Fun fact: In 2020, almost half of Amazon’s sales came not from Amazon directly but from third-party sellers. And two-thirds of those independent sellers — or more than two million retailers worldwide — used Amazon’s FBA (Fulfillment by Amazon) platform. With FBA, sellers of products are able to tap into Amazon’s order fulfillment and shipping services to distribute their wares. Hence, the FBA mantra: Sellers sell, Amazon ships.
This information in this article is for owners of Fulfillment by Amazon businesses or those teaching others how to sell on Amazon. Some of these principles will apply to Amazon Delivery businesses, but delivery businesses tend to operate more like local brick-and-mortar shops (albeit with a heavy dependency on Amazon).
If you’re a seller of widgets, FBA might be the service for you. If you’re thinking about selling your widget-selling FBA business, Morgan & Westfield is most definitely the service for you. Check it out …
Table of Contents
- Minimum Requirements for Selling an Amazon FBA Business
- Prepare Your Amazon Business for Sale
- Reduce Dependency
- Increase Barriers to Entry
- Maintain Clean Financial Statements
- Create a Comprehensive Training & Transition Plan
- Develop a Persuasive Reason for Sale
- Prepare for Due Diligence
- Build Infrastructure — Processes & Systems
- Contact Amazon to Ensure Transferability of Account & Customer Reviews
- Valuing an Amazon FBA Business
- Finding Buyers
- Types of Buyers
- Finding Buyers
- Due Diligence
- Closing the Sale
Minimum Requirements for Selling an Amazon FBA Business
Before we dive into the specifics of how to sell an Amazon business, let’s first discuss if you should sell yet. There are some minimal requirements to target before considering selling your Amazon business.
- $100,000 in Profit — Ideally, your business should generate a minimum of $100,000 in annual profit, before expenses. Buyers today focus on profit and few buyers find value in revenue alone, with the exception of strategic buyers who could quickly re-engineer your business post-closing to eliminate duplicate expenses.
- Stable Revenue — The revenue from your business should be consistent, with no recent decline in revenue. A positive, upward trend is best.
- Documented Processes — Your company should be operating like a real business, with employees executing documented procedures, and minimal dependency on you. If you have more of a general manager role instead of a technical role, it will be easier for a new owner to fill your position.
Prepare Your Amazon Business for Sale
Now, let’s discuss steps you can take to prepare your Amazon business for sale. Many of these steps you can take are optional, but the more you invest in preparation, the easier your Amazon business will be to sell and the more you will receive for your business.
Your objective in these preparatory steps is to reduce the risk for the buyer. Value is always a function of risk. The lower the risk of interruptions in the income stream, the lower the risk to the buyer and the more your business will be worth.
The list below is prioritized to help you focus your preparations on quick wins that can significantly reduce risk.
Amazon businesses are highly dependent on outside factors, and this is nearly every buyer’s concern. Your business may be dependent on suppliers, marketing channels, key employees, or products. The less dependent your business is on any one variable, the lower the risk to the buyer.
Reducing dependency is different for every Amazon business. Look at your business objectively and ask where your weaknesses are. Consider balancing organic growth with paid, external growth. Develop a wide range of proprietary products. Develop relationships with backup suppliers in the event of delays.
If you can’t reduce dependencies, and your business has one-too-many risk factors, then you may consider selling your business based on an earnout. Structuring some form of the transaction as a contingent payment carries inherent risks, but this may be the only option if your business is heavily dependent on one or more factors.
Increase Barriers to Entry
Every buyer will look at your business and ask themselves how difficult it would be to replicate it from scratch. Competitors are particularly picky about this, figuring that if they can replicate a business from scratch at a lower cost, given lost opportunity cost, they will do so.
By reducing the ability to replicate your business and building barriers to entry, you will strengthen your business. These can include having a strong Amazon seller rating, an external website, strong supplier relationships, key employees with long-term employment agreements, and proprietary products — ideally protected by trademark , trade secret or patent law protection.
Consider creating alternative organic growth strategies, but keep in mind that it’s best if you can generate momentum on these strategies so there is a basis for developing assumptions for your projections.
Maintain Clean Financial Statements
Maximize the amount of profit that is shown in your financial statements and federal income tax returns. Minimize any personal expenses you run through the business. Doing so improves the odds the buyer can obtain financing to acquire your business, which will reduce or even eliminate the amount you have to finance. The higher the profit you show on your tax returns, the more debt service your business will be able to support when a bank runs the calculations to determine if they can finance the transaction.
Banks do not allow most personal adjustments to your financials when calculating cash flow, so it’s best to minimize the personal expenses you run through the business for at least two years prior to the sale. Maintain a separate bank account for your business and run no personal transactions through your business.
Minimize any large expenses, one-time expenses, or long-term investments, such as new product development or renovating your office. If you do make these investments, capitalize the expense so it appears on your profit & loss statement as depreciation, which is added back when calculating your SDE.
