How to sell your Amazon business

First up, here's how an Amazon business is typically valued: SDE x multiple + Inventory For example: - an Amazon biz does $2m/year in revenue - of the $2m, $300,000 is net profit (before taxes, interest, and before owner compensation, plus any one-time or non-recurring expenses). This is called SDE, or "Seller's Discretionary Earnings" - SDE is multiplied by 2-4x. This depends on the growth rate, how concentrated the revenue is among SKUs (spread out revenue is better), and ultimately what the buyer is willing to pay. More on this below. All told: This means that at the low-end, this $2m revenue Amazon business is worth $600k ($300k SDE*2) and at the high end, $1.2m ($300k SDE*4). Then, the buyer will purchase the remaining inventory on-hand at cost. So, if you've got 5,000 additional units in stock and the COGS on each was $7.50, you'd get another $37,500 (5000*$7.50). So, the owner of this $2m revenue Amazon business will receive: $637,500-$1,237,500. And that's how it's done. You can use this math to figure out what your Amazon biz is worth. It's entirely possible to, over time, build up SDE, then sell, and never have to worry about money again. As they say: "you should only need to get rich once". PS - this valuation assumes there's no ground-breaking patents/IP in the mix, which would further increase the valuation. I'm talking about your classic Amazon FBA private label business here. Thinking About Selling Jeff Bezos talks about "1 Way Door" vs "2 Way Door" decisions.

A "2 Way Door" you can take back. They're reversible without much pain. For that reason, we can make them more casually.

But...

A "1 Way Door" decision is irreversible. Selling the business is one of those things. So before selling, I'd ask myself:

- Am I selling from a place of strength or a place of need? Strength looks like: "things are going well, but I have XYZ that I want to do. I want to free myself up to focus on XYZ." But a place of need (what we DON'T want) looks like: "The sooner I can get rid of this thing, the better! Given all these recent problems, if only someone would take it off my hands!" Strength commands a high valuation. Need can still be sellable, but for less.

- Consider: if I want to sell my Amazon FBA business, I should actually build an Amazon FBA business I don't WANT to sell. It's counterintuitive and weird. What does it mean to build an Amazon business I don't want to sell? I'd have to love owning it. Which probably comes down to 2 things: (1) Time freedom. I'm not stuck working in the business all day. There are well-documented processes/SOPs in place and they run without me (using software, a team, contractors, etc.). I can get involved as much or as little as I want. If something interests me, I dive in. Otherwise, I can stay out with no ill effects to the business. (2) Profitable. The business is throwing off cash. It's enough so that I can take generous owner's dividends and live well off of those. I don't mind owning the business because I'm just like "well shucks, every month that I don't sell means another cheque for me!" And boy, if profit is growing month-on-month, I'm really going. The plot twist is: if I have these 2 things in place, they're the same attributes that make you an ideal acquisition target. The new owners are just like me: they want to own the business asset without fuss. And they want it to throw off cash to pay back their cost of acquisition. Maximizing Valuation

With the above in mind, if I still want to sell, here's 4 things to maximize valuation because, again, I should only have to "get rich once" and then stay that way:

(1) CONSISTENT MONTHLY PROFIT, LAST 12 You should have made monthly profit of a minimum of $1000 per month for the last 12 months. If there was a month where you lost money, that's a red flag for buyers. The more profit, the higher your valuation. But the lowest acceptable "floor" I've seen is $1k/mo.

(2) PROFIT GROWTH, LAST 12 Show an upward trend in terms of monthly profit. The best monthly profit trend line would be something like: $1k, $1.5k, $2k, $2.5k, etc. Being flat (e.g. $1.5k, $1.5k, $1.5k) incurs a lower multiple. And trending down (e.g. $1.5k, $1.25k, $1k) incurs the lowest multiple of all.

(3) REASONABLE SELLING STORY You need a well-articulated, logical story for why you, personally, want to sell the business. "I'm burnt out", "I want to buy a house", "I want to send my kids to college". Whatever the story is, it should be genuine and make sense to buyers. If you can't articulate it, buyers may think that there's something wrong with the business itself. Bonus points if you can articulate what growth opportunities remain in the business for the new owners (e.g. international expansion, Shopify, more products, etc.).

(4) NO EXTREME REVENUE CONCENTRATION What if you made $100k/mo but 100% of that revenue came from 1 superstar SKU? Well then, your revenue would be considered highly "concentrated". This brings down your valuation because your business has a single point of failure. If that same $100k was evenly distributed across 5 SKUs, buyers can rest easier. Valuation up. At a certain point, though, more SKUs isn't better (e.g. $100k coming from 1000 SKUs) because it's more to manage. So, find a balance. Those are 4 things to maximize your wealth during an Amazon FBA business sale.