“Can I sell my FBA business?” As The FBA Broker, this is often the first question I hear from clients, but unfortunately, the answer is: It depends.
Even though each business is different, there are some factors that will make it easier or harder to sell your business. To find that answer for individual businesses, I help people just like you prepare and then sell their Fulfillment by Amazon (FBA) businesses.
In this post, I’ll cover ways to determine if you can sell your FBA business, figure out what it’s worth, and how to make it worth more before you sell. Then, I’ll discuss whether you should hold and improve, or sell and cash out now.
Deciding to sell will raise a whole new bunch of questions, such as, “Who would buy my business?”, “Where do I find them?”, and “What’s the sale process like?”
I’ll provide my own insight as an FBA broker, with answers that can help you walk through the process of how to sell your FBA business. And I’ll cover how to overcome common hurdles in the selling process.
For most of this post, I’ll explain how to prepare your business to sell by considering the perspective of the buyer. Without a buyer, your business could be listed for sale but never sell, so it’s important for us to get to know their viewpoint!
Can I sell my FBA business?
Three things can help you determine if you can sell your business:
- Type of business
- Age of business
- Seller discretionary earnings (SDE)/earnings before interest, tax, depreciation, and amortization (EBITDA) (annual net profit)
Each of these factors plays an equally important role when determining saleability. Let’s look at them in more detail.
1. Type of FBA Business
There are three major types of FBA businesses:
- Private label
- Proprietary products
Resellers compete for the buy box. You buy wholesale and make a margin selling retail on Amazon. This is sometimes referred to as retail arbitrage.
Resellers range from hard-to-sell to impossible-to-sell, even if the business is making a good profit. There are a number of reasons why this style of FBA business is less attractive to a buyer:
- It’s highly volatile —– there is often no limit to the amount of competition.
- Supply can be a problem — everything must be bought individually and on sale, and there is no guarantee that a specific item will always be available on sale.
- Nothing is proprietary — a buyer is really only buying access to your Seller Central account on Amazon.
However, if you have exclusive contracts with wholesalers to sell on Amazon, this could make your business easier to sell.
You have your own brand, but other people can buy the same product elsewhere. This type of business has some leverage and can be more attractive to buyers because supply is consistent, and since the item has a history, there is a good chance it will continue to sell.
This is the gold standard of FBA businesses, as only your company sells this specific item. Buyers will often pay a premium, and this makes your business more defensible long-term.
For example, let’s say you sell a supplement where you created the formula or made a popular product better. If it’s unique to you and your brand, then this shows buyers that your business will continue to stand out in its industry.
A buyer will want to know the history of your business earnings to estimate how long it will take to make their investment back. The longer the history, the better the proposition you may receive as the seller.
You can sell a business that is under a year old, for instance, but a buyer will want a discount for taking the risk of not knowing how a full calendar year will impact sales.
3. SDE/EBITDA (Annual net profit)
You need to know your numbers before you can sell your business. A buyer will use a multiple of your annual net profit (also called EBITDA) to formulate an offer for your business. In other words, the offer for your business is directly related to your net profit.
SDE calculates the net profit, which in turn is the basis of a valuation of your business. SDE is used if revenue is $5 million to $10 million or below, EBITDA if it is higher.
SDE = Revenue − Expenses + Add-backs
Business expenses include the cost of goods, Amazon fees, employees, software, fulfillment services, and shipping services. However, you should also include any personal income. If you’re paying yourself a salary as the owner, add that back. If you’re paying company taxes, include that, since you won’t know the structure of the taxes for the buyer coming in. But be aware: Personal expenses that aren’t really business-related can’t be added back. For example, a car leased through the business, which isn’t used to run the business, isn’t a valid expense for these purposes.
Accurate, current accounting is critical. If you’re not already doing so, keep accurate, current records: It’s the easiest reason for a buyer to turn away from your business. When a buyer is looking at your profit and loss statement (P&L), they will look for trends. For example, are your products seasonal? Are sales trending up, trending down, or steady? Savvy buyers will also look at your Amazon Best Sellers Rank to get a sense of where your business is trending as a whole on Amazon.
Once you know the type of business you have, the age of your business, and your EBITDA, you can begin to determine a sale value.
What is my FBA business worth?
Of course, the next logical step, once you find your business is saleable, is to figure out what it can sell for. You will not know the true value of your FBA business until someone buys it. But what I can help you determine is an estimate of what your FBA business could sell for.