Create a Comprehensive Training & Transition Plan
When selling an online business, you are likely to receive interest from buyers who have little or no experience in your industry or in operating an online business. It’s best if you can position your business to appeal to these types of buyers. After all, the more buyers your business appeals to, the easier your business will be to sell. In order to position your business to appeal to novices, who often pay a higher purchase price, it’s helpful to develop a comprehensive training and transition plan.
This plan can include materials that are generated both internally and externally. Internal materials include documented processes, manuals, checklists, and instructions. External materials can include education materials, training from trade associations, training videos, books, guides, forms, and checklists.
Don’t overwhelm the buyer. If you provide the buyer with too much data, they may suffer from information overload. Create a plan that includes a framework of elements that you can customize based on the buyer’s background and experience. If they have experience working with overseas suppliers, remove that module from your plan. Separate the ‘need to know’ information from the ‘helpful to know’ details. For example, a buyer would need to know the terms of your supplier relationships, but detailed step-by-step instructions for new product development may only be helpful to know.
Develop a long-term consulting plan you can propose to a buyer to provide added reassurance. This plan can be simple and includes your preferred process for providing ongoing support, such as emails, phone calls and possibly on-site visits in the event they encounter a curveball post-transition they would like your input or guidance on.
Once you develop this plan, you can use it to your advantage when selling your Amazon business. If you are meeting with a buyer for the first time, and they determine they may not have enough experience to operate your business, then whip out your transition plan. Show the buyer the various modules and the materials included in each module. Walk the buyer through what the training plan would look like and how long it would take. This gives the buyer reassurance that the handoff will be made smoothly, with minimum interruptions, and with ongoing support.
Fear is the number one deal-killer when selling a business to an individual. Individuals are often parting with a substantial portion of their net worth, and they may not have ever owned a business before. Remember back to the day you first took the leap into entrepreneurship. You were likely crippled with trepidation. If you are like most entrepreneurs, you bootstrapped your company. It’s unlikely you wrote a large six or seven-figure check to get your business going. Now, put yourself in the buyer’s shoes. The buyer must write what is likely the largest check they have ever written in their life and normally without ever owning a business before. This takes a tremendous amount of courage for the average individual. Your transition plan should be designed to allay the buyer’s fears and can be one of the most powerful weapons in your arsenal.
Develop a Persuasive Reason for Sale
Many buyers will be skeptical regarding your reason for sale. If you are young, healthy and not relocating post-closing, then they are likely to be even more skeptical. Many buyers will wonder why you are selling the business if it’s on a positive growth trajectory.
Always be honest with the buyer, because the truth will eventually come out. If you are burned out, tell the buyer. If you are bored, tell the buyer. It’s common for some entrepreneurs to love the startup phase of entrepreneurship and despise the monotony of the other phases of growing a business. That’s okay.
Subjective information, on the other hand, can be positioned as an opportunity. For example, if a competitor recently created a version of your product that is superior to yours, then you could explain to the buyer that ongoing product innovations are a requirement in your industry and to be successful, creating new iterations of existing products is necessary. However, you are burned out and you want to take some time off from the business, reap the fruits of your harvest, and travel the world for awhile. You are concerned that if you take your foot off the gas in your business, other competitors will slip past you while you are sipping your cocktail in Tahiti. In this situation, you are being honest with the buyer and frankly, you are challenging the buyer. By disclosing this information, you build trust with the buyer.
Prepare for Due Diligence
Now comes the fun part — preparing hundreds or perhaps thousands of documents to withstand the scrutiny of the buyer’s due diligence. This can include financial statements, bank statements, Amazon statements, vendor lists and invoices, and dozens of other documents.
Technology advancements now offer several options for setting up an online repository to easily share your company information with buyers. If you are concerned with confidentiality, ask the buyer to come to your office to view digital or physical records. The most secure scenario is one in which you print out the physical records for the buyer to view in your office and the buyer cannot leave with copies, but make sure they don’t bring their cellphone into the room. We recommend you not share this data with buyers until you have agreed to the price and terms and accepted an offer to purchase, along with an earnest money deposit.
Build Infrastructure — Processes & Systems
The most plentiful groups of buyers are unhappy corporate executives. For example, if you have a business in Florida, you may be contacted by an engineer in Seattle making $170,000 a year who wants to escape the rainy weather and move to Florida. They may have $600,000 in liquid cash, $500,000 in home equity , and $300,000 in retirement funds. It’s likely this buyer may have a lot of experience in the tech industry, however, they may have zero experience with Amazon FBAs. This is where infrastructure comes into play.
Building processes and systems in your business reduces the level of risk to the buyer. It’s unlikely most buyers will be interested in your business if it’s highly dependent on you, and if you can’t walk away for more than a few days at a time without it imploding. Building systems and processes into the business makes it less dependent on you, thereby dramatically widening the universe of potential buyers who could own and operate your business.
Contact Amazon to Ensure Transferability of Account & Customer Reviews
Contact Amazon Seller support and ask them for a list of procedures required for an account transfer. Ask Seller Support to check your account to ensure it can be transferred. Amazon does not widely disseminate information regarding the process for transfers, however, you want to make sure there are no current issues that would prevent your account and customer reviews from being successfully transferred to the buyer upon closing.
