How To Avoid Costly Mistakes Before And During The Process
Are you selling on Amazon and making decent profits? Many Amazon sellers don’t realize that they are actually building a saleable asset which is why I wanted to write this article and share my experience of selling my business: to give you a little something to think about.
So buckle up if you want to learn everything about the process of selling an Amazon private label business and how to avoid costly mistakes. Whether you are planning to sell soon, in the future or just want to maximize the value of your business and keep your options open – this article will give you a good idea of what to focus on.
Why Should I Sell My Beloved Private Label Business?
When I sold my business and told my friends about it, the response was generally one of the following:
- “OMG – what happened?”
- “Wow! Congratulations!”
It took some time to make the connection. The first reaction mostly came from employees. The second – from entrepreneurs. That’s because entrepreneurs know: selling your business is a reason to celebrate.
The Benefits Of Selling Your Business:
- Getting 25-35 times your monthly profit at once
- Having enough capital to launch at a bigger scale
- Freedom to start fresh and apply what you have learned
- Get the ‘Entrepreneur Full Cycle’ badge: experience all stages of creating, building and selling a business
- Catch a break
If this sounds good to you, your next question will be:
‘How exactly do I sell my Amazon business?’
Glad you asked. Here are the answers:
To get the attention from buyers and brokers, your business has to meet certain requirements. These are not set in stone and apply even less if you find a buyer on your own. But if you plan to engage a broker – which will be the easier route in most cases – you will have to meet these requirements:
- Your business must make at least $12k in yearly profit. However, most brokers will only talk to you if you make more than $60k ($5k / month).
- You should not have had a losing month in the last 6 months.
- Your business should be at least 1 year old.
- A positive profit curve: growing profits on average.
What are the Hurdles to start Selling in the European Marketplace?
Despite the enormous growth potential, many sellers are afraid of selling internationally.
The reason is that most sellers feel intimidated by selling internationally due to language and legal barriers.
Many feel that it is too complicated and expensive to expand to Europe and only a suitable strategy for big sellers or international companies.
These fears are completely unfounded.
Nevertheless, there are some things that need to be considered:
- All product listings, packaging, and customer service should be in the native language of the marketplace
- You may need to rebrand your product according to local preferences
- You will have to deal with different currencies
What Determines The Selling Price Of Your Business?
1. Profit Progression
Buyers want to see growth. Ideally over 3 years. That’s why your profit curve should look somewhat like the one in image 1: growing on average. A declining profit curve (image 3) is a deal breaker. And buyers also do not like sharp drops or months with a loss (image 2).
Buyers want to avoid risk, which results from dependency on one sales channel, a single product or a low entry barrier for competitors. So in order to minimise risk, we want to:
- Sell on several channels: ideally more than 30% off of Amazon
- Have multiple products: none of the products contributing more than 30% to the bottom line
- Trademarks and patents to protect our brand and products from hijackers
If you do all the work and daily operations, it will be very hard for the new owner to replace you. Especially when the new owner has no plans to work IN the business but rather wants it as an asset that runs on its own. We want to make it as easy as possible for the new owner to take over. That’s why we need to:
- Have a team in place that runs the business
- Have SOPs for all daily operations and onboarding of new VAs (Virtual Assistants)
- Remove ourselves from daily operations as much as possible
4. The Multiple
The so-called ‘Multiple’ is a multiplier the broker will assign to your business depending on their discretionary valuation. It’s based on how well your business is doing in the previously mentioned categories (profit progression, risk, structure, yearly profit) and will be a number in the range of 25-35. Your initial listed selling price will be determined as follows:
(Average monthly profit over 12 months) x Multiple
Average monthly profit over 12 months = $10k; Multiple = 30
=> Selling price: 10k x 30 = $300k
What Makes A Business More Valuable?
According to the Empire Flippers Industry Report 2020, these are the the factors that will increase the value of your private label business:
Create a strong brand
Build up repeat visitors and customers that participate in the brand’s community.
The ability to show more social proof with the evidence of a real community, loyalty to the business, and positive feedback are all hallmarks of a great brand or one in the making.
An example of social proof alongside positive feedback would be an Amazon FBA business that sells multiple products in one related niche that are all reviewed highly by verified customers.
Building a brand does not have to be incredibly difficult if you start your business with that intention. And it’s well worth doing if you ever desire to sell your business. Investors are hungry for solid brands to acquire.
Explore the following opportunities to reduce the ongoing operational cost of your business and increase profitability:
- Bulk buying products at a discount
- Changing from air to sea freight
- Using fully loaded containers, rather than partial shipping containers
- Creating a separate warehouse that has lower storage fees than Amazon and only shipping products into Amazon’s warehouses as needed
- Reducing package or product size
- Negotiating lower rates from your manufacturer
Avoid dependency on one sales channel or traffic channel.
