but if you’re persistent, you’ll find someone who will give you the relevant instructions.”
Can you sell your Amazon Seller account?
Whilst it is against Amazon’s policy to sell your Amazon Seller account as an individual, there is nothing stopping you from selling the business entity that the seller account is registered under.
“There are large publicly listed companies selling products on Amazon that change ownership many times every day, but they don’t need to establish a new seller account every time someone buys or sells their shares. In the past few years, thousands of FBA businesses have been bought and sold, and Amazon has allowed this to happen.”
Most people simply go ahead and sell their Amazon business without seeking permission from Amazon. Although you are unlikely to run into any issues with simply changing the details on your Amazon seller account, we recommend contacting Amazon Seller Support for further clarification if you would like to make sure that you’re doing it the right way.
How do you transfer your Amazon seller account?
To transfer your Amazon seller account, you’ll need to change the following information within Seller Central:
- Charge method (credit card).
- Deposit method (bank account).
- Tax information.
- Account name.
- Associated email address.
For more information on transferring your Amazon seller account, changing your details and getting a written confirmation of approval from Amazon, check out this article.
How much is a business worth to sell?
At the end of the day, a business is only ever worth what a buyer is willing and able to pay for it. Here are a handful of commonly used methods for valuing your business:
- Balance sheet plus goodwill – this method involves calculating the net assets (assets – liabilities) of a business, and adding an extra amount that represents the value of the owner’s input or brand presence in the market.
- Present value of future cashflows – financiers often calculate the value of a business by forecasting future income, and discounting it back to today based on the risk that the company is exposed to, and the likelihood that it will achieve these forecasted profits. Click here for more information on this valuation method.
- Revenue multiple – companies are sometimes valued based on a multiple of their sales revenue. This calculation is more relevant for service based businesses that have minimal variable expenses, and fast-growing companies where there are plenty of buyers competing to acquire the company.
- Earnings or profit multiple – this is the most common method for valuing businesses. It involves working out how much the company makes each year, then multiplying it to get a figure for goodwill. This figure is then added to the net value of any assets (such as inventory and equipment) that are sold with the business.
How much do Amazon FBA businesses sell for?
Amazon FBA businesses are generally sold for a multiple of earnings (otherwise known as Seller Discretionary Earnings or SDE), plus the cost of stock, plus the cost of getting stock into FBA warehouses.
As a rule of thumb, the valuation multiple tends to be around 1-3 x earnings, depending on a wide range of factors. Some of the most common factors that influence the valuation multiple are:
- How long the company has been in business for.
- If there are any barriers to entry for competitors (e.g: approved to sell products in restricted categories).
- Diversity of the product range.
- Consistency of sales and profits.
- Credibility of financial information provided.
- Whether the company is sold through a broker.
For more information about the most common components that play a role in determining the valuation multiple, check out this article or scroll down to the chapter titled “How to value your Amazon FBA business” for a closer look at the factors that influence earnings multiples.
Types of FBA businesses and things to keep in mind when selling
When it comes to selling on Amazon through FBA, there are an almost unlimited range of ways to make money on the platform. However, most Amazon sellers can be categorized into one of three types of FBA business:
- Private labellers
- Proprietary/branded product sellers
If you buy products and resell them through Amazon, then you’re a reseller. The three most common strategies for resellers are:
- Retail arbitrage – this involves finding deals on heavily discounted products in retail shops and other online stores, then purchasing this stock for resale on Amazon at full price.
- Dropshipping – this is where you list products for sale on Amazon that are stocked by other suppliers. When you get a sale, the product is sent directly to the customer from your supplier’s warehouse.
- ‘Wholesaling’ – this is, in essence, an online version of traditional retail. It involves buying an existing product from the distributor or manufacturer in bulk, and selling individual units on Amazon at retail price.
Generally speaking, resellers find it quite difficult to sell their Amazon businesses. This is because they aren’t usually creating any long term value, don’t have protection over the branding or intellectual property, and there’s nothing stopping other retailers from competing directly with them on the same product listings.
One notable exception to this rule is exclusive resellers. These companies work with brands that wish to sell on Amazon, but don’t have the capabilities or interest in looking after it themselves.
