Amazon FBA business is one of the most popular and interesting ways to generate income online. Fulfillment by Amazon enables sellers to leverage the company’s distribution network and clients for significant financial rewards.
A well-established Amazon FBA business has become an attractive investment opportunity for business buyers. This article will take you through how to make your FBA business more salable, sell your FBA business, and the various financing options available.
How to Make Your FBA Business More Salable
An FBA business can be valuable but can also be unappealing to buyers. For instance, the business may have unrivaled prices and excellent sales but require 90 hours every week to handle suppliers in China—buyers don’t like purchasing such businesses.
You should make your business more attractive to buyers to make it salable. The tips below will help you improve your business’s attractiveness.
Prepare a detailed copy of your business financials. You’ll be at a good place if you’ve been using accounting applications like QuickBook, but if not, ensure you update your accounts before getting into the sale process.
Most buyers don’t have the time to go through several months of tax returns and financial records to put together the business financial picture. You can hire an M&A advisor to help you market your business to prospective buyers.
Ensure you have all the business analytics at hand. This includes the brand website’s traffic, email, and ad campaign.
2. Operation Procedures
Acquiring a business is taking over the tasks and responsibilities. Selling your business becomes more manageable if you’ve properly documented your monthly/weekly/daily operation procedures. This will reduce the transition time, and there’ll be less work in the first couple of weeks post-sale.
Most buyers usually pay a premium for properly documented businesses, so ensure you document standard operating procedures.
3. Leave Some Powder in the Keg
This can be an immediate future upside that sweetens the deal and attracts more buyers. For instance, if you recently negotiated 3 to 4 products and put down the sales copy for the listing, you can hold off and gift them to the buyers.
By doing this, you’ll receive a value uplift for your entire business that may be more than the extra sales you could have made from releasing the goods in the short term.
You can also use this as an extra marketing tool to sell your business if you’ve assessed a new market, found new suppliers, and organized marketing strategies.
Amazon FBA Businesses Buyers
The size of an Amazon FBA business determines the buyers. For instance, businesses with a value below $1 million attract buyers who are individual operators planning to enter the space or individuals with e-commerce businesses who want to expand their reach—the product types and quantity sold.
Aggregators buy larger FBA businesses. Aggregators are consumer goods firms that only buy existing Amazon FBA businesses and capitalize on low-selling multiples.
They purchase third-party businesses to build business portfolios and expand them exponentially. Aggregators look for businesses operating with steady growth for some years, verifiable and solid financials, and seasonality (the ability of a product to outlive low and high business peaks).
How to Sell an Amazon FBA Business
There are four main options for selling an Amazon FBA business:
- M&A advisor – Bring in a professional broker to handle the sale on your behalf.
- Auction – Sell your FBA business via an auction platform.
- Direct – Approach prospective buyers and sell the business on your own.
- Marketplace – List your business for sale on classified business-for-sale networks like BizQuest and BizBuySell.
The pros and cons of these four approaches are discussed below:
Selling a business on a marketplace entails putting together details on your FBA business and posting a listing to attract buyers who search through the marketplace.
- Many visitors will see large distribution – Your ad if you list it on an extensive, creditable business-for-sale network.
- Inexpensive – A listing fee with extra features is just a few hundred dollars.
- Low demand – Since marketplaces serve several daily listings, sticking out from the crowd. Most buyers search for listings with brokers because they know they are probably pre-vetted.
- Long Process – Selling in an online marketplace is long and demanding. You have to vet qualified buyers, send out non-disclosure agreements, negotiate offers, respond to inquiries about your business, run due diligence, prepare a sale contract and facilitate the transfer of assets/funds. You can easily get stuck if you have little or no experience.
Marketplace listing is ideal for business owners who are experienced in selling businesses and are willing to dedicate their time to the entire process. A marketplace sale usually takes six to nine months.
An auction platform functions similarly to a marketplace since you have to prepare your business details and see the process through. The main difference is that auction platforms have a fixed period for your business to sell, creating competitive tension among buyers.
This platform is ideal for businesses with a value under $5,000 and is mainly used for domain sales.
- Set timeframe – There’s certainty over the period to find a buyer—you can list your business for 28, 14, or 7 days.
- Large distribution – Several visitors will see your ad if you list it on a large platform.
- Fees – Auction platforms have a fixed listing fee and a 10% success fee upon closing. This makes them more costly than marketplaces.
- Buyer qualification – Most of the purchasers on auction platforms are inexperienced business buyers, and a good number of them are looking to make their first purchase. Consequently, most of them search for small business sales of less than $5,000. Their lack of experience in the sales process can pose challenges during due diligence and closing.
- Process – Running the entire process may take too much time and effort.
- Value – Most buyers on these platforms are searching for inexpensive business sales, and the typical sales multiple is 0.5x to 1.5x, which is significantly lower than what most sellers want to get from their businesses.
Auction platforms are ideal for people urgently looking to sell small businesses for a low-cost valuation.
3. M&A Advisory Firm
This is the best option for selling a large FBA business with a $1 to 100 million valuation range. Hiring an M&A advisory firm is a viable option for inexperienced sellers who want to maximize the sale value.
