Dragonflip is an FBA business broker based in Europe and specializes in the sale of private label businesses. In this guest article, you'll find out how to calculate the value of your own FBA business.
Fulfillment by Amazon (FBA) is now one of the best ways to make money online. With the success of FBA, numerous business owners are currently weighing their options to sell on the platform. However, trying to determine the actual value of your FBA business can be an arduous task.
After spending the time and energy in developing a business, you need to know what your business is worth, not only for tax and legal purposes but also to track the business's performance, assess opportunities, and develop an exit strategy.
When you're wondering how much is my Amazon business worth? the first step is implementing one of the two most common metrics used to determine this: the SDE and the EBITDA methods.
The Seller Discretionary Earnings (SDE) and the Earnings Before Interest, Taxes, Depreciation & Amortization (EBITDA) methods each measure the performance of your Amazon FBA business. Smaller companies ($500,000 to $1 million) use SDE; larger companies ($1 million and over) implement the EBITDA method.
The SDE method calculates how much money you actually take home using the equation: Revenue - Cost of Goods Sold - Operating Expenses + Owners Salary.
SDE Method = Revenue - Cost of Goods Sold - Operating Expenses + Owners Salary
The EBITDA is used to show a potential buyer or investor how much your business is earning. The formula for EBITDA is: Net Income + Interest Expense + Depreciation Expense + Amortization Expense + Taxes.
EBITDA Method = Net Income + Interest Expense + Depreciation Expense + Amortization Expense + Taxes
Either method can be implemented. However, it's important to consider add-backs, which are expenses that are not required to maintain the business.
Every Amazon FBA business is unique, so determining value can be difficult. It's crucial to consider key valuation drivers and how they can increase the value of the business if a sale opportunity arises. Let's take a look at a few drivers that are important to Amazon FBA businesses.
The duration of your Amazon FBA business will determine its sustainability and future profit for a potential buyer. Depending on the buyer's risk tolerance, they might decide to invest in a business that is 24 months old instead of one at 12 months. However, there are buyers that prefer a slightly younger business for many reasons. Growth is attractive.
Not many buyers will be attracted to businesses that are declining, and in the same breath, no business owner wants to sell a rapidly growing business. The key is to have and sell a business that is trending, and one that most can predict will trend for a long time. Buyers are attracted to businesses that are consistently trending upwards.
Most business buyers are seeking businesses that will allow them time to focus on the growth of the business and not the operations. They often have more than one business and will not have the time to focus solely on one. Buyers, in this case, are more interested in passive income.
The finances of your Amazon FBA business tell the story of your history. Being financially stable is an important aspect for a buyer. Be careful not to over or under-stock your products (RestockPro can certainly help you with this!) as both can be incredibly costly. It is also important that your financial records/statements are sound. Hiring an accountant to compile your financial statements will increase buyer confidence and your valuation.
Many business owners prefer to select and focus on a specific niche as that may be where their strength lies. However, it's best to diversify your business and provide a variety of products as some customers and buyers tend to lean towards businesses that provide a wide range of items.
Preparing your Amazon FBA business for valuation can be an exhausting process, especially if you are unfamiliar with the steps. A valuation provides the business owner with beneficial information that indicates the true value of the business.
To make the process easier, you can use this Valuation Calculator from Dragonflip to help determine the market value for your Amazon FBA business. Dragonflip aims to successfully connect buyers and sellers, creating mutually beneficial solutions while solving the million-dollar question: how much is my Amazon business worth?
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