A great example of an exclusive reseller that would have sale potential is Export X. They connect local brands in New Zealand to Amazon by harnessing the power of technology and becoming an extension of the suppliers businesses.
“Operating a private label Amazon business involves taking existing products and adding your own brand to them. Lots of manufacturers offer “white label” products whereby you can re-brand their product to your own requirements.”
Back in the not-too-distant past, shoppers were much more loyal to the brands they consumed. Although this loyalty still holds true for some product categories (such as shoes and electronics), there are a wide range of products where people care less about the logo attached to the product and more about what they receive (great service and a quality product).
This shift in consumer preferences has created a large opportunity for Amazon FBA sellers to establish brands around gaps in the market, while maintaining the ability to be nimble and adaptable to changing market conditions.
Private labellers are able to differentiate themselves from the competition and retain ownership over their brands, without investing heavily into R&D during the product development phase.
Here are a few other benefits of being a private labeller:
- Developing a brand and registering for protection of your intellectual property creates a barrier to entry that makes it harder for resellers to compete with you. This somewhat shifts the focus away from competing on price.
- It’s relatively easy to create a diversified range of products through your brand. By offering a wider range of products, you are able to spread the risk across multiple product categories.
- Each successful product that you bring to market multiplies your income.
- You have the benefit of operating in a ‘branding sweet spot’ – it’s easier to enter new product categories than if you are developing from scratch, and you are able to create more lasting value than a reseller can.
- The process of entering new markets is relatively straightforward once you have a successful product range in one market.
However, there are downsides to being a private labeller. For starters, it is more cash and time intensive than reselling existing products. And while it is easy for you to enter new product categories and move quickly to jump on opportunities, it is also easy for your competitors to do the same thing.
When you find an unmet need that is suitable for private labelling, remember that it is often only a matter of time before others pick up on the opportunity and enter the market too.
Most private labellers focus solely on Amazon. Whilst the platform presents an enormous opportunity to reach customers and develop your brand (after all, Amazon is the world’s largest online marketplace), only relying on one stream of income is a risky way of doing business.
Therefore, if you are planning to sell your private label FBA business in the near future, it might be worth cultivating a presence outside of Amazon. This creates more opportunities for buyers to grow the income streams after acquiring your business, and can potentially result in a higher sale value.
When it comes to developing your own brand, this is one step on from creating a private label. Proprietary products typically involve much more development and are unique in the market (compared to simply adding your label to an existing and proven product).
This type of business is generally slower to react to changes in the market, and incurs much larger development expenses. However, branded and unique products have much more growth potential. After all, when you have something unique, it is possible to create much more lasting value.
For sellers of proprietary products, Amazon is just one of many potential sales channels. Whilst FBA is a great way to reach new customers, innovators with unique products and branded manufacturers have many more tools for growth at their disposal.
Companies that grow their brand around a range of unique and innovative products tend to sell in a much wider range of outlets – marketplaces (such as Amazon and eBay), eCommerce through their own website, wholesale (through traditional retail outlets and distributors) and more.
For this type of business, the focus should be less on the particular sales channel (i.e: Amazon) and more on the end user that is being served.
As you can probably imagine, proprietary brands tend to earn the highest valuation multiples. This is especially the case if they are an established brand with widespread recognition in the market.
Get clear on where you sit in the market
Before preparing your Amazon FBA business for sale, it’s important to clearly understand what type of business you are operating, and what makes it unique. This way, you can double down on improving the things that buyers actually care about and remove any potential roadblocks in advance of listing your business for sale.
Put yourself in the buyer’s shoes and ask why they would pay good money for your company instead of creating their own competing business from scratch. What makes your company or brand unique?
While every Amazon business is somewhat different, here are a few pointers on the key things that buyers tend to care about, depending on the type of FBA account you are operating:
- Resellers – exclusive or favourable access to top selling products, consistency of winning the buy box, seller account health and the tech stack you are using to automate away the workload.
- Private labellers – sales and profit figures, high organic search rankings for target keywords, stability of supply lines, future potential for product developments and entry into untapped markets.
- Proprietary brands – the uniqueness of your brand and value of your innovations, diversity of income streams, patents and intellectual property ownership, future growth potential, and regulatory requirements that surround your products.
More resources for further reading
- Amazon FBA business plan template.
- The ultimate guide on how to become an Amazon FBA seller.
