For most Amazon business owners, your daily focus is on how you can grow your business, make it more efficient, and make it more profitable. This is the normal day-to-day mindset of most entrepreneurs.
But in the back of most business owner’s minds is the idea of a “someday” exit: selling that business or being acquired.
These thoughts of an exit usually don’t become serious until you are actually ready to sell, yet this is unfortunate since the decisions you make today can make a huge impact on the value of the business you are building.
So in this article, I want to provide you with a general framework that you can use to analyze your business today in order to sell your business…whether that’s in 2018, 2019, or whether selling your business is still a “someday” goal.
Wait…You Can Sell an Amazon Business?
Before I jump into what you need to know in order to sell your Amazon business, it makes sense to address what is often the elephant in the Amazon room:
Can you even sell or transfer an Amazon business?
Amazon’s terms of service seem to prohibit the sale and transfer of Amazon account. Their public position states that new ownership should set up a new seller account:
In practice, however, hundreds of accounts have been sold and transferred, with Amazon’s approval and instructions on how to transfer the account to a new owner.
In fact, over the past year alone, we have sold millions of dollars worth of Amazon businesses and completed dozens of deals for business owners who successfully transferred over their Amazon accounts. In each of these transactions, our clients reached out to Amazon in advance of their sale, informed Amazon that a new owner was taking over the business, and received instructions on how to change key account details.
What Makes an Amazon Business Sellable? Here are 4 Pillars of Value
When selling any business – not just an Amazon business – there are literally dozens of factors that are taken into consideration by potential buyers. If we were to list out all of the factors, it can become overwhelming.
Fortunately, the vast majority of these factors fit neatly into 4 general categories, or four pillars that lead to a valuable business:
- Ability to Transfer
I’m going to explore each of these categories in-depth, but before I do, there’s an important ingredient that you need in order to make all of this work:
Many Amazon business owners do not realize just how important it is to prepare your business for sale in advance of trying to sell your business.
If you need to make any major changes to your business in order to add value or make it more sellable, it can often take 12-24 months before those changes translate to adding value to your business or making it more sellable.
Fortunately, the 4 keys I listed above are good for any business to implement, regardless of whether or not you plan to sell within the next few years or not. So even if you don’t plan to sell, working through these pillars and evaluating your business will have the double benefit of making your business more valuable to potential buyers, but also to you, personally.
Risk – Minimize Exposure, and Add Redundancies
When thinking about the value of any online business, it’s important to think how a potential acquirer might think.
Why would a buyer want to buy any business? Why would they want to buy your business?
Buyers want to buy a business primarily for a return on investment. This is the most foundational element of any acquisition. Without the prospects of a strong ROI, most buyers will pass on an opportunity (as it wouldn’t actually be an opportunity at all…it would be a waste of money).
This desire for a strong return on investment forms the foundation of buyer’s fundamental desires. While they can also be motivated by a business’s lifestyle, or the niche it occupies, if it can’t produce a solid ROI, a deal is very unlikely to happen.
A few common areas of risk that you should consider:
- Key-man risk. Is there a person in your organization that is essential to its day-to-day operations? What would happen if that person left, or, heaven forbid, passed away? Are you that person?
- In the Amazon environment, this is a big deal. How easy is it for a competitor to crowd you out? What sort of “moat” do you have to protect yourself from competitors?
- Single points of failure. Are you reliant on one primary supplier? Are there other suppliers available? Look for any area of potential failure and build a redundancy plan as a backup plan.
Future Growth – Show Realistic Avenues to Growth
Since buyers are primarily concerned with seeing a positive ROI when buying an Amazon business, it makes sense that being able to show potential buyers how they could grow your Amazon business further would make your business more valuable in their eyes.
One of our buyers, Kent Renner, acquired an Amazon business from a client of ours partially based on its growth opportunities. He was able to grow the business 300% in the first 6 months by simply following the growth opportunities that were laid out. We talked to him about this in one of our first podcast episodes.
When looking at future growth, however, you need to distinguish between realistic growth opportunities and mere wishful thinking. Many business owners believe that their business could be much bigger than it already is, but navigating the growth channels is always the tricky part.
A good litmus test to apply to your business when you are evaluating if there are good growth opportunities is to ask yourself “why haven’t I pursued these growth avenues?”
The answer to that question can help you learn just how realistic your growth opportunities are.
A few things to pay attention to when evaluating and preparing your business to maximize its value:
- Timing is everything. The best indicator (for a buyer) of future growth is a steady history of growth. A business that is in decline is less attractive than a business growing steadily year over year. If you are thinking of selling your Amazon business, work to get your timing right.