When valuing a business, it helps to look at historical sale transactions to compare market trends. In the first half of 2018, we tracked 69 FBA businesses reported as sold, which equates to $127 million in list price value. The median multiple was 3.1 times SDE. In 2017, we tracked 174 reported as sold, for a total of $329 million in list price value. The median multiple was 3.25 times SDE.
There are many factors to consider when estimating the selling price of your business. As a rule of thumb, take your annual net profit or SDE and multiply it by two.
$500,000 (Net Profit or SDE) x 3.2 (Median Multiple) = $1,600,000 Estimated Price List
As a quick example, let’s say your SDE is $500,000. Your business could be worth around $1.6 million.
Keep in mind that, on top of the selling price, a buyer will purchase your inventory at cost, which includes the cost to get the inventory into the FBA warehouses.
How can I make my business worth more?
If you’re concerned about the selling price of your FBA business being too low to sell now, the good news is that you can do specific things to make your business more valuable to a buyer.
Here are six factors that can make your FBA business worth more:
- Type of FBA business
- Age of business
Even though we’ve touched on the first three already, let’s look at them again but through the lens of what matters most to a buyer. The last three are factors you can begin implementing in your own business as soon as possible to increase its worth.
1. Type of FBA business
A buyer values the following factors, from most to least valuable:
- Unique product and brand — for example, supplements that are a custom formula.
- Private label — unique in some way is better than another label on the same product.
- Reseller — these businesses are super risky and even unsellable in most cases.
Buyers value businesses that are older, but here’s an idea of the hierarchy of value they place from most to least valuable:
- Over three years —– great
- One to two years — good
- Under one year — not great; expect low-ball offers or wait to sell
It’s typical for a product brand to have this type of trajectory: The first year is focused on the discovery phase and finding what works, the second and third years are spent investing in growth, and the fourth year is devoted to optimizing net profits for sale.
3. EBITDA (Annual net profit)
You’ll need to turn an actual profit to be considered by buyers.
It’s best to use accrual accounting to figure out if you are profitable each month. I often talk with business owners who find out that their monthly net profit is half of what it actually is. They only find out with a proper P&L statement.
The level of profit your business has will shape the type of buyer who is attracted to your listing.
For example, one typical buyer type is a corporate executive who is looking to replace a low-to-mid six-figure salary. So for them, buying a business that makes only a couple thousand a month won’t help them reach their goal. They might instead look at a business already making six figures a year in profit.
As a rule, we like to deal with businesses that are making over $300,000 minimum in net profit per year.
How easily can a competitor enter your market with a similar product and take your market share away? It depends on how hard it is to source your product.
If your product is widely available on Amazon or Alibaba, there is essentially no barrier stopping your competitors from intruding on your market share. If your product is super easy to find, all someone needs to do is start a new listing, and they’ll have the same product as you.
On the opposite end of the spectrum, if you hold a patent for your product, this adds value to the business and could see your multiple when calculating your selling price increase.
These factors will increase your defensibility:
- Customer loyalty to your brand.
- Proprietary products
- Inferior quality of your competitors’ copycat products
Even sophisticated FBA competitors will struggle to outsell or outrank a proprietary product with a strong brand. This will help secure your market share and make your business a more attractive investment. The more defensible a product is, the more a buyer will value the product or brand.
Diversification can give your business’s valuation, and offers you receive, a real boost.
All buyers look to minimize their risk. The biggest risk with owning an FBA business is account suspension on Amazon; the next risk is losing rankings within Amazon.
If you can prove how your business will continue if either of these worst-case scenarios occurs, it will give the buyer peace of mind and increase the chances of your business selling for a price higher than its current worth.
There are several levels of diversification:
- Products, niches, and traffic sources outside of Amazon
- Niches and traffic sources within Amazon
- Just one form: either products, niches, or traffic
If you want to diversify your business and increase its potential worth, here are some steps you can take today:
- Add traffic sources outside of the Amazon ecosystem, either from your website, social media platforms, email marketing, or others.
- Aim for having no more than 70 percent of your income coming from one product or niche.
- List multiple products in multiple niches.
- Create profitable paid traffic within Amazon (sponsored ads/pay-per-click).
Do you have a ton of sophisticated FBA sellers as competition, e.g., iPhone cases? This can scare off buyers. If there is a high chance that you will lose your rankings overnight, this means your income can drop just as fast.