- Expand into other platforms like Houzz, Jet, or Walmart
- Build a full-blown e-commerce store
- Build or buy an affiliate content site in your niche
Now you know how to make your business ‘look good’ for buyers. If you decide to embark on the journey to sell it – here are the steps ahead:
1. Find a broker
It’s not that hard to find brokers who sell Amazon businesses. All you have to do is Google “amazon FBA business broker” or click on the links below. On these sites, you will also find more relevant information that may assist you along the way. The most popular brokers for FBA businesses are:
- Empire Flippers (https://empireflippers.com/)
- The FBA Broker (https://thefbabroker.com/)
- FE International (https://feinternational.com/)
- Quiet Light Brokerage (https://www.quietlightbrokerage.com/) – this is the broker I used to sell my business
I recommend reaching out to at least three brokers. Check if they are interested in selling your business. And if so – discuss the fees and procedures involved. Move forward with the one you are most comfortable with.
2. Get listed on the marketplace
In order to get listed on the broker’s platform, they will need your financial reports and detailed business description. Some will ask you to create and submit your financial report yourself, some will ask permission to access your seller account and generate them on their own. For the business description, you will be given a very extensive questionnaire to fill out. It took me an entire day to fill out mine.
As soon as all info is gathered and approved, your multiple and the selling price will be determined by the broker. If you agree on it, your listing will be created and go live on the platform. I can tell you – it’s an exciting moment to see your business live for sale…
3. Get on group calls with potential buyers
The first engagement with a potential buyer will be a group call with him, you and the broker. These calls can take anything between 30 minutes to two hours. Be prepared to answer the question: “Why are you selling?” and every other question you can think of.
This is where you have to sell your business over the phone. For most of us – not something we are very good at. Prepare yourself as well as possible for this. Make a list of all the advantages, strengths and growth potential you see in your brand. If the buyer is interested to move forward, the broker will prepare the LOI – ‘Letter Of Intent’.
4. Signing the LOI (Letter of Intent)
This next step is BIG – it represents an 80-90% chance that you have found a buyer. The LOI basically says that the buyer intends to acquire the asset at a certain price. If you have to negotiate on the price, this is the time to do it (BEFORE you sign). I made a big mistake signing the LOI with a heavily discounted price suggested by the buyer, thinking I would renegotiate later. Bad idea. Neither buyer nor broker wanted to discuss the price afterwards.
After this document is signed, it’s official that you agreed on a price and your listing is reserved – closed to other buyers. Now comes the time for the buyer to check for himself if your business is what you said it was.
5. Give access to Seller Central
Even though it’s necessary and understandable from the buyer’s perspective, this is a very uncomfortable situation. You need to give full seller central access to a stranger. He technically could check out every detail of your business and walk away (cancel the LOI). I didn’t like this part at all and thought to myself “What if this is a competitor?” He could be after all… Well – turned out he wasn’t and agreed to move forward: negotiate the PA.
6. Negotiate and sign the PA (Purchase Agreement)
It would have been nice to have a lawyer on my team during this time. But I didn’t. So I had to dig through pages upon pages of lawyer’s English and try to make sense of it.
The purchase agreement contains every detail of the deal: price, payment terms, assets included, plus a bunch of terms and conditions like non-compete and so forth. It includes inventory, website, social media accounts, VAs, SOPs, supplier contacts, email lists, trademarks, due diligence time etc. Pay attention to the due diligence time and try to make it as short as possible. By default, it will be around 3 months. Which means the buyer can delay the payout for 3 months if he chooses to. Not a good deal for the seller. Try to make it 4 weeks or less.
When the contract is signed, the buyer sends the money into an escrow account and the handover of the business begins. Your Amazon business is now practically sold.
7. Handover of the business, due diligence time
Now, your buyer gets unlimited access to your account and all assets are being transferred. For the time period agreed upon under ‘due diligence time’, he can further check all aspects of the business. If it turns out to be ‘as described’, he will release the funds held in escrow and you will finally see the money showing up in your bank account.
This moment is worth all the hustle prior to that. I remember – when I saw the cash in the bank, I went bonkers and started an instant house-party.
Now you have a better idea of what it will take to sell your Amazon business. This is a lot to take in at once, but will definitely help you along the way. To put all of this in perspective, here is a summary of what was mentioned above:
- Create a strong brand
- Have more than one selling channel – build your own eCommerce store, sell on other platforms
- Diversify your products – none of your products should bring in over 30% of profits
- Reduce your costs – buy in bulk, reduce package and product sizes, change from air to sea freight
- Automate – take yourself out of your daily operations
- Register Trademarks and Patents if possible
- Choose a broker early – so he can help fix issues and focus on relevant parts of your business
It is important to keep in mind that this entire process can take up to 9 months to complete. Selling your Amazon business doesn’t have to be difficult, you just need the right research, mentorship and checklist in place to make sure you do everything right by the book.
I really hope that this information will help selling your Amazon business easier, faster, and for more money. A last word of encouragement: even if you are not ready yet, now you know exactly what matters. All you have to do is take the first step!