How to streamline, scale and exit for maximum value
It’s no secret that Amazon has been on a tear for the past decade. Entrepreneurs have flocked to the e-commerce giant to stake their claim and for many, the getting has been good. So good in fact that many entrepreneurs have built a template for how to select and source products, optimize the listings, scale the business to 7 figures and exit and have done so multiple times.
We’ll share some tips and tricks from the dealmaking industry to help you run your business with the end in mind. Implementing these changes to your business will help you put your business on autopilot and sell for a higher valuation.
So you built it…what’s next?
Whether you started your Amazon business so that you could quit your job, or you’re a seasoned entrepreneur just looking for the next business model to conquer, at some point you end up ask yourself the question “now what?” Once you have built your Amazon business, optimized the descriptions, dialed in the PPC campaigns and the products are selling well…now what? Are you going to launch a subsequent product? Are you going to try to get wholesale orders? Or are you going to sell your business?
What many Amazon business owners have found is that they get the most enjoyment out of building the business from inception and growing it as far as they can on Amazon and then selling it. It is also likely where the entrepreneur gets the highest return on their time and on their investment.
Once you have joined the ranks of the thousands of Amazon business owners who have decided to sell their business, it is time to prepare your business for sale.
What are Amazon business buyers looking for
The world of Amazon business buyers has grown from small time entrepreneurs buying their friends Seller Central account into an ecosystem that has attracted hundreds of millions of dollars from Wall Street.
While the valuation and desirability of businesses is still very subjective, there are certain characteristics that all buyers look for when buying an FBA business.
- Automated Management. Investors are not looking to buy themselves a job. Automate as much of the business through software and finding quality employees or contractors.It may sound counterintuitive, but the less you work in your business each week, the more you’ll be able to sell it for.
- Scalability. Sure, the trajectory of doubling your sales month over month has changed. However, buyers are still looking to grow the businesses that they buy. This means that having great products with great reviews is very important when calculating the value of your business. Not only will Amazon continue to serve the products prominently in the search rankings, the buyer has a degree of comfort that they are buying quality products and that they’ll be able to continue the businesses success.
- Clean Financials and Customer Metrics. Like most small businesses, you likely don’t have audited financial statements. However, it is important to track your financials and have clean tax returns to prove the profitability of the business. You’ll also want to have documentation to prove your product manufacturing costs.
In addition to helping the buyer get comfortable with the claims you make about the businesses profitability, having clean tax returns means that the business may also be eligible for an SBA acquisition loan. This will push the valuation higher and get you a higher percentage of the purchase price paid at close.
- Reasonable Valuations. Unlike the world of silicon valley, ecommerce businesses trade for a multiple of their annual profit. Depending on the size of your business, industry, track record and a litany of other factors, your business could be worth anywhere from 2.5 – 6 X annual profit. To get a more in-depth valuation of your business, you can request a valuation through an Amazon FBA valuation calculator.
Amazon scaling and automation tips
If you have been in the Amazon selling community for some time, then you have no doubt been introduced to a number of FBA selling coaches and courses. Tapping into the knowledge of a good coach or consultant such as Amazing FBA will make your life much easier both when it comes to scaling your business and automating it. Some tips that they may encourage you to do are:
- Use a third party seller dashboard. Although Amazon is worth more than a trillion dollars now, they seem to invest very little time or money into making seller central easier for their merchants. Utilizing a third party dashboard will not only save you time with your operations, it makes the business more clear and digestible for potential buyers.
- Trim the fat. Most entrepreneurs in Ecommerce are familiar with Tim Ferriss’ book “The Four Hour Work Week” and the “Pareto principal” or “80/20 rule.” In short, serious Amazon FBA Business Buyers are after the 20% of products that drive 80% of the profit. They have no interest in buying a catalog of 1,000 products that you resale.
- Hire and automate. Instead of spending 5 hours/month optimizing your listings yourself and tweaking your PPC bids, hire it out to a capable firm or freelancer. Even though this will likely decrease your profit by a few thousand dollars per month, you’ll make that money back five times over by being much more appealing to buyers as a passively run business.
- Find competent representation. You can surely try to sell your business yourself, however you’re unlikely to understand the ropes the way an online business broker does. Finding the right buyer(s), understanding asset vs. stock sales, negotiating holdbacks and working capital adjustments, getting the deal financed, utilizing escrow services and migrating the account is a bit more complicated in practice than it may sound.
About the author:
Mark Woodbury is a serial entrepreneur and CEO of Upward Exits, a sell-side representative for digital business owners including content sites, ecommerce, Amazon FBA and SaaS businesses whose assets are valued over $1M. In addition to Upward Exits, Mark is a member of Minerva Equity, a lower middle-market acquisition firm that acquires businesses in Southern California with $1M to $5M in EBITDA.