- The Amazon FBA secret recipe for success in 2019.
- What is Amazon wholesaling and how it’s different from other ways to sell on Amazon.
- Jungle Scout – this company offers an extraordinary suite of tools for finding product opportunities, analyzing your business and much more. They also have a very useful blog for learning about how to succeed as a private labeller on Amazon.
How to value your Amazon FBA business
Amazon FBA business are typically valued as a multiple of gross earnings before tax, plus the cost of stock (including the delivery cost for getting it into FBA warehouses).
Any expenses that may not be necessary under new ownership are not factored into the gross earnings calculation. For example, FBA storage fees are recorded as a deductible expense in valuing the business, but interest on overdrafts or the cost of trademarks isn’t covered.
“A common industry term that refers to this earnings calculation is “Seller Discretionary Earnings” (SDE). Generally, valuation multiples are calculated based on annual SDE.”
Seller discretionary earnings can be calculated as follows:
Seller discretionary earnings = revenue earned – selling fees – cost of goods sold – any critical expenses required to keep the business running.
One way of determining whether an expense should be factored into the SDE calculation is to ask yourself ‘could a potential buyer continue running the business without this cost?’
Valuing your Amazon FBA business using existing financial statements
At a glance, it may seem like there is a bit of work involved in calculating SDE. However, there is a simple way of doing it. Rather than sorting through detailed financial statements to locate every critical expense, it is common to use what is known as ‘addbacks’ to easily reach a figure for gross earnings.
“Add-backs are generally any expenses that do not carry forward to a new owner in the process of the sale.”
When you work with a broker to sell your Amazon business, they will develop an ‘addback schedule’ to give buyers a clearer picture of what the owner’s actual earnings represent (SDE).
Here are some examples of expenses that are included in the addback schedule:
- Owner’s salary.
- Entertainment, food and travel that isn’t directly related to looking after clients.
- Mobile phone expenses.
- Subscriptions that you don’t use any more.
- Vehicles and car maintenance costs.
- Rent on buildings.
- Patent and trademark application fees.
- Other one off expenses.
When we use an addback schedule, the SDE calculation is simplified as follows:
Seller discretionary earnings = net profit before tax + addbacks.
For more information about using addbacks to simplify the process of calculating your business value, check out this article.
But why do we value businesses using a multiple of seller discretionary earnings?
“When preparing accounts for tax and bookkeeping purposes, it is in your best interests to record any justifiable expense that reduces profit, as this results in less tax being paid. However, for the purpose of providing a valuation, the opposite of this rule applies.”
Buyers of Amazon FBA businesses come from all walks of life and have different resources at their disposal – depending on how their business and finances are structured. While it might make sense for you to register your vehicle in the company name, or take a salary for your efforts, a new buyer might not necessarily need to incur these expenses.
By using SDE, we can ensure that buyers are comparing ‘apples with apples’, when looking at different options for companies to acquire.
So how do you value an Amazon FBA business?
Now that we have a clear understanding of what makes up SDE, we can take a closer look at how to value an Amazon FBA business. Use the following calculation to get an idea of what your company is worth:
(Seller discretionary earnings x valuation multiple) + inventory at cost price + cost of getting stock into Amazon warehouses
How do we calculate the valuation multiple?
As mentioned previously, the valuation multiple for most Amazon FBA businesses tends to be around 1-3. This means that your business should sell for around one to three times the seller discretionary earnings figure.
To determine a fair valuation multiple, it’s best to compare your business to other similar operations for sale and see how you stack up. Although this gives you a rough indication of what you can expect to sell the business for, it’s important to enter negotiations with an open mind.
If you have a truly unique business, buyers may be willing to pay much more to acquire your brands. The amount that buyers are willing to pay can vary significantly depending on the buyer’s circumstances and if your company fits what they are looking for.
The following graphic provides a comprehensive list of factors that can influence your valuation multiple. For more information about these factors and the roles they play in valuing your business, check out this guide.
Negotiating during the sale process
Before a business is purchased or sold, there is almost always a level of negotiation between the buyer and the seller. If you have a reliable set of financials, most of the negotiations will be focused around agreeing on a fair valuation multiple.
