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Preparing An Amazon Seller Business For Sale

By s9800076 |

August 27, 2020

The outline set forth in this document can be used as a basic tool to provide Amazon Business Owners insight into bullet points to think about prior to selling an Amazon Company. This tool is more of a “best practices” outline rather than an all-encompassing rule of thumb – in order to truly prepare for the sale of an Amazon Business, you should call reach out to a skilled broker as early on as possible so that we can begin working you through the process.

KEY TERMS DEFINED

 

    • Capital: Money or other assets owned by a company or person.

 

    • M&A: Short for Mergers and Acquisitions, which means two companies are merging into one or where one company acquires another.

 

    • COGS: Short for Cost of Goods Sold, which means the money needed to produce the products that are sold. The cost of distribution, sales and administration are not included in the COGS.

 

    • SG&A: Short for Selling, General & Administrative, which means the costs involved in selling products as well as general and administrative costs. The cost of producing a product is not included in the SG&A.

 

    • Redundancy: The condition of replacing yourself with team members and procedures so that you are no longer needed in the company’s day to day operations.

 

    • Balance Sheet: A financial statement of the assets, liabilities, and capital (available money) of a business at a particular point in time, detailing the balance of income and expenditure over the preceding period.

 

    • Add Back: An expense, usually made up of a mix of owner salaries (to an extent), personal expenses and/or one-time business expenses, that are removed from the expenses column and added back into earnings for the purpose of improving earnings when putting a value on the company.

 

    • Working Capital: The measure of a company’s efficiency and short-term health. This is calculated by taking the money and assets and subtracting from that, the liabilities. Example, if a company has $100,000.00 in cash, receivables and inventory, and $50,000.00 in liabilities, they have $50,000.00 in working capital which is a good sign. eCommerce companies generally put an average level of working capital (usually inventory) into a deal at closing.

 

    • Intermediary: A person who works between two others to help bring about them into agreement. Also known as a Business Broker or M&A Advisor.

 

    • Family Office: A private wealth management company for the ultra-wealthy investors.

 

    • Private Equity Group: An investment management company that provides financial backing and makes investments in the private equity of startup or operating companies through a variety of loosely affiliated investment strategies including leveraged buyout, venture capital and growth capital.

 

    • Venture Capitalist: An investor who provides money to new, starting companies (seed capital) or to companies looking to expand (round of capital).

 

    • EBITDA: Short for Earnings Before Interest, Taxes, Depreciation and Amortization. This is often used to compare the values of companies without considering the effects of financing and accounting. To find EBITDA, take the net profit and add: interest, taxes, depreciation, and amortization.

 

    • TTM: Short for Trailing Twelve Months. This is a measurement of a company’s financial health taken by looking at the financial analysis of the company over the last 12 months.

PROCEDURE

The following are important items to think about in achieving a successful M&A process:

    1. Prepare early:
        1. Maximize profitability.
        1. Sell on the upswing.
        1. Maintain margins & reduce COGS & SG&A to the extent possible.
        1. 2 years of tax returns is recommended, but 1 year will still work.
        1. Start talking early on to a professional that can help you organize the sale of your business – preferably a business brokerage with experience selling Internet Companies

 

    1. Ownership redundancy –  focus on selling the company without you being involved in operations:
        1. Provide operational processes of your company including written SOPs.
        1. Transition expertise to 3rd parties.
        1. Transition, then consult.
        1. Test your redundancy by going on vacation.

 

    1. Cost efficiencies and backups:
        1. Clean up the balance sheet.
        1. Obtain supply contracts with your vendors, if possible
        1. Reduce COGS through buying in greater volumes.
        1. Have backup suppliers (when possible).
        1. Reduce unnecessary expenses.
        1. Monetize under-used assets. For example, if you have inventory that isn’t selling, cash in on it.

 

    1. Financials, taxes and controls:
        1. Have your finances reviewed by an accountant.
        1. We recommend at least 2 years of tax returns prior to sale, however, we’ve sold companies as young as 1 year, with banking financing.
        1. Look at profitability from the buyer’s eyes.
        1. Control monthly cash flow to show stability.
        1. Have solid management in place for transition.
        1. Ensure financials are prepared using recognized software.
        1. Keep an eye on inventory levels.

