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fulfin - financing ecommerce November 24, 2021 11 Minutes
Categories: Finance - Categories | Financial Industry

For some entrepreneurs it is the goal from the beginning, for others absolutely unimaginable: The trade sale. Whether an exit makes sense and is worthwhile depends on various factors. Amazon is growing inexorably, and so is the number of third-party sellers and competitors. Merchants build up a profitable e-commerce business over many years with a lot of effort and at some point the question arises how much the company is worth and whether an exit is worthwhile. E-commerce exit worthwhile. 

In doing so, it is important to successful exit strategy in e-commerce to choose the company profitable for sale. Today, we would like to explain to you when a company is ready for an exit and what you should look out for in the Sale of an Amazon Business should pay attention to. 

What does exit strategy mean? 

Exit strategy can mean both the exit from one's own company or a company in which one owns shares as a shareholder, as well as the planned withdrawal from the market. In this article, we will mainly focus on the sale of an Amazon business and examine when an exit is possible or makes sense. In the case of an exit, the goal should be, at least withhold its own investments, better yet, the company profitable for sale. Those who choose a successful exit strategy can achieve the highest possible profit for their e-commerce business upon exit. 

On Amazon, merchants can sell individual listings or products or the entire business. 

When does an exit occur? 

A successful exit can be spontaneous or planned over a longer period of time - those who receive a good takeover offer sell spontaneously. Unicorn startups, on the other hand, may have planned it for a long time because it was part of their corporate planning. They become very successful within a very short time and challenge the market of established companies with innovative ideas and products, so that an exit is particularly lucrative and high sales sums are achieved. 

Why should you think about an e-commerce exit?

Amazon is growing fast and the competition is also getting bigger and stronger. More than 50 % of Amazon's sales are generated by third-party sellers and accordingly the requirements on the part of the online giant are also increasing. Those who can't keep up are slowed down and sorted out by the algorithm or/and the competition. 

As it expands into more and more countries, more e-commerce entrepreneurs are attracted and the Amazon empire expands ever more aggressively, making it harder for individuals to exist. Third-party sellers who can hold their own benefit from the e-commerce giant's smart logistics system and reach, but others fall behind. However, those who realize that the competition is getting tougher for them may consider exiting through an exit. There are many potential investors and intermediaries in the market to buy an Amazon business. Finding buyers should be less of a problem than ultimately choosing a successful exit strategy for a profitable sale. 

Whether a E-commerce exit makes sense depends on many several factors from: revenue, profit, brand protection, market position, growth, industry, product positioning or number and average level of reviews. 

Requirements Exit Check: Is the company ready for sale?

Although an exit can be lucrative, it is not always the right time for it or the conditions are not met. Therefore, the question is whether the company is exit-ready and exit-suitable? 

  1. Can the business model work without the founder?

2. is the timing right for the exit?

3) How coherent is the investment case? 

4. has the exit been prepared?

5. age of the undertaking or existence of the undertaking

6. the nature of the undertaking

7. growth trend of the company

8. seller discretionary earnings (SDE) / EBITDA (annual net profit)

The above factors play an important role in deciding whether the business can be sold.

Age

The buyer of the business needs to be able to estimate how long it will take to get their investment back, so the profit made over the life of the business is crucial. For example, if profits have been consistently high over the years, the seller can expect to get a good deal. The more consistent and higher the profits, the better the offer will be. If the company is only one year old, for example, it is difficult for the buyer to estimate what growth and profits can be expected in the following years, and accordingly the purchase price may be lower. 

Type of company

A distinction is made between three different Types of Amazon Business

  • Reseller/Dealer 
  • Amazon Private Label
  • Patented product

Reseller/Dealer

Resellers buy products wholesale and then sell them on Amazon for a higher price to earn the highest possible profit margin. This form of business is also known as retail arbitrage. Nevertheless, resellers compete for the Amazon buy box and usually undercut each other on price. This form of an Amazon business is very competitive and usually a hard sell. Reasons for this are many, but one of the main reasons is the volatility of the business. Furthermore, the product offering is a problem, because everything has to be offered separately and for sale. However, an exclusive contract with wholesalers for sales on Amazon can make the sale interesting and thus increase the sales price of the company. 