By preparing your business for sale well in advance and allowing a reasonable amount of time (we generally recommend 6-12 months) to tie up any loose ends, you can shift the negotiating landscape into your favour.
Not only does this help you to earn a larger payout, but it also makes your business more attractive to potential buyers – which often results in a quicker sale.
If you’re getting ready to exit the FBA game, we may be able to help – contact us today to chat with our friendly team of expert brokers and accountants.
Increasing the value of your company and getting it ready for sale
One of the benefits of being in business is that you can add value in an extremely wide range of ways. Unlike traditional investments such as stocks and bonds, business owners have many tools at their disposal to create income and reduce risk.
Every business involves a certain level of risk that cannot be avoided, but it’s important to remember that buyers like to minimize risk wherever possible. With this in mind, the best way to increase the valuation multiple of your Amazon FBA business is to reduce the perceived risk for buyers wherever possible.
Here are our top tips for increasing the value of your Amazon FBA business:
If you sell seasonal products that boom during a particular time of the year, look for ways to earn a more consistent and predictable stream of income.
For example, if you sell swimming trunks in the United States, it might be worth listing your products for sale in Southern Hemisphere markets such as Australia. This way, your business has the opportunity to sell the same stock in another market during the off-season in America.
Or alternatively, if your FBA business specializes in halloween costumes that are very popular during October, you might expand into party equipment and costumes that enjoy a steady stream of sales throughout the year.
Products that generate income regardless of the season or market conditions are known as ‘evergreen products’. Many sellers choose to focus on this type of product, as it can provide a certain degree of predictability around future sales.
Represent enough (but not too many) products
There is a sweet spot between selling too many different items, and having a small range of products on offer.
If you have a very small selection of products for sale, you are vulnerable to changes in market conditions and competitor activity. If Amazon or another large competitor decides to sell the same products as you, then it’s likely that your business will suffer as a result.
On the other hand, if you represent hundreds of different items, but only have enough resources to manage (and hold sufficient stock of) a small proportion of those products, then it’s likely that your seller performance will suffer and it will be harder to find buyers as a result.
Whilst there are no set rules or guidelines surrounding how many products you should offer, it’s worth taking a critical look at the items you sell and determining whether you need to expand the range or if some products can be removed.
Get rid of products that aren’t selling
Pareto’s Law (80/20 principle) tells us that 80% (or more) of sales are often generated from 20% (or less) of the products that are for sale.
Rather than holding stock that is taking up costly storage space and gathering dust in FBA warehouses, why not free up your working capital and invest your resources into the best performing products or new opportunities?
Increase your margins
Generating more sales is one way of increasing the value of your Amazon FBA business. Another way to get top dollar when you sell is to find simple ways to increase your profit margin.
Some of the most common ways that sellers increase their margins on top-selling products include:
- Placing larger orders with suppliers or committing to future stock in advance.
- Using more efficient shipping methods such as sea freight instead of air freight.
- Finding more cost effective ways of financing growth.
- Splitting FBA stock up, and holding a proportion of the inventory in a local warehouse that charges lower storage fees. This way, you can replenish the stock in FBA as orders come through – without needing to pay top dollar for everything you store.
- Outsourcing parts of your business such as accounting to fixed price subscription services to gain certainty over your costs in advance.
Move up the value chain
If you are planning to sell your Amazon FBA business well in advance (i.e: in 12+ months time), you may want to consider whether it’s worth adding more value by changing the type of products you sell.
For example, if you have gained a depth of knowledge about the products you offer as a reseller, why not make your own private label range and use these items to create lasting value that increases the worth of your company?
Diversify your income streams
Amazon is the world’s largest online retailer, and represents approximately half of all online retail sales in the United States.
There is a significant amount of opportunity to sell on Amazon. However, it’s not the only place that people like to shop, and businesses that only sell on Amazon can be vulnerable to changes that are out of their control.
If you already have an established brand and product range on Amazon, why not offer your goods on other marketplaces such as eBay, or create a website to sell directly to the public?
For private labellers and brands that sell proprietary products, the expansion from Amazon into other retail channels, and wholesale distribution is relatively straightforward.
Reduce the workload
Individuals and companies acquire Amazon FBA businesses to establish an income stream and enjoy a return on investment. They don’t buy a business for the purpose of inheriting a full time job.