The advisor will handle the whole process—designing marketing materials, reaching out to buyers, negotiating terms and offers, organizing due diligence, drafting the sale contract, and handling the transfer of funds/assets via Escrow. Additionally, they’ll advise you on the best deal terms and your valuation for your economic benefit and legal protection.
- Process – An M&A advisor takes care of the entire process once you provide sufficient details for the marketing materials. The advisor will handle everything from offer negotiations to coordinating due diligence and drafting contracts. This frees up your schedule and allows you to focus on other important tasks.
- Large distribution – Listing with an established, creditable M&A advisor will give you access to their network of experienced and qualified business buyers. Your business will be presented to a large, targeted investor audience that can close the deal in record time.
- Maximum value – Seasoned M&A advisors know how to value businesses based on previous transactions and market insight. The advisor will negotiate the best offer with favorable terms.
- Fees – An advisor can charge 15% of the business sale value upon closing. If you employ a good advisor, in most cases, the net proceeds to the business seller (sale value minus broker fees) are higher than the proceeds from a direct sale, auction, or marketplace.
- Upfront requirements – You must prepare your business details before hiring an M&A advisor. Their clients are highly organized, motivated, and willing to close the right deals promptly as long as you provide quality documentation.
A brokered sale takes between four to eight weeks depending on the business size; the larger the business, the longer the sale time. An M&A advisor will take you through how to sell an Amazon FBA business and ensure you secure a good deal. Therefore, this is the best route to take when looking to sell any business.
You can directly approach prospective buyers through a cold call or email and convince them to purchase your FBA business. The most effective way is to approach other business owners in a complementary or similar niche.
- No fees – It will cost you less than the other alternatives if you find a buyer and close the deal independently. You’ll only incur legal advice fees.
- Process – Identical to auction and marketplace, you’ll be in charge of the entire process.
- Finding a buyer – You have to research extensively and approach several buyers to find a suitable one, and you may end up disclosing sensitive details to competitors. Since the cold approach has a minimal success rate, most brokers don’t use this method when selling businesses.
The direct method works if you don’t mind trying with a minimal success rate or if you’ve been approached by a buyer (although you still have to hire an M&A advisor to run a valuation maximization process). Direct sales take three to twenty-four months, depending on whether you’re starting from scratch or you’ve had an inbound interest.
The desirable exit outcome for most Amazon FBA business sellers would be a one-time all-cash payment. However, most buyers are not able or willing to consider this option. They usually seek to close the best deal according to their available risk profile and funds.
Creative financing methods are used to align the seller and buyer expectations. Below are the four common financing methods employed in e-commerce business acquisitions.
1. Seller Financing
Seller financing lets buyers fill the gap between their available funds and the business purchase price by using the business cash flow to settle the outstanding balance over a fixed timeline post-closing. This is among the most used financing methods in e-commerce acquisitions.
Buyers can assess the seller’s confidence in the business growth using this financing option. If a seller readily agrees to this payment mode, the buyer is assured that the seller is confident that the business won’t decline.
This financing method is popular in e-commerce acquisitions since it does away with the red tape of buyers borrowing money from lenders and banks. Nevertheless, it’s important to note that seller financing has risks for both parties.
Purchasers should be realistic about upcoming cash flow. Missed payments may be costly, and as per the contract, they can even lead to the seller reclaiming the business without paying any cash consideration received thus far. Sellers usually hold on to some collateral in the online business until the purchaser clears the balance.
Cash forms the most significant part of the total considerations in e-commerce business acquisitions.
Some buyers limit their search to businesses with liquid assets like funds in bank accounts. This may restrict their ability to propose an offer on an online business. Most purchasers resort to more creative and unorthodox ways of raising funds.
- Amazon FBA aggregator.
- Collateral or asset-based lending.
- Peer-to-peer (P2P) lending platforms such as Lending Tree and Prosper.
- Canceling a Roth Contribution.
- Withdrawing retirement funds.
- Small Business Administration (SBA) loans.
- Enlisting a partner with cash or experience.
- Taking regular IRA payouts or borrowing against 401k accounts.
In this financing option, buyers retain a part of the total consideration payable under the APA till the parties meet certain obligations or mutually agreed-upon milestones. The milestones include:
- Honoring long-term service agreements.
- The seller fulfilling agreed-upon commitments after the sale.
- Employers continuing to work for the enterprise for an agreed duration.
- Verification of agreed-upon costs and revenue that are hard to assess thoroughly before the sale, for instance, chargebacks and refund rates.
- Fulfilling agreed-upon targets like maintaining monthly gross income averages.
This financing option bears risks for both parties as the seller or buyer can overestimate or underestimate post-sale obligations value.
In an earn-out agreement, the purchaser consents to pay the seller a percentage of revenue or profit over a fixed period. Earn-outs are primarily common in the acquisition of enterprises with an uncertain future and younger businesses and websites with inconsistent cash flows.
With earn-out agreements, the purchaser tries to leverage the seller’s resources and knowledge to expand the business instantly after closing the deal. To structure an earn-out, buyers will have to forecast future cash flows relying on macro and micro industry trends and historical data.