Buyers are aware of this possibility, and any offers, or lack of offers, you receive will reflect the perceived risk of buying your business.
Are you selling garlic presses with a ton of sophisticated FBA sellers all jostling for the top spot? Being part of a market with a large number of sophisticated FBA competitors could scare off potential buyers since the chance of someone taking over your position (causing your sales to drop overnight) is high.
If only one or two of your products have this issue, but your business is diversified, this can help mitigate risk in the eyes of the buyer.
Should I sell my FBA business now or hold onto it?
Now that you’ve seen what it takes to determine if your business is sellable, along with determining an estimate for its worth (or potential worth), you may be wondering if you should sell now or wait for a while.
This is a great question, and it’s one that I ask myself as well before selling any income-producing asset. I like to assess a number of things before considering to sell:
- Am I working on something else more exciting?
- Am I finding that managing the business is a chore?
- Could I roll the capital from the sale into a new venture?
- Do I just want the security of more cash in the bank?
If you answered yes to one or more of these questions, now may be the best time to sell.
If you answered no to all of the questions, holding onto it is probably best for now.
However, if you’re working on something more exciting, and it’s stealing your focus from your FBA business, this may impact its profitability. In this case, even if you’re working on something else, trying to sell a business in decline will only result in one thing: low-ball offers. We never recommend selling at this time.
If selling sounds like something you’d like to do, but your business’s profits have suffered recently, then this is the time to hold onto it, fix the broken link in the chain, and get it prepared to sell, so you can get the multiple you deserve.
But let’s say you’ve determined that now is the time to sell, as you’ve given it some thought and have figured out that your business is in a place where it’ll catch a buyer’s eye. The next question on your mind would be …
Who will buy my business?
There are many different types of buyers, but let’s look at this from a high-level view based on the selling price of your business.
Under $500,000 – Selling Price
If you’re selling a business with less than a $500,000 selling price, buyers will typically be private investors looking to get a better return on their capital than putting money in the bank. These will likely be individuals or partnerships using their own cash.
Most of these buyers will be executives in high paid, long-hour positions who have low-to-mid six figures in the bank ready to deploy. The downside of dealing with this buyer is they are emotional; they’re deploying their own capital, so their appetite for risk is very low, for the most part. The other part about this category is it’s the bulk of the listings, so it’s a buyer’s market at this price point.
Buyers with this price range are also likely to be new to selling on Amazon, or even brand new to online business/marketing as a whole. They might be cashed-up retirees, high-paid executives, or investors with multiple businesses looking for stable income and better returns on their capital than a bank or mutual fund can provide. For the most part, they are not looking for a full-time job, so the less time it takes to run your business the better.
The fact they are using their own cash means their number-one focus is not losing their cash. When they look at deals, they will look for any reason not to buy. They want to buy a business, but their primary motivation for buying the right business is fear of loss.
This type of buyer is looking for the best deal available in their price range. This means they’ll focus on more established and defensible (proprietary product, own brand) businesses.
That said, there are also a number of online marketers, e-commerce business owners, and FBA sellers looking to acquire other FBA businesses as well.
$500,000 – $1 Million
There are fewer private buyers in this range who are willing to put down this much cash in one deal, but it’s still too small for strategic and private equity groups like family offices to come down to that level. The business is just not big enough. So this price point is actually a bit of a black hole in the market. It takes a lot longer to find a buyer and the deal terms are usually pretty average — buyers use seller finance and there are low offers.
$1 Million – $5 Million
This is the red-hot sector of the market right now because there are a lot of companies that raise capital to deploy to buy a brand, or multiple brands, in this price range and above, so it is definitely a seller’s market.
Above $1 million, if you have the right type of business, there are a lot of cash buyers in this price range. There are also a lot of buyers looking to use small business administration (SBA) finance, which won’t go above a $5 million deal, so there is that option as well.
To qualify for SBA loans, your business needs to have paid taxes in the U.S. for two years minimum and it needs to be a U.S. entity. The buyer also needs to qualify for the loan, but the government backs the debt for the bank, which is why it’s easier to get that kind of financing.
$5 Million and Above
Sales in this range are almost exclusively strategic buyers, private equity buyers, and family offices — corporate types that are looking to take on brands that have proven their model. This means the brand has found a problem in the marketplace, created a product that solves the problem for that demographic, and built products around that demographic.