With this in mind, it naturally follows that businesses which require less input to run are more attractive to potential buyers.
Improve customer service and quality control
Amazon merchants live or die by their seller metrics. Issues such as faulty products, poor customer service and slow delivery times translate into unhappy customers and bad seller metrics.
Amazon’s algorithm is designed to reward the best sellers with more sales (through winning the buy box) and punish low quality merchants by removing seller privileges and making it harder for them to succeed.
So what can you do to ensure great seller metrics? For the most part, it’s simply a matter of treating your customers so well that they leave great feedback. Here are a few tips to ensure that your shoppers are properly looked after:
- Implement quality control measures in the supply chain by using a prep warehouse or third-party inspection service to ensure that any products sent to FBA are first grade and free from defects.
- Use customer relationship management tools such as Feedback Genius to solicit testimonials and reviews from happy customers.
- Rather than ordering stock when you run out, use Forecastly to plan inventory replenishment in advance so that you never need to stop selling.
For more information about winning the buy box and maintaining great seller metrics, check out this guide.
Develop an operations manual
If you’re going to be doing a task more than once, why not create a standard operating procedure and put measures in place to ensure that it is done right every time?
By documenting your processes, buyers of the business can feel comfortable knowing that they can take over with minimal disruption. Operating manuals also make it easier to train up staff and reduce your workload as the enterprise grows.
Maintain a reliable set of accounts
Bookkeeping may not be the most entertaining activity for energetic entrepreneurs, but maintaining accurate records is more important than it may seem. After all, how can a buyer understand your business if they can’t trust that the accounts reflect what’s happening in the business?
By keeping a reliable set of accounts, you are able to gain a much clearer picture of where your business is at, and what needs to be done to improve.
Here are three ways to ensure that your accounting is kept under control:
- Use MuseMinded to look after your everyday bookkeeping and tax returns. We can look after most or all of your accounting needs for an affordable fixed monthly price.
- A2X is a revenue recognition app that connects Seller Central with your Xero or QuickBooks Online cloud accounting software. In doing so, A2X automatically pulls the transaction and settlement data from Seller Central, organizes the information and posts it as invoices or journal entries in your set of accounts. This reduces the amount of time spent on accounting and ensures that your books are always accurate. A2X can also be used with Shopify stores.
- TaxJar makes it easy to stay on top of your sales tax obligations. By automating the calculation and filing of sales tax returns, TaxJar helps to ensure that you are compliant with the complex rules that each state sets.
Register your brand with Amazon’s brand registry
The Amazon Brand Registry is a service that helps sellers to protect their intellectual property and create a trusted experience for shoppers.
If you have a brand, then this registry is vital to ensuring that your name is protected from copycats and unscrupulous sellers that may decide to counterfeit your products.
Get clear about who you are selling to
There are many reasons why someone might want to buy your Amazon FBA business. For one group of buyers, stable income might be the driving motivation, while others may care more about earning a healthy return on investment or securing the rights to valuable trademarks.
By clearly understanding the type of person or company that will take over your operation and what they value the most, you can prepare the business is a way that maximizes the price you get.
Leave something in it for the next person
We all love finding great deals, and this is especially true when it comes to acquiring a company. Buyers often try to get deals by negotiating the price down. Rather than dropping your price to get the sale across the line, there is another way…
By offering ‘freebies’ and complimentary extras, buyers will often feel like they are getting more than what they bargained for – shifting the negotiations into your favour. Here are some examples of things that can increase the value the buyer receives:
- New products that are fully prototyped, supply chains established, regulatory requirements met and all ready to launch.
- Preparations and strategies to enter new markets that buyers can action immediately after acquisition.
- Access to actionable market data that buyers can use to increase sales (for example, keyword optimization tips).
It’s easier to secure your income by helping other people to make money, than it is to focus on making the profits yourself. By leaving something in it for the next person, it’s much easier to demonstrate the value on the table and entice buyers to act with a sense of urgency.
“On the other hand, if you struggle to sell the business, you can always take action on these preparations and enjoy the gains yourself.”
More resources for further reading
- A quick guide to start outsourcing your Amazon FBA business.
- How to reinvent your Amazon seller business to stay competitive.
- Inventory financing options for Amazon and marketplace sellers.
