The guest today is Coran Woodmass from The FBA Broker. Coran specialises in buying and selling FBA businesses. He has been involved in buying and selling online-based businesses for 4 years.
He learned by trial and error and then expanded to share his knowledge and expertise with others as a broker. In June 2016 Coran launched theFBAbroker.com which focuses exclusively on e-commerce businesses that have an Amazon component for at least one channel of income. Today he will be teaching us how to sell your Amazon business.
Logistics to Sell Your Amazon Business
The tricky part is that Amazon owns your listings which can make it a bit confusing. You can sell your Amazon business but it boils down to what type of FBA business you have. Firstly, retail arbitrage type businesses, for the most part, aren’t sellable because there isn’t a specific supply chain that is scalable. Even if it’s making good money it isn’t attractive to buyers. There needs to be an ongoing supply chain in order to have ‘sellability’.
More traditional wholesale or retail businesses are sellable, despite similarities with retail arbitrage. Some have been in the marketplace for 5, 10 or 15 years. They have a supply chain setup. They have exclusive contracts or the ability because of volume to get really large discounts. The major difference is that there is a solid supply chain that you can hand over. Buyers want economies of scale, exclusivity, solid supply chains, and history and that makes it easier to sell your Amazon business.
Sell Your Private Label Business
Private label also depends because it can be broken down into further categories and these days buyers are more savvy about private label. It needs to have something unique or proprietary or patented that is differentiating the product/s from the rest of the marketplace in order to be sellable.
Private label as a type of business is not a ‘buy and forget’ option. If you have this type of business you must create something unique (e.g. bundling items is very popular) that makes your business more sellable in the private label space.
How to Value a Business
There are nine factors that are critical when valuing a business.
- The type of FBA business. The more defensible and sustainable your business is the better. A brand registry is one version of defensibility that also helps.
- The age of the business. You can’t shortcut this. The longer the business has been in existence, the longer the history, therefore the more attractive it is to buyers.
- The income channels. The more income channels the better. Buyers are interested if you have multiple channels, in multiple Amazon stores, and other platforms such as your website or eBay as well. The percentage of income coming from another channel (and that channel also needs to have history) needs to be at least 30% in order for it to really be counted as another channel. Having 98% from the one Amazon store and 1% from a different Amazon store and 1% from your website doesn’t cut it.
- The time needed to run the business. If it’s more than 10 hours a week it will limit your buyers. The least amount of owner time needed, the more attractive your business will be to buyers.
- The history and account health of the business. Buyers are getting savvy with things like reviews, seller metrics, A-Z compliance etc. Access to the AMS doesn’t necessarily add to the multiple but makes your business more interesting.
- Competition. Buyers are interested in what type of competitors you have, how sophisticated they are and how many new competitors are entering the market month over month. If there are a lot of competitors in your one vertical or highest selling products then it may be worth diversifying to make your business more sellable.
- The trend of the business itself. A few year’s history helps here, so you can look year over year and see the trend of the business overall.
- How much cash flow the business makes. This means seller discretionary earnings, the amount of cash left over after running the business, before tax. The higher that number the higher the multiple can be. The bigger the business, the more you will make for it, everything else being equal.
- Bonus point: Clean books/tax returns for the last few years. This is not necessarily for the value as much as the sellability and can impact who you can sell the business to. For example, with this, a buyer can go through the SBA in the US to get finance to purchase your business. There are similar programs in the UK.
Everything being equal, age is probably the most important part which is just something you can’t short cut. Buyers will pay a premium for this because they can see more history.
The second most important thing is the size, uniqueness, and diversification of the income. The higher the income the better and also the more diversified the income channels and product line the better. Remember, unless you’re selling more than 30% of sales from somewhere other than Amazon it doesn’t count.
When you sell your Amazon business, the multiple is based on the cash left over before you pay taxes. i.e. Revenue minus the cost of goods sold, expenses, fixed costs of business = free cash flow. Right now, you can possibly sell for 2 and 3 times the cash flow number. It can vary, and it depends on the 9 factors. Probably 2 to 2.5 is most likely.
You can also run a report about trends in the marketplace for Amazing businesses. To be included in this report, business has to have at least one physical eCommerce channel through Amazon. A number of listings from September to January has jumped from 109 to 219 respectively.
There has been a big increase which also means buyers have more options so it’s important to try to position your business in a way to stand out from the crowd. Focus on those 9 points. If you can, add a couple more before you look at selling. Spend some time trying to find some diversification of some sort. Anything you can do to make the business more attractive is good, but buyers will pay more for something that’s harder to do.
Most buyers right now are in the US so you will need to cater to their tastes and cultural differences. Transferring a UK Limited Company makes transferring the seller central account a lot more straight-forward. On average it takes about 2 months to transfer the business over.
What does it mean to sell your Amazon business? Is it selling the company or just the Amazon account ownership? You can do both, but with the US specifically, it’s more straightforward to do an asset sale by transferring the account from one entity to another. This means selling everything that the company owns but not the company.
Watch How to Sell Your Amazon Business with Coran Woodmass Part 1 of 2
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