Get Your Numbers Right to Sell Your Amazon Business

One of the hottest topics these days in the eCommerce business world is the incredible seller's market that we’re currently experiencing, particularly for Amazon sellers. The combination of booming sales because of the pandemic and the influx of capital available for aggregators to buy eCommerce businesses has made it a time to consider your exit.

I recently chatted with Paul Miller of Amazing Exits Podcast and John P., a long-time client who recently sold his business. Here are a few of the lessons learned from those conversations about what you should know if you plan to sell your Amazon business.

Plan for Your Amazon Exit

One, make sure you're planning for your exit from selling on Amazon. John had considered selling in 2018 and realized that the offers just weren't going to set him up as well financially as he would have liked. He decided to stay in the business and continue to grow for another three years.

Having completed his planning exercise, he knew how to grow his business in a strategic way that would make it more appealing to buyers. He also knew the value of his business. When the market heated up, he knew he was in a good position to list the business for sale.

John worked with two different brokers, one in 2018 and another in 2020. These brokers had different processes. One was more involved in evaluating his Profit and Loss report before the business listed and the other was not concerned with the financial details until the final deal was negotiated and even at the stage of due diligence. Both, however, required that John have his financial house in order.

We have clients working with a variety of brokers and private equity firms, and the bottom line is you need your numbers to make sense for the past 2-3 years. From an accounting perspective, they want the revenue and the inventory cost of goods sold to be recorded using the accrual method of accounting. If you're considering selling, talk with a few brokers to learn what they require and start to get your financials in order.

Consider Your SDEs

Once you have your basic bookkeeping in order, you need to consider your seller discretionary expenses (SDEs). These are expenses you incur that another owner might not need. For example, travel. If you enjoy going to certain trade shows, a new buyer will not necessarily make that trip.

These SDEs, once identified, are "added back" to the bottom line of your P&L to improve your bottom line. When a potential buyer is doing their due diligence, they will review your SDEs and negotiate if they feel these expenses are vital to business operations. You can work with your accountant to create a P&L that includes your add backs in order to better understand the value of your business.

Go for Your Best Multiple

As you start negotiating, you will want to consider the multiple that your business may sell for, as well as the terms. Solid businesses can command a higher multiple. Paul Miller said, "The more unique you are as a brand, the more IP you have as a brand, the more sustainability you have."

For example, maybe you do a large portion of your revenue as reoccurring revenue, like Subscribe and Save. Or maybe your customer data is extensive, or you have a big pipeline of products in development. These are all factors that can increase your multiple. “In talking with my clients, we have seen multiples of 3-5x being offered,” Paul noted.

Outline Your Terms Before You Sell Your Amazon Business

Another aspect to consider is your terms. The buyer will typically offer an upfront payment of 60-80% and the remaining percentage is paid over 12-36 months as an earnout. You want to ensure you have done your due diligence on the buyer to learn their track record for paying earnouts.

The upside potential is that they can grow your brand and you can receive a substantial earnout. The opposite is also possible, so make sure you have confidence in your buyer's ability to pay the earnout.

Start Now—It Will Be Worth It

Take time now, even if you're not ready to sell your Amazon business right away, to think about your exit strategy. What is your timing? Are you creating a business now that is going to be easy to position for selling at the right time?

We love hearing from our clients that they negotiated a better deal because their numbers were in order and they had confidence in the meetings with buyers. Position yourself to negotiate from a place of confidence by getting your numbers in order now.

If you need help getting your Amazon business where you’d like it to be in terms of profitability, check out my book, Profit First for Ecommerce Sellers. It answers important questions about how to implement Profit First in an eCommerce business. Take control of your money and your business, and put Profit First to work for you!

RestockPro by eComEngine can help you manage your Amazon profitability as well as your FBA inventory. You can also quickly identify stale inventory and see what you need to reorder to stay in stock. Staying in stock protects your sales rank and profits.