Amazon Private Label
With an Amazon Private Label you do not sell a new invention and the product is listed under your own brand. This Amazon business form can be interesting for buyers, because the demand already exists and therefore there are good sales opportunities in the future. 

Patented product

Anyone who wants to sell a company with patented products will get the best deal. Especially if it is an innovation. This Amazon business is so interesting because only this company has permission to sell the product, which means there is no competition. Mostly, these are products that are more expensive and customers are willing to spend more for. As a result, the company valuation is automatically better. 

For example, one can develop a special caffeinated cocoa powder for which only the company knows the ingredients and composition. If it is unique to the company and the brand, then this shows buyers that the company stands out in the industry.

Growth trend of the company

In the case of an exit in e-commerce, a potential buyer is only interested in companies that will continue to grow successfully in the future. In order to best calculate the growth trend of the company, certain key figures should be provided to the buyer. The following key figures are relevant here: 

  • All Revenues over the life of the company, including monthly Overview of sales growth and a Sales forecast
  • Turnover per article 
  • Organic growth

SDE/EBITDA (annual net profit)

Before the e-commerce is ready for exit, the metrics need to be known. The buyer will charge a multiple of the annual net profit to make an offer for the company, i.e. the annual net profit is crucial for the selling price at exit. 

The value Seller Discretionary Earnings (SDE) calculates the net profit, which is the basis for company valuation. SDE is used if the turnover is 5 to 10 million euros or less, EBITDA if it is higher.

SDE = Revenue - Expenditure + Add-backs

Business expenses include the cost of merchandise, Amazon fees, employees, software, fulfillment services and shipping services, and personal income. The buyer will take a closer look at the Profit and loss account (P&L) to discover growth trends:

  • Are sales trending up or down?
  • Are the products seasonal? 
  • What about the Amazon bestseller rankings?

Once you, as the seller, have determined the necessary key figures, you can start calculating the value of the company. 

Who's buying the Amazon business?

Not every Amazon business is a good deal for buyers, because mostly only the companies that have made efforts to grow and have taken care of their online presence are interesting for buyers. Mostly Amazon brands are bought out by competitors or big companies. These companies are looking for an Amazon business that has significant development potential. However, there are also many private investors who already have experience with an online business or well-paid employees who want to start their own business. But you can also sell an Amazon business to a brick-and-mortar store. 

How do I find suitable buyers? 

Anyone planning the exit of their e-commerce business is also wondering where to find the appropriate buyers. For this, there are different ways in which the seller can draw attention to his business. On the one hand, he can actively search and use social media and private contacts or contact a stationary business that might be interested. The easiest way, however, is to offer the company for sale online. 

  • On online marketplaces like bizbuysell.com or businessforsale.com.
  • With the help of a broker (e.g. Dragonflip).
  • Direct contact with potentially interested parties.
  • Company that specializes in the acquisition of Amazon companies. 

When should you sell your e-commerce business?

To sell the Amazon business profitably, the right time is also crucial for sure. One should have run the Amazon business for a while before offering it for sale. If there is a need or potential for optimization for the company, then you should take care of it and negotiate better conditions with suppliers if necessary or use an Amazon FBA interim storage. 

Internationally present brands usually achieve a higher price for the company at exit. An established and strong presence of the company in the foreign market improves the selling price, as growth is evident. The better the metrics, the higher the price can be set and negotiated. Once the Amazon business has optimized and sales are stable, the Amazon business can be sold. 

Similarly, the need for new capital for expansion, new project or new business ideas can be a reason for the right timing of an exit. 

How to sell the Amazon business?

There are different ways to sell the Amazon business: 

  1. proactive selling 

The independent sale of the Amazon business can be difficult and in the end achieve a lower value. Depending on the time investment and patience, and depending on the personal network, the exit can be successful or less successful. 