 

    1. Sales mix:
        1. Try to expand your SKUs to avoid concentration in any single product to make it more attractive.
        1. Scale into multiple categories, if possible.
        1. Scale out into other marketplaces.
        1. Sell on your own website and/or social media.
        1. Add subscription revenue, if applicable and possible.

 

    1. Scale opportunities and forecast:
        1. Begin scale on your own prior to sale, and create a plan for additional scale.
        1. Prepare a scale “to do” list for the new owner.
        1. Create a 2 year forecast and plan.
        1. Scale opportunities:
            1. Product development.
            1. Platform sprawl.
            1. New marketing techniques.
            1. Beginning sales on international platforms.

 

    1. Remove personal liabilities and expenses:
        1. Remove “family” from the family business.
        1. Clean up shareholder expense habits. Think about your personal expenses and reduce them to clean up the accounts.
        1. Normalize the books.
        1. Provide confidence in the assets being purchased.
        1. Help ease the negotiation and decision-making process.
        1. Some add-backs are acceptable.

 

    1. Create a vision for new ownership:
        1. Have vision statement ready for buyer conversations.
        1. Create a clear path to ensure cash flow continuity.
        1. Have a 2 year vision and mission plan.
        1. Sell on the upswing so that the vision appears realistic.
        1. Help buyers understand why the future’s so bright.

 

    1. Profitability and working capital:
        1. Understand your profitability.
        1. Always be focused on growing profitability, not just sales.
        1. Normalize working capital.
        1. Maximize profits and minimize working capital.
        1. Growth companies need to balance growth with profit.

 

    1. Seek professional advice early:
        1. Understand the role of accountants, lawyers and M&A intermediaries / brokers.
        1. Understand what the market will bear.
        1. Align your expectations with the expectations of the marketplace

SUMMARY

    • Be mindful that you will need to execute a non-compete at closing, the requirements of which vary depending on the buyer. We can help answer questions on this during the intake stage.

 

    • Typical buyers for Amazon Companies that sell for less than $5 million are oftentimes executives that are leaving corporate America – they will normally take out a loan – and if they work with our lending partners – you will achieve 90-95% of the purchase price in cash at the closing table.

 

    • Businesses that sell between $5-50 million are often purchased by small family offices, private equity groups, spinoffs and wealthy individuals. Over $50 million transactions are generally purchased by larger equity groups, institutional investors, roll up groups and strategic buyers.

 

    • How taxes will impact your sale depends on you and your location – we need to talk.

 

    • The value of an Amazon business is based off of Discretionary Earnings, which is the company’s annualized EBITDA, plus the salary of the owner (up to an extent, depending on the redundancy built into the company), any personal expenses on the books and any one-time expenses that a new buyer would never have again.

 

    • Valuation multiples start at 3.5X and go up to 6X for Amazon Companies with less than $2M in EBITDA, usually based off of the company’s Discretionary Earnings. Where in that value range an Amazon FBA company falls requires a deep dive into the company, its financials and its operations.

 

    • Super high growth companies may need to be valued based off of a forward looking set of forecasted financials, but that requires both substantial year over year and month over month growth – very few companies qualify.

 

    • Multiples can oftentimes exceed 6X on high growth companies with over $2M in EBITDA annually.

WebsiteClosers.com is the largest tech and Internet business brokerage in the world. With hundreds of active clients at market at any given time, many of which generate sales on Amazon, no other brokerage in the world has the same level of experience or know-how in selling these companies. And not only are we attorneys, M&A professionals and Internet Business Owners ourselves – we also sell on Amazon. This puts us in a great position to understand our Clients’ Amazon businesses from the inside out, which is important when representing clients in front of suitors, investors and institutional lenders.

WebsiteClosers has a large team of expert intermediaries that manage transactions from as small as $200,000 to as large as $150M, as well as teams of lawyers, accountants, due diligence experts, tax advisors, escrow agents and much more – all of which work as a team to ensure an efficient sale of all businesses that come across our desk – all at the highest multiples possible. Our goal is not to just sell a company – it’s to sell a company at the very highest price possible – as fast as possible – and change the life of our clients.

Authored by WebsiteClosers founders, Ron Matheson & Jason Guerrettaz at rmatheson@websiteclosers.com;  jguerrettaz@websiteclosers.com  (800) 251.1559

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