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Podcast (10k-podcast): Play in new window | Download (Duration: 46:55 — 32.7MB)
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Putting you Amazon FBA business up for sale can sometimes bring about mixed feelings. Learn if you are in a position to sell your Amazon business.
Who Quiet Light Brokerage work with
Quiet Light Brokerage help online entrepreneurs to plan and execute successful exits.
They work with both Amazon and E-commerce, plus SaaS. They work with a lot of “bootstrappers”.
Most clients have a business around for 2-3 years or more.
At the moment, one business around 25 years (ancient for internet business!).
Business sales
About $75M in enterprise value in 2019.
In 2020, expecting $100M.
Last year, 80% of Transactions were E-commerce businesses.
Around 55% of those were based around Amazon:
– 46% was strictly Amazon
- 10% mixed platform – including Amazon
A lot of businesses have an off Amazon element. But to qualify as a “mixed platform” business, it needs to have about a 50/50 split between on- and off-Amazon revenue.
Mark Daoust’s Background
Been doing online stuff for going on 20 years.
15 years ago had a content website. He was newly married.
Thought it would be fun to sell this. Hired an advisor (broker) and was very unimpressed.
Marked looked at the broker’s work and thought, “He gets 10% off the sale value – how hard could it really be?”.
This presented itself. Mark sold the business.
Mark worked in some fledgling businesses for a year – a good friend decided to sell a company. He knew Mark would help him with it. Mark did indeed get the business sold.
The first 2 years was about honing processes two achieve two main aims:
- Making the transactions safe and secure in the M & A industry.
- How to really prepare a business for sale.
How Mark felt like a business seller
There were the usual exclusive contract and long agreement.
But the broker didn’t seem to do much!
For the business brokerage, the industry norm is that the value is in the number of contracts you sign, a certain percentage of those work, and that is how the brokerage makes money.
Mark felt that the broker and seller interests were not aligned.
Mark wanted to help business owners understand what drove the value.
It makes the decision making cleaner.
Mark’s experience selling his business
Mark was just given a number for the value of $350K.
Then the 1st offer was junk $75K.
The second offer eventually went ahead at a slightly higher valuation, but still, way lower than Mark had been lead to expect.
The aim is to be a real advisor – what is the value of the asset I’m holding?
Should I sell or hold? It’s a critical decision and you don’t get two chances.
So you want to be well informed as a business seller.
Why bother selling a business if it’s a successful one?
Mark suggests you shouldn’t aim to sell a good business if…
- It generates cash flow
- Not too much time
- Happy to do it
It’s usually harder to create a new business than you think. Partly because luck comes in, so in this case, do not put your Amazon FBA Business up for sale.
Creating twin values
You have 2 values in building your business
- Cashflow (like stock dividend)
- You’re creating an asset (like the value of the stock) in your overall portfolio
There does come a point in time when selling makes sense. That’s when you realize the asset value.
Why sell?
Especially with the physical product business, most of the value you’ll get is when you sell.
The economics of e-commerce business -or even SaaS – is such that you have to reinvest most cash.
The right time to sell a business
There comes an inflection point in your life.
Eg: A client acquired a business 5 years before for $30-40K
It grew to about 400-500K per year in Profits (about $2M revenue)
“Why not continue to sell the business?” Asked Mark
On Tuesdays and Thursdays, I keep the inventory in the second garage.
To grow this, we would have to get an office, staff, etc.
Other life inflexions
- Getting married
- Spend a year with a new child
Usually selling for the money alone is not a great
You can turn a corner
You can create a business that would cashflow your lifestyle but you need a pretty serious EBITDA [Earnings Before Interest, Depreciation, and Amortisation – broadly, pre-tax profit]- say around 1.5M USD
If you don’t have the ambition to grow a 10-20M revenue business, that can be another reason to put Amazon FBA Business up for sale.
Is my business even sellable?
Amazon businesses are generally quite sellable.
Put yourself in the buyer’s shoes
Why are they buying your business?
They want an ROI – they want not only a return of their capital, but they also want to get a positive return on it.
What are the elements that make my business sellable?
The main elements are age; revenue and sales; and defensibility.
Age
Firstly, the older the business, the better. It’s rare to be able to sell a business younger than 12 months.
Typically buyers want to see more sustainable business. Age is great proof of that.
5 years shows a lot of sustainability.
8 years is really impressive.
Market adoption
Revenue
It needs to be a decent revenue number
Earnings
Two perspectives:
- Buyer perspective – earnings implies ROI is good.
- Adaptability is good – if you have products in high demand
Amazon-specific business issues
The ubiquitous nature of the marketplace can mean that the differentiation factors became price and ratings.
There then tends to be a hierarchy of value/sellability of Amazon businesses based on the defensibility/differentiation factors.
Brand protection/defense
- Brand registry
- The uniqueness of your product
- Patents, etc.
Dropshipping
If you were a drop-shipper on Amazon, there is no restriction to anyone else – they just aren’t very valuable.
Drop-shipping business failure story
There was a business dropshipping a not very distinct product.
The revenue gains in triple-digit gains annually.
Then it got visible enough to appear on business intelligence software.
The revenues took a slaughtering.
Contracts with existing brands
Contracts with existing brands CAN be valuable. This is not so common [and probably sits somewhere between private labeling and drop-shipping in defensibility].
It’s all about the numbers
Clients (business owners) can be frustrated – it’s just about the numbers.
Clients get obsessed with the actual physical products – but buyers aren’t going to be!
Financials are actually a financial checkpoint of health which tell you a lot about the business
- Marketability
- Expansion opportunities
- Survivability of price war (eg 85% Gross margins)
Buyers want to get a business that can grow.
For example, this business had trademarks, patents, email capture.
They could how every new product was either a “double” or a “home run”
Not only were existing products successful.
But they had a system and set of raving fans in place.
It’s not really all about the numbers
In the end, the numbers themselves are a proxy for what the buyers want:
- Seeing a clear upside,
- Safety margins
- Sustainability/clear future
- security of capital (a feeling of safety)
But again you have to put yourself in the buyer’s shoes as the business owner.
Prepare for sale
“Don’t decide to sell – plan to sell.”
Putting in place an exit strategy benefits you as the owner. Putting your Amazon FBA Business for sale.
Nobody is going to pay you a lot of money if it’s not great to own.
Prepping for sale gives a number of upsides:
- Risk awareness
- Backup
- Documentation
Example of the upside to preparing for sale – Always have backup vendors!
Eg: 7 days out from closing they often reach out to vendors (suppliers) to flag up the sale and broker the new relationship.
The vendor said: “I’ve been meaning to call you; we want to end this relationship. You have 48 hours to remove the logo and product from the site.”
This put the value of the business in question.
Luckily, going through the practice of planning had lead to putting a backup vendor in place.
They bought an extra month’s time, the backup vendor became the main vendor and the sale went ahead.
That would never have happened without preparing thoroughly for sale in all aspects. Putting your Amazon FBA Business for sale.
How to get in touch with Mark?
You can reach out to:
Or you can visit their website:
https://www.quietlightbrokerage.com/
Mark can answer the typical questions
Could I sell the business?
If so for how much?
What might be holding that value back?
Preparing you for the day that thing changes.
It’s like a once-in-a-lifetime opportunity
A lot of the advice takes 12-24 months to implement – so the earlier you start, the better!
Even if you never intend to sell your business, it can only make your business healthier and better to own.
Watch my full interview with Mark Daoust
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