Ensuring your Amazon business is exit-ready is not as simple as getting all of your books in order to accurately portray your profits and losses. While this is no doubt an important step, you will also need to consider your business’ use of data, branding and positioning, the systems you have in place to run your day to day operations and your Seller Central account’s ‘health’.
The more successful you are in each of these aspects of your business, the more you’ll be able to sell your business for and the quicker it will sell.
Consider Selling From the Start
If you have already established your Amazon business, you cannot turn back the clock and start over again with different methods. You have undoubtedly learned a lot along the way, which can help if you intend to start a new brand and sell it in the future.
Organize business function and processes and gather all necessary data to create the smoothest transition to the new Amazon FBA company owner. The right buyer needs to see things like revenue charts, expenses, and how you operate on a day-to-day basis. They want to know not only how much they can earn, but also what they need to do to maintain and grow the business.
Collecting Accurate and Useful Data for Your Amazon Business
First and foremost, any competent buyer will want to see any and all analytics you have on your Amazon business. This data will generally include:
Average order size (AOS)
Repeat purchase rate
Having all of this information readily available helps anyone interested in your business understand the way you have priced it, and shows them you have a sustainable business that is not just a side hobby. You can find most of this information right in your Amazon Seller Central Dashboard and from your suppliers.
Some of this information, such as your fixed costs, will need to be extrapolated from your own records. If some of this information is missing after you have gone through all of your records, you may still be able to pull estimates based on other sellers in your category.
Systems for Day to Day Operations
If you don’t already have systems in place for your day to day operations, creating these systems will help you better manage your business, save you time, and increase the value of your business. However, whether you know it or not you likely already have some type of system in place. This system would be your daily, weekly, and monthly routines of regular tasks you perform.
The tricky part comes with creating a well-documented procedure anyone could follow to perform these tasks in place of you. This document is commonly referred to as a Standard Operating Procedure, or SOP. By having a Standard Operating Procedure in place it will limit the amount of time spent by you training whoever is buying your Amazon business. They will be able to jump right in after purchasing and have a proven method to maintain the current growth.
What Do Healthy Finances Look Like?
Having healthy finances really comes down to having your accounting books in order with proof of accuracy. You will need a way to quickly prove what your monthly revenue, gross margin, and cost of goods sold are. The easiest way to go about this is by setting up a separate business account if you don’t already have one. Having a separate business account will allow you to easily see all of this information with immediate proof that the information is accurate.
Keeping accurate information on your books also gives your buyer confidence that you are fully up to date on any debts and have good relationships with your suppliers. This is because when buying any business you’re also taking on any debt or strained relationships, and there are no exceptions to this for an Amazon business.
Avoiding Stock-Outs Keeps Your Profits Consistent
One of the first things any buyer looks for to decide the price they’re willing to pay for a business is the consistency in the business’ profits. Having a consistent flow of profit shows any potential buyer that your business runs smoothly without the unexpected getting in the way of success.
A stock outage immediately halts your ability to sell your product and buyers will notice. When looking through your numbers, they’ll see a huge dip in sales on the month you experience a stock outage and they will ask questions.
While you might be able to mitigate their concerns by answering their questions truthfully and showing how you prevent stock-outs from happening in the future, it will never increase the value of your business.
These issues are only amplified if a stock outage occurs during the year you plan to exit. With an industry multiplier of about three times annual profit for Amazon businesses, any lost dollar in profits during the year you plan to exit can result in an additional three dollars lost to your business value. So, make sure you create a plan to avoid any stock-outs during the year leading up to your exit.
To avoid stock outages in the year before you sell, utilize effective forecasting based on real data. This also shows your potential buyers you have a system in place that will help them avoid stock outages as well adding to the value of your business.
How Your Amazon Business Is Valued
Your business will be valued by the trailing 12 month monthly profit average times by a multiplier, typically between 28 and 40. For example, if your average monthly profit over 12 months is $30,000, your business could be valued anywhere between $840,000 and $1,200,000 using the multipliers of 28 and 40 respectively.
Many factors come into play when determining which multiplier the broker will use to value your business, but there are certain things that are in your control that can positively influence it. A solid team in place, clear SOP’s, diversified SKU range, simple operations, powerful and trademarked branding; these are just a few examples that can improve your multiplier.
A recurring theme in this article so far is SOP’s. It’s no surprise that a hands-off business will sell for more than a business that requires 80+ hour work weeks. By providing your buyer full documentation on how they can continue operating your business and maintain its current trajectory of growth, you’ll make them confident buying your Amazon business will be a great investment.