Those are the types of product brands they’re looking to acquire and then expand outside of Amazon and online selling. They may have brick-and-mortar, retail, wholesale — thousands of channels around the world that they can take these products into. That’s the type of buyer above the $5 million mark. They’ll typically pay more because it’s harder to get a business to that level of profitability, so they’ll be looking for a business that’s already there.
How do I find a buyer?
It’s exciting to see that there’s an audience for your business, but you’re likely wondering how you can find your dream buyer. You have a number of options: Ask other FBA sellers you know who might be looking to buy, or advertise with online marketplaces and classified sites, such as Flippa.com, bizbuysell.com, or businessforsale.com.
Even when you’re using an online marketplace to sell your business, it’s smart to use a broker. I’ve always used brokers to both buy and sell online businesses.
A broker will take care of everything for you, so you won’t have to deal with tire kickers, or worse, people who just want to see your products and replicate them or your brand, or even directly compete with you. (This is becoming less of an issue now as things become more competitive on Amazon.)
A broker will help you present your business so it’s attractive to buyers. They will find ideal buyers for you, help with negotiations, and then assist you throughout the transfer process and ensure you get paid (which, let’s be honest, is the most important part).
Depending on your profit levels, a broker will charge a percentage of the selling price, ranging from 15 percent on smaller deals to 10 percent on larger deals.
In the Modern Lehman formula, the broker charges 10 percent of the first $1 million, plus 9 percent of the second $1 million, plus 8 percent of the third $1 million, and so on, until it gets down to an additional 3 percent for every million above $8 million.
How long will it take to sell my business?
It really depends on how well your business matches the criteria of the potential buyers. Even if your business is a perfect fit for a buyer, it can take weeks or months to close the deal.
Remember that most buyers are first and foremost afraid of loss, so they will spend a ton of time on due diligence to find the one reason to not buy your business and save their capital for another deal.
Here are the average days on the market for each price range in 2018:
- <100,000k — 66 days
- $100,000 – $500,000 — 118 days
- $500,000 – $1 million — 151 days
- $1 million – $2 million — 128 days
- $2 million – $5 million — 146 days
- >$5 million — 170 days
With any of these sales, there are always common problems that arise. Getting ahead of them now can reduce a lengthy, drawn-out sale process.
These will need to be addressed before a sale:
- Financials: These need to be 100 percent accurate.
- Suppliers: You’ve hopefully vetted these, so yours are easy to deal with and reliable.
- Calls with buyers: You need to be available to talk with buyers. It’s rare to sell a business for $100,000+ without speaking to anyone. They want to meet you and hear from you about the business.
- Questions from buyers: There will be a number of questions from legitimate buyers that you will need to respond to. A proper prospectus will help ahead of time, but you will still need to answer questions as they come up.
- Preparing a good prospectus: Do the work upfront!
While preparing for the sale is the hardest part, selling the business is ultimately the end goal, and the work will be worth it.
How do I transfer my business?
The process of transferring your business to the new owner depends on which country you’re in. In America, it’s probably the easiest; in the UK and Australia, it’s a little more complex; and in Germany, it’s next to impossible unless the buyer is taking over the entity itself. If it’s a stock sale and you take over the entity, in Germany, you can take over the account; otherwise, you need to transfer the brand to a Seller Central account.
No matter where the seller is, we first get them to ask Amazon for approval and then let them know they’ve sold their business. Next, the new owner needs to take over the account.
There are two ways to transfer an account. One is to actually transfer the account, and Amazon will give the buyer the steps to do that at that time. The other way is to transfer the brand to another Seller Central account. The acquirer may have a larger Seller Central account that they want to roll the brand into, anyway. Also, Amazon may require it.
How do I get paid?
At the end of the day, the answer to this question is what matters for you as the seller.
To ensure you get paid, we advise our clients to use an escrow service. As the broker, I often can assist with this. Escrow.com is a popular choice as a third-party supplier.
When you use an escrow service, the cash is held safely by a third party. Only once both sides are happy, and the transaction is complete, do the funds get released by wire transfer to your bank account.
I’m definitely ready to sell. How do I get started?
Fill out our Free Business Evaluation. We use this information to compare your business to others that have recently sold. If we find that your business isn’t in the range we work with, we will give you tips to help you get your business into that range.
The main thing to focus on is increasing the value of your business ahead of selling.
Are you ready to evaluate your business? Get started now!