An exit on one's own is inexpensive to free, but one should take into account one's own working time and a possibly lower sales price. It is also the case that every potential buyer must be examined with regard to their actual interest in buying and their available financial resources. Therefore, selling through a professional business broker is more advisable. 

  1. Sale through a business broker

A much easier and promising way to sell the Amazon business is to sell it through a business broker. The seller can save the search for potential buyers as well as the expenditure of time, does not have to create an exposé or check the liquidity of the buyers. The experts take over a large part of the entire sales process. Furthermore, the broker has a realistic assessment of the company's value and can calculate it accurately. 

  1. Direct sales 

Under certain circumstances, a direct sale to an interested party who has previously made a lucrative offer is also conceivable. There are special companies that have specialized in buying up several brands and are sometimes explicitly interested in Amazon companies.

Self-directed or professional broker?

Whether acting on one's own initiative or using a professional broker is the better choice depends on one's own skills and intentions. However, it is rarely advisable to act on one's own initiative, as experts can correctly assess the company's value, screen potential buyers and often achieve a better price in the e-commerce exit. If an inexperienced seller meets an experienced buyer, they can quickly get ripped off and sell their business for too low a price. A professional broker can save you from a loss, because despite 10 - 15 % commission, he will be able to negotiate a higher price through skillful negotiation strategies. 

It is often difficult to find qualified buyers; they may not pay or pay only a fraction of the amount. 

Another point is the communication with Amazon, which must be informed about the purchase. For a smooth migration of the account or listing, the seller must communicate with Amazon and take the appropriate steps. 

Company valuation - What is the e-commerce business worth?

This is the most crucial and interesting question of all: What is my company worth? If you want to make a successful exit, you need to know the exact value of your company. However, many factors play an important role in determining the price, so that a company does not necessarily have to have an innovative product in order to achieve a good sales price. Indeed, assets can also be intangible, i.e. customer and supplier relationships, online presence, account and list statistics, and brand popularity. 

Above all, customer master data are assets that should not be underestimated and can achieve a good sales price. 

The Valuation of the Amazon business the following points play a role for sellers:

  • Nature of the Amazon businessIs it a reseller, an own brand or an own patented product? Accordingly, a private label with a patented product sells best. 
  • Turnover, profit and costs: The key figures are important to be able to make an assessment and gain insight into the growth potential. Can the company generate revenue and make a profit?
  • Niche & Competition: It is important to see where the product and company is positioned in the niche and competitive environment. Preference is usually given to brands in niches with stable demand, high potential and little or weak competition. 
  • SuppliersThose who maintain a good relationship with their suppliers, which also lasts for a long time and promises attractive conditions, have a higher chance of selling their company for a good price. 
  • AccountThe seller account is an important factor in the company rating, because here the buyer can see how high the best seller rank is, whether guidelines have been followed and how the ratings are.
  • Logistics: Smooth logistics is also of great importance in calculating the value. 
  • Reviews: Also an important asset in the exit of the Amazon business. Good reviews provide a strong competitive advantage and make the brand more interesting for buyers.  
  • Brand celebritiesIs there customer loyalty to the brand?
  • Variety of productsWhat products and how many products are sold? When selling only one product, the selling price for the Amazon business will usually be low, unless it is a private label with a patented product that is in high demand. 
  • InternationalityIs the product in demand on the international market? A strong and solid presence in the international market offers more growth opportunities for the buyer, so that a higher company value can be estimated. 

How to increase the value of a company?

If you are not satisfied with the value of your business, you may be able to increase it to get a better selling price. In the following section, we would like to present you 8 points on how to increase the value of Amazon business: 