- How to increase the value of your Amazon FBA business.
- 55 essential selling on Amazon tips to grow sales and win market share.
- 47+ proven tips to increase your Amazon sales.
Ways to sell your Amazon FBA business
The four most common ways that people find buyers for their Amazon FBA businesses are:
- Doing it yourself.
- Listing on a marketplace.
- Hosting an auction.
- Working with a broker.
To decide which method is going to work best for you, start by asking whether you want to manage the process or work with an expert. The answer to this question will depend on the value of your business, how much effort you can dedicate to selling the business, how quickly you need to exit or receive your money, and the amount of experience you have with selling companies.
In the following sections, we take a closer look at the key things you need to know when selling through each method.
Doing it yourself
This involves managing the entire sale process from start to finish. Rather than tapping into the connections of a broker, the eyeballs that marketplaces attract, or the reach that auctions gather, the DIY method takes time and effort.
If you have people approaching you wanting to buy the business – or if you’re experienced in the art of selling companies, then you may decide to look after the sale yourself.
Benefits of doing it yourself:
- You get to keep the entire sale value – no middlemen and no brokerage fees necessary.
- You can be more selective about who has the opportunity of acquiring your company.
- You have complete control over how the opportunity is presented to potential buyers.
Downsides of doing it yourself:
- It often takes longer to reach an agreement compared to other methods of selling.
- Although you get to keep all of the sale proceeds, you might be selling for less than market rate. A broker can help ensure that you get the right price, as they are connected to the market and know what similar businesses are selling for.
- If you haven’t sold a business before, there are lots of potential hurdles and pitfalls to look out for.
- Doing it yourself involves effort that could be spent growing the business further – or doing other things that excite you.
Tips for success:
- Before approaching potential buyers, make sure that you have a good lawyer who is experienced with business sales.
- Get potential buyers to sign a non-disclosure agreement before showing them sensitive information, and be careful about revealing the secrets of your business to competitors.
- Plan the sale well in advance to allow time for tidying up your financials, liquidating any slow-moving stock, and taking the necessary actions to ensure that your business looks great to potential buyers.
- Write up a detailed prospectus to make it easier for buyers to understand the opportunity at hand.
Listing on a marketplace
Just like Amazon, business marketplaces attract attention from a diverse range of people. This gives sellers the opportunity to reach a wide variety of buyers with a single listing.
“If you are experienced at buying and selling businesses, and have the time to run a listing, it can be a viable way to sell a business without incurring the fees of a broker. However, if you are a very busy person, or inexperienced at selling businesses, this might not be the best avenue to pursue.”
Benefits of listing on a marketplace:
- Buyers have the ability to use filters to search for good opportunities that are exactly what they want. If you are specific about the core value drivers of your business, it is easy for suitable buyers to find you.
- They attract much more viewers and potential leads than private sales – giving you more opportunities to find the right buyer.
Downsides of listing on a marketplace:
- They tend to be crowded places where lots of businesses are competing for the buyer’s attention – so it’s easy to get lost in the noise if you don’t have something truly unique.
- Just like the DIY method, you still need to manage the entire process. Marketplaces are more of a way to generate interest in your business, rather than a managed solution.
- Most marketplaces charge a listing fee which must be paid even if your business doesn’t sell.
Tips when selling via marketplaces:
- When people contact you, make sure to ask enough questions so that you know who you’re dealing with and find out if they are serious before signing NDAs and handing over sensitive information. In other words, avoid tyre kickers.
- If you have a virtual assistant, it might be helpful to get their support to manage the enquiries.
- To make sure that the handover is done safely both you and the buyer, use an escrow service to secure payment of the funds during the transition period.
Hosting an auction
Auction websites are great for getting quick sales on lower value businesses. The auctions tend to last for 1-4 weeks, which creates a sense of urgency for buyers to act now.
If you are looking to sell a small and relatively new FBA business or need the cash quickly, selling via an auction might be a suitable option for you.
Benefits of selling via an auction:
- Fixed timeframe auctions can create a sense of competition between buyers.
- By having a set end date, you can have a much better idea of when the sale will be completed.
- For low value FBA businesses, it is often hard to find brokers that will take on the deal. In these circumstances, auctions are a great way to find a buyer.