Valuing an Amazon FBA Business
Most Amazon FBA businesses will sell at a 2.0 to 3.0 multiple of SDE. The value of your business is based on profit, not revenue. The higher the earnings, the more your business will be worth. Also, the higher the earnings, the higher the multiple you may receive for your business. For example, if your business is netting $100,000 per year, then you may only receive 2.0 times your earnings, whereas if your business is netting $1 million per year, then you may receive 3.0 times your earnings.
Risk is the primary driver of value. The lower the risk, the higher the multiple. The higher the risk, the lower the multiple. Every factor below can be distilled to one question: does this reduce risk to the buyer? When attempting to increase the value of your Amazon FBA business, anything you do to decrease the risk to the buyer will increase the value to the buyer. With that being said, following are additional factors that can influence the value:
- Dependency — The more dependent your business is on marketing channels or products, the less your business is worth.
- Age of business — The longer your history, the more your business will be worth, assuming revenue growth is stable or positive.
- Growth — The higher the growth trajectory, the more your business will be worth.
- Strength of competition — The more competitive your niche, the less your business is worth. The less competitive your niche, the more your business is worth.
- Barriers to entry — The higher your barriers to entry, the more your business is worth. Barriers to entry can include a strong brand name, trademarks, trade secrets, proprietary designs, patents, and customer reviews.
- Margins — The higher your margins, the more your business is worth, assuming margins are stable and not decreasing.
- Customer reviews — The more positive customer reviews you have, the more your business is worth.
- Owner’s duties — The more difficult it is to replace you, the less your business is worth. The more hours you work per week, the less your business is worth. The more technical your role, the less your business is worth, because a new owner will likely have to hire a technical expert to replace you, which will reduce earnings.
- Staff — The higher the quality of your staff, the more your business is worth. This includes longevity, long-term employment agreements, experience, etc.
Types of Buyers
There are a few different types of buyers who may be interested in your business. Most likely, the buyer will be an individual. These can include people who are currently in the corporate world or internet entrepreneurs. When dealing with these buyers, beware of newbies who may be thinking of starting their own Amazon FBA business and are just looking to learn. These sorts tend to be easy to spot — look for lots of ‘how to’ type questions, such as ‘How do you do XYZ?’ A buyer who is genuinely interested will ask you questions that will help them determine if investing in your business makes sense. Buyers who are just looking to learn may ask questions to learn how things work behind the scenes.
Selling any online business attracts a wide audience of individuals. We have found that some personality types do not make ideal buyers. Some people may be highly analytical, overly confident, and overly critical of potential risks associated with owning a business. Basically, some people lack the courage to make the leap into business ownership. Ideal buyers are people who have evaluated the risks and are tolerant of them. These buyers come from many backgrounds, including tech, sales, marketing, project management, and other levels of management. These types of buyers are less technical and are more accustomed to making decisions based on incomplete information.
A strategic buyer is ideal. However, selling an Amazon FBA business to a buyer who brings synergies to the table is difficult because they are hard to find. Also, it’s unlikely they will pay a higher purchase price than an individual. Still, it’s worth exploring if such buyers may exist for your company.
There are three general methods for finding buyers:
- Online marketing channels — There are dozens of online portals for selling a business. The key to these databases is knowing how to use them, which is one of our specialties. If your business is relocatable, then knowing how to work around the web portals’ inherent limitations regarding marketing a relocatable business is critical. Online marketing channels attract all three types of buyers.
- Buyer databases — Some brokers also maintain buyer databases. These databases generally include a list of all buyers who have contacted the broker in the past. It’s unlikely the broker has a strong relationship with anyone but a minority of the buyers in the database, so having a database is a headstart but not an absolute requirement.
- Contact companies directly — This method is only suitable if you manufacture and sell proprietary products. This could include a brick-and-mortar retail shop or an online business selling similar products looking for an Amazon presence. This method can be supplemented by the two methods mentioned above.
Once you accept an offer, due diligence begins. However, when dealing with experienced buyers, beware they may be looking for competitive information.
To protect yourself, we recommend the following before you start due diligence:
- Always request an earnest money deposit.
- Get the buyer to spend money — they can spend money on attorneys, accountants, etc. — the more, the better.
- Ask the buyer for proof of their financial qualifications.
- Hire a business broker or M&A advisor. These advisors have deep experience with buyers and can gauge the buyer’s level of interest or determine if they are merely attempting to gain competitive information.
Closing the Sale
The closing for an online business is not materially different than for any other business. Due to the nature of the business, the closing is likely to be digital where the money is wired several days before closing, and the closing documents are signed electronically. Access to technology, such as your website or other online accounts, can also be escrowed, if necessary, and released to the buyer at closing.
Selling an Amazon FBA business has many similarities to selling a more traditional brick-and-mortar business, but having a clear understanding of the differences can make it an easier, more profitable sale for you. Make sure that your business meets the minimum requirements before you try to sell, then maximize your appeal by preparing your business, capitalize on the value of your company, and find the right buyer. Following these principles can help you strengthen and sell your Amazon FBA business.