Q&A with a leading Amazon FBA business acquiror and operator

March 06th, 2019

Q: “What’s my Amazon FBA business worth?”

A:           One of the most commonly asked questions we get is “How does someone value an Amazon FBA business?”. We wish there was clear cut answer as it would make our lives a lot easier! At Thras.io we take a formulaic approach to valuation. We weigh ~20 key performance of indicators (competitive marketplace score, product quality, history of business, margin profile, revenue growth profile, etc.) to come to a competitive and fair market price.  

Over the past 12 months we have seen market valuations consistently range in the 1.75x-3.0x trailing twelve months’ net profit/seller discretionary earnings for Amazon FBA businesses. If you are generating $500,000 to $5,000,000 in annual revenue on Amazon, we believe that valuation range that is the right framework to think about. Valuations tend to rise as revenues get bigger and channel diversification increases. There are a lot of variables that come into play when valuing an Amazon FBA business- what we have outlined is our market knowledge.

Q: “I’ve decided to sell my Amazon FBA business, now what?”

A:           Step 1: ‘KEEP OPERATING AS IF’. ‘Keep operating as if’ you aren’t going to sell your business. We have experienced a few situations where the seller took his/her eye off the ball once he/she decided to sell and the business decelerated materially.

All valuation discussions will consider recent performance, including performance during the due diligence period. If you are selling to an SBA buyer, the process could take up to 6 months. The worst thing you can do is take your foot of the gas; you have worked day and night for years to get the business to this point, keep pushing through the finish line. Your extended beach vacation is right around the corner!

Step 2: Get your financial house in order. Before you decide to sell your business, make sure you have relevant financial information available to prospective buyers and business brokers.

We take investing our capital very seriously. We want to make sure we are agreeing to buy the true profits of the business. Besides time, a major deal killer is overstating profit during the letter of intent stage. Mis-statement of earnings will eventually lead to a re-negotiation of the deal price during due diligence; this re-negotiation is not pleasant for either party.

Make sure, at a minimum, you have a trailing twelve-month profit and loss statement broken out monthly with accurate cost of goods sold data. This level of data should be the starting point.

Step 3: Market your business. The next step will be to reach out to buyers directly or list your business with a business broker.

Finding direct buyers is the quickest and most efficient way to sell your business as you are dealing directly with sources of capital. We pride ourselves on being easy to work with, fair, and efficient.  If you are marketing your business directly to buyers, you will want to ensure you have proper legal counsel. We have a great network of seller’s attorneys that we would be happy to refer you to. 

If you have trouble connecting with direct buyers, you will want to sign up with a business broker. Listing with a business broker is a traditional path that many Amazon FBA businesses go down. We have bought a few businesses that were brokered and have had enjoyable experiences. Brokers do create value for sellers at the exit stage by compiling financials and prospectus, conducting interviews with sellers, and handling negotiations- like a real estate broker. In exchange for the services and providing access to their buyer network, a broker will often take 5-15% to total deal price upon sale.

Q: “How do I find the right buyer?”

A:           There are typically two types of buyers for Amazon FBA business 1) SBA loan backed buyers          and 2) cash buyers. The difference between the two buyer types can lead to dramatic differences in the resulting sale process.

SBA loans can often take up to 6 months for approval and will require extensive diligence; during which point the buyer can walk away if they become overwhelmed. In our experience, time is the single biggest deal killer. The buyer can get cold feet, find a more attractive business, or ultimately change his/her mind.

As cash buyers, our objective to help our sellers have a fast, reliable, and easy process to receiving millions ($) in their bank accounts within 30-45 days post signing letter of intent

It is important to note that every buyer will have different criteria that he/she will weigh more than others (time required to operate, SKU count, category, etc.). Correspondingly, sellers should develop their own criteria for the ideal buyer (funding source, confidence in ability to close, operational expertise, etc.).  As a seller, you need to assess the likelihood of success across the offers that you will receive, particularly if you have multiple offers from varying buyer types.

Selling your Amazon FBA business is like selling your house, it will be one of the most stressful and biggest financial decisions of your life.

Due to the importance of a positive outcome, you want to find the right buyer that recognizes the value and that you feel comfortable with taking your brand to the next level.

 

Q: “I’ve agreed to terms and have a signed Letter of Intent, what’s next?”

A:           Once you agree to financial terms of the sale, the due diligence process begins.

The due diligence process will vary greatly depending on the buyer’s organization and knowledge, as well as yours! We can only speak from our experience and process.

You can expect to have a series of efficient calls over the coming weeks covering all the aspects of the business from suppliers to advertising strategy. In the background, our diligence team will methodically analyze the history of your account and products.

We aim to keep the diligence period to <30 days. At the end of diligence, assuming nothing extremely negative was unearthed, we would proceed to sign the asset purchase agreement and begin migration of assets. The asset migration period tends to run another ~15-30 days.

Once the asset migration is complete, we work with the sellers to phase them out of the business and free up his/her time!

We aim to have the account assets and all necessary knowledge transferred within 30-45 days from closing the deal. 

 

We know that selling your business is serious decision. We hope that we have provided you with some information from the other side of the table that will help frame expectations throughout the process.

We love talking to entrepreneurs and hearing success stories.

We also love being a huge piece of someone’s success story! 

If you are a seven-figure seller and are interested in learning more about the sales process or discussing what your business could be worth, please feel free to reach out to us at acquisitions@thras.io and someone will schedule a time to chat.

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