- Focus on specific avenues to growth. Don’t tell a buyer that “with a few more products, the business could grow”…that’s not very specific. Rather, help the buyer identify specifics, such as “We currently carry blue, red, and yellow widgets, which have done well, and we think that adding purple widgets would continue our positive trends.”
- If you can grow the business, do it. While buyers will pay you a bit more growth potential, you will get more money if you actually grow the company yourself. This is because most Amazon businesses are valued at a multiple of their earnings. So if you add $100,000 in earnings through natural growth, you get to keep those earnings plus multiply those earnings in an acquisition. It’s a double-win.
Transferability – Make it Easy to Run Your Business
If a potential buyer can’t run your business, it becomes unsellable.
As potential buyers evaluate your business, they will evaluate items that could destroy the business (risk), ways that the business could grow (growth), and they will also try to picture themselves owning your business and running the day-to-day operations (or they will picture hiring someone to do the same).
If there is some barrier to them doing so, this will hurt the value of your business.
But there are two sides to this key. While you want your business to be easy to run, you do not want it to be easy to replicate. After all, we already covered under “Risk” that you want to build a virtual moat around your Amazon store.
Because of this, you should work to build standard operating procedures and guides to help anyone learn how you run your business.
A few things to consider when evaluating your business’s transferability:
- Record screenshares of key procedures. Screenshares are easy to create and are often more educational than a written guide.
- Have key employees document their procedures. Don’t stop at your own key procedures, ask employees or assistants to document how they handle key tasks.
- Get contracts wherever possible. Transfering vendors, employees, and contractors can often be worrisome for a potential buyer. Having a contract in place, or taking steps to ensure key vendors, employees, and contractors will transfer over to a new buyer can increase the value of your business.
Documentation – Get Organized and Keep Your Books Clean
The most common issue we see with online businesses that impacts a business’s value is not risk or growth or transferability: it’s lack of clean documentation.
While I’m sure you are probably a very nice and trustworthy person, and while a potential buyer may enjoy and trust you implicitly, few buyers will trust you enough to write a check for six, seven, or eight-figures without having clean documentation to prove that your books and business are accurate and complete.
In addition, the information a buyer needs to evaluate whether they want to acquire your Amazon business is different than what you probably need to run your business on a day-to-day basis.
Most online business owners are content to run their business with a mix of data and intuition that they built over years of growing their business. Buyers, unfortunately, don’t have the fortune of that same intuition, so they need to rely on your documentation.
Here’s what (and how) you should document:
- Your financials should be clean, separate, and verifiable. If you are not using professional accounting software, such as Xero or Quickbooks, you need to start immediately. Don’t mix multiple businesses together, and don’t mix personal and business together. If that sounds like a lot of work (and it can be), hire a bookkeeper.
- Run your books on accrual basis. I could write a blog post on this topic (we have, actually), but you should run your books on accrual basis. We worked with a client who was depressing the value of their business by 86% because they used the wrong accounting basis. Again, hire a bookkeeper, and insist on accrual basis (they may fight you as it’s more work).
- Covered above, but where possible, get a contract on file.
- A business that comes with a complete set of standard operating procedures is very tempting for buyers as they can see themselves running the business more easily.
- Diagram your business. Take the time to diagram the parts of your business. What do you do for marketing? Customer support? Sourcing products? Fulfillment? Who is involved in each of these areas? Build out a mind map or hierarchical chart. You might be surprised at how useful this activity is – even if you don’t want to sell.
While documentation might sound like a minor issue, you can destroy the value of your business with poor documentation, and you can also increase the value of your business if you have superior documentation.
Conclusion – This General Framework Will Add Value to Your Business
There are dozens of factors that impact the value of an online business, but most of them will fall into these four general categories.
Take some time to evaluate your business carefully under each of these four categories and identify areas that you need to improve your business. Shore up areas of risk, evaluate what are real growth opportunities and what are not all that realistic (and pursue them, if you can), establish SOPs and resources for your business, and finally, keep solid, clean, and verifiable documentation.
If you follow these four keys, you’ll be well on your way to building a highly valuable, and highly saleable Amazon store.
Quiet Light Brokerage, Inc. is a group of entrepreneurs who have each started, sold, and acquired online businesses, and now help other online business owners prepare and sell their online businesses since 2007. Get a free valuation or general assessment of your online business at https://www.quietlightbrokerage.com.
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