Downsides of selling via an auction:
- FBA businesses sold in auctions tend to generate a lower valuation multiple than other methods of selling.
- Fixed timeframes are great if there is lots of interest in your business. However, this can work against you if there aren’t many buyers that want what you’re offering.
- Cheaper auctions often attract inexperienced buyers that will require more training to take over and run the business.
- High fees – it is typical for auction platforms to charge a listing fee plus a 10-15% success fee.
- You still need to manage the process from start to finish.
Tips when selling via an auction:
- Before listing your business for sale, decide on the price you are looking for and structure the marketing materials to demonstrate that the business is worth much more than this.
- To reduce the amount of administration work involved with handling inquiries, create a detailed prospectus that answers the most common questions buyers may have.
- Set a limit on the amount of training and handover support included in the sale. For example, you might say that 40 hours of training and support will be made available within the first 90 days of the sale, but anything further than that will be charged for.
Working with a broker
Business brokers provide the knowledge, connections and experience required to sell your Amazon FBA business for top dollar. Although they do earn a healthy commission when the business sells, companies that work with a broker tend to command a higher price tag over those that are sold by the owner.
Navigating the sale of a business can be tricky at times, and taking the wrong actions or not being properly prepared can result in all sorts of issues. Through working with a broker, you can expect to be guided through the sale process and have a skilled expert on hand to answer any questions that you may have.
“Good brokers will help you to develop a prospectus, create marketing materials and promote it within their networks, help with due diligence, draft a sales agreement, and facilitate the financial exchange through an escrow service. This makes your job as the business owner a breeze.”
Benefits of working with a broker:
- They generally have access to a large database of potential buyers that are ready to jump on the right opportunity. This often results in businesses being sold quickly.
- If the process of selling your FBA business seems daunting, brokers are there to help – after all, this is their day job.
- It takes much less work to facilitate the sale of a business through a broker compared to managing the entire process yourself.
- Good brokers will generally secure you a larger payout than if you were to look after the sale yourself.
- Buyers can be quite blunt in their remarks and comments about your business. Rather than needing to personally deal with criticisms about the enterprise you have cultivated, a broker will act as a neutral party to ensure that you aren’t met by difficult customers.
- Brokers can help to reduce your legal costs by providing quality templates of legal agreements.
- If you’re not ready to sell yet, a good broker can help by advising you on what needs to be done to get your business ready for sale.
Downsides of working with a broker:
- They charge a commission (generally 10-15% of the sale value), and sometimes a retainer or other service fees in addition to their cut.
- You can’t simply trust any broker. In fact, there are plenty of unscrupulous brokers out there. This guide describes some of the things to look out for when selecting a broker to ensure that you get the best.
- Brokers will often expect you to sign exclusivity agreements to give them a fair chance at selling your business. While this is a fair and reasonable measure on their part, if the broker doesn’t perform, you may be left in an awkward position.
Tips when working with a broker:
- Before engaging the services of a broker, make sure that they are competent, genuine and committed to serving your interests.
- It can be helpful to ask if they have a buyer qualification process to ensure that they aren’t handing your sensitive information out to the wrong people.
- Ask your broker for references from happy customers, and don’t be afraid to call them to find out more.
- Check that your broker has public liability insurance to protect against potential lawsuits if things go wrong.
The sale process through a broker – what it looks like
Here’s a brief overview of how to sell your Amazon FBA business through a broker. For a more detailed look at the process, check out this blog post and this guide by A2X.
1. Decide to sell
The first step towards cashing out is making the decision to sell your business. There are many reasons why entrepreneurs sell their businesses, but once you’ve made the decision to sell, it’s time to prepare your company for listing.
If your business has clean financials, unique products, a scalable market strategy and holds a valuable place in the market, you might be able to list it for sale straight away. However, most Amazon FBA sellers need to make changes and preparations before a broker can find customers that are willing to pay top dollar.
The best thing you can do at this stage is to have a chat with your broker or contact us to determine whether you’re ready to sell – and if not, the next steps to take from here.
2. Get valuation
Your broker will be able to give you a rough estimate of the enterprise value, and what needs to be done to ensure that buyers are willing to pay this price. As we mentioned earlier, the enterprise value is a multiple of seller discretionary earnings (SDE) plus the inventory.