For an earn-out financing option to work for the parties involved, the seller and buyer must agree on the profit the online business is expected to make over the agreement period.
Since these agreements are based only on projected profits or revenue, they bear high risks, especially the seller, who must be certain that the purchaser can manage the site successfully and won’t default on payments. Owing to the extra risk, most sellers decline to extend the earn-out period past the standard one year.
Due to the high risks, sellers should only agree to this financing method when the purchaser has a track record of operating and expanding businesses successfully. There’s a high risk that the business won’t perform as forecasted with unqualified buyers.
Determining the Right Time to Sell Your Business
Divestment may be the best option for your business if you’re planning to focus on a new venture, you want to free up your time, or you need a lump-sum payment. Timing is essential if you’re going to realize an optimal outcome for your business. You must plan to sell your Amazon FBA business when it’s most attractive to prospective buyers.
You should sell a seasonal business during or after the peak season. For instance, if you sell Christmas decorations, it will make more sense to sell your Amazon FBA business in January. The margins and sales will be the highest during this time of the year, and your online business will look most appealing to potential buyers.
Determine Your Amazon FBA Business Worth
Consult an M&A advisor to find out how much your business is worth. The advisor will accurately work out your Seller Discretionary Earnings (SDE) or profit and counsel you on the appropriate multiple based on previous transactions and their evaluation of your business.
A competent advisor will offer the best advice on timing and exit strategy, disregarding whether this is in their short-term interest. The greatest advice might be not to sell immediately but rather to boost your business’ valuation and be back in three to six months with a business of higher value for sale—a win-win for both parties.
You can ask the M&A advisor to help you maximize your business value and find a suitable buyer.
Exit Strategy for Your Amazon FBA Business
Exit planning for a business is critical before a sale. You can add more value to your Amazon FBA business by taking the right steps before selling the business.
You cannot address all the valuation factors, for instance, competition in the niche, but you can take some strategic steps to boost your business’ value before the sale.
Here are some main topics to consider before selling your Amazon FBA business:
1. Brand Website
Design a brand website and actively begin attracting traffic. You should also sign up for the Amazon Affiliate Program and ensure you’re receiving the affiliate commission for the consumers you’re attracting to your goods.
You can add more credibility to your business by actively blogging about the niche and products; this is also an avenue of client acquisition.
Suppliers play a significant role in an FBA business. When partnering with suppliers, always draft contracts and have a simple operating procedure that you can easily hand over to purchasers. If possible, document and automate the entire process.
Conducive storage terms with a supplier are beneficial if it’s possible to negotiate these terms for bulk orders and maintain a suitable lead time for shipping the inventory to Amazon. This will lower the storage fee you pay to Amazon and minimize the business’ general exposure to rising storage fees.
You can build differentiation around your Amazon FBA business by applying for Frustration-Free Packaging. It requires some administration on the business owner’s part to join the program, but once it’s operational, your items rank higher for sellers that filter for this alternative. With pressure on clients and companies to consume responsibly, Frustration-Free Packaging is likely to rise in popularity.
Investors and consumers revere well-reviewed items. You can use tools such as SalesBacker to automate post-sale client follow-up and substantially increase the reviews on your goods. This will establish a halo effect around your commodities for future sales, and it’s also a helpful selling point to investors.
5. Email Capture
Loss of client details to Amazon is one of the major complaints with FBA. You can build a list by including a business card with your item that incentivizes clients to key in their email into a landing page, and you can also drive email opt-ins on your brand site.
Email lists are a valuable tool that can generate traffic to your products and create interest in future product launches. They are a sustainable awareness generator and traffic source for your brand, both of which are valuable to a prospective purchaser.
6. Restricted Categories/Account Health
Every FBA seller account has a health status. You must meet particular criteria if you sell in restricted categories like personal care, health, and beauty.
The following are the requirements for sell in restricted categories:
- Pre-fulfillment cancel rate: less than 2.5%.
- Order defect rate: less than 1%.
- Late shipment rate: less than 4%.
You should still be around these levels even if you’re not selling in restricted categories. This will prevent you from falling foul if Amazon moves the goalposts.
7. Credit Terms/Cash Flow
Cash flow and finding funds to reinvest in more supplies but lacking sufficient reserves are among the most significant problems for Amazon FBA sellers. Favorable credit terms with suppliers can help solve this issue, though it might preserve only high volume online businesses.
8. Brand Protection
You should register all the items you sell through Amazon’s brand registry to preserve your brand’s integrity and prevent other sellers from attempting to sell items on your listing. This will also minimize matching mistakes in search. Eventually, brand protection makes your FBA business more dependable and more valuable to buyers.
The strategies above depend on your particular situation; you should consult an M&A advisor to formulate them before a sale. Now that you have an insight into value levers, you can start thinking about your Amazon FBA business salability.
With the tips above, you’ll be able to increase your Amazon FBA business value, find a suitable buyer and sell your business successfully. Don’t hesitate to consult an M&A advisor if you’re inexperienced in a business sale.