When your broker estimates the value range of your company, they are essentially giving you an idea of the valuation multiple you can expect to receive.
Once you’re ready to list the business for sale, you will need to sign an engagement letter that grants the broker exclusive rights to sell your business for a fixed period of time.
“Some brokers try to win your business by offering non-exclusive agreements, but this often turns sour, with multiple brokers fighting over who gets the commission.”
3. Develop a prospectus
The prospectus or marketing package is used by brokers to share the key information with potential buyers in a way that appeals to what they are looking for. To create these materials, you will need to provide detailed information about the business.
Expect to share information about some or all of the following:
- History of the business.
- Any issues that have arisen in the past and how you have dealt with them.
- Details about the niche you are selling in, and what makes it appealing to buyers.
- Trends and future growth opportunities that are aware of.
- The supply chain that feeds your business.
- How your tech stack is setup to automate away the workload (if applicable).
- Details around any staff or contractors that support your activities.
- Any other relevant information that buyers would want to know.
Potential buyers will be required to sign non-disclosure agreements before they are granted access to the prospectus – to ensure that your sensitive information is kept confidential.
4. Search for buyers
Now that you have a compelling set of marketing documents on hand, you can get back to running the company while your broker hunts for suitable buyers.
5. Negotiate the deal
There are five steps to reaching an agreement once your broker finds a suitable selection of potential buyers:
- Buyers sign the NDA and review the prospectus.
- Once they are ready to proceed, your broker will set up a conference call to introduce you with the potential new owner. This is to ensure that both parties feel comfortable doing business with each other.
- The next step is signing a letter of intent (LOI). This is a non-binding document that represents a simple written commitment detailing the intention for the buyer to purchase your business, and the details surrounding the transaction.
- The buyer conducts due diligence to verify that all information provided is reliable and correct, and that there are no roadblocks or deal breakers that might get in the way of purchasing the company. Buyers will generally provide a due diligence request list that details the information they require.
- Once the due diligence is complete and any further negotiations have reached an end, the buyer and seller will enter into an asset purchase agreement to transfer ownership of the business.
6. Complete the transaction
When both parties have signed the asset purchase agreement, the buyer generally pays the funds into an escrow. It is held here until the transaction is complete.
Escrow services involve a third party (such as a lawyer or dedicated service like escrow.com) looking after the money until the buyer feels confident that they have received what they paid for.
As the seller, it is now your job to transfer the assets of the company to the buyer. Unlike traditional retail shops, most of the tasks involved with handing over ownership can be done online.
Here is a list of the most common things that need to be passed on over when selling an FBA business:
- Access to Seller Central – providing login information and changing the registered name, tax numbers, credit cards and bank account details. When the Seller Central details are changed, the buyer will have control over any stock stored in FBA under that account.
- Any branded email addresses.
- Domain names and eCommerce stores (if applicable).
- Social media accounts.
- Trademarks, patents and registered intellectual property.
- Staff and contractors – introducing them to the new owner and making any changes to contracts as required.
- Introductions with suppliers and other intermediaries such as prep warehouses.
- Details of any other logins, subscriptions or services that are included in the business sale.
7. Run new owner through the systems
When the ownership of a business changes hands, the seller will generally provide training to help the buyer get into the swing of things.
Established Amazon FBA businesses are quite easy to manage, so it doesn’t normally take long to facilitate the handover. That being said, it is common for sellers to offer up to 40 hours of training within the 90 days of the transaction being completed.
Sometimes, the buyer and seller will meet in person to discuss the handover. However, that is not very common unless they are located in close proximity to each other. For most purposes, communication over the phone, emails and video calls is suitable.
We recommend that you keep a record of the time spent training the new owner up, in order to avoid potential disputes in the future.
Get the most for your business with our team of brokers and accountants
Here at MuseMinded, we have been looking after Amazon sellers since 2014 by providing outsourced bookkeeping services. During this time, we’ve become experts at what it takes to succeed on Amazon.
In short, we are passionate about helping Amazon sellers to make more profit.
Recently, we decided to take it one step further and provide brokerage services alongside our accounting division. Now, we are able to not only help you make more profit, but also turn that into capital value by selling your company for what it’s worth.
Click here to get in touch if you would like to have a chat about how our brokerage or bookkeeping services.