  1. Age of the company: Older companies are preferred; companies more than three years old are considered to be very valuable, as investments are made in growth from the second year onwards. 
  2. Nature of Amazon Business: If you want to get a high purchase price, you should have an in-house developed product with a patent. But Amazon Private Label can also be unique in some way and achieve a higher price. Resellers have to expect a low sales price. 
  3. Growth trend of the company: Focus on the growth potential of the company and make this clear in the company documents. 
  4. EBITDA (annual net profit): The P&L shows whether the company is profitable and making a profit. 
  5. Uniqueness: Products available from many wholesalers, such as Alibaba. easy to find and thus duplicate as a listing, are less interesting for buyers, because why should they spend a lot of money when they can get the products themselves cheaply. It is better to have a product with a patent, because this means added value for the Amazon company. Factors for a unique product are: Customer loyalty to the brand, recognition value, patented products, top prices and poor quality of competitors' copycat products. 
  6. Diversification: There are three levels of diversification for Amazon companies: (1) products, niches, and traffic sources outside of Amazon, (2) niches and traffic sources inside of Amazon, and (3) either products, niches, or traffic. Diversification allows you to increase the value of your business by generating no more than 70 % of revenue from one product, carrying multiple products, and adding another sales channel outside of the Amazon ecosystem, such as your own online store (e.g. Shopify), social media, email marketing. 
  7. Competition: The stronger the competition, the more likely buyers are put off. If the competition is high, the ranking may go down overnight and the income will be lower. 
  8. Automated work processes: Complex work processes scare off buyers because the more work you can automate, the more attractive Amazon business is. 

What hurdles should you expect to face in an e-commerce exit?

Basically, selling an Amazon business goes smoothly, however sellers can face some obstacles. 

  • Finance: All important key figures must be correct and complete, because the buyer wants to do a due diligence and focus it on economic, legal, tax and financial circumstances. 
  • Suppliers: With which suppliers has there been a cooperation since when? What about the quality, communication and reliability of the suppliers?
  • Sales pitches: Sellers must be prepared to contact buyers and make sales calls. Buyers may even want to meet in person. 
  • Preparation: Good sales preparation can already save a lot of work.

How long does it take to sell an Amazon business?

Anyone planning an exit usually wants the sale to go through quickly. However, you need to have a little patience, as it can take some time from the decision to the transfer of the purchase price. 

How long the process can take depends on various factors: Company size, complexity, and Amazon business structure. If it is a company with a complex business structure, the sale may take some time. 

The sale can take around 5 to 15 months, with an average of 65 days. Once the sale has been completed, a waiting period must be observed, as digital assets must first be transferred from the seller to the buyer. 

Often, buyers are deterred from buying when the sale takes a long time and abandon the process. To prevent this, consulting a broker or selling to an e-commerce investment firm is also advisable. Further, a broker can expedite the entire process of business acquisition as they have a good relationship with Amazon and deal with selling an Amazon business on a regular basis. 

How is the company transferred?

The Amazon account must be transferred to the new owner, whereby the transfer long depended on where the new owner was located. In the meantime, Amazon's transfer function has also been enabled for European marketplaces. Accordingly, you can transfer an account as follows: 

  1. Complete transfer of the account
  2. Transfer the mark to another Seller Central account if the buyer already has an account. 

Conclusion 

If you want to sell your Amazon business profitably, you have to choose a successful exit strategy and consider a few things. One should choose the timing of the sale carefully and consider whether the exit makes sense or is better at a later date. There are different ways to sell Amazon business, all having their own advantages and disadvantages. One can venture into the exit on his own or take professional help. However, if one wants to handle the sale on his own, he should sell the business to an established brokerage firm and consult a lawyer. Furthermore, several company valuations are advisable in order to obtain a realistic assessment of the company's value.

Furthermore, sellers should not forget to inform Amazon about the exit in order not to run the risk of an account blocking. 

FAQ

Why should you think about an exit?

There can be many reasons to think about an exit. For many companies, it may be the main goal from the start, for others it is unthinkable. Amazon is growing rapidly and aggressively, so more and more third-party sellers are flooding into the market. This can become a problem for some, so for them, selling at an opportune time seems more lucrative. Furthermore, there are many potential investors and therefore buyers offering attractive prices. 

When should you sell your Amazon business?

For sure, the timing of the sale is important, yet there is no hard and fast rule as to when is the perfect time. Basically, the business should exist for some time and have stable sales before it can be sold at a good price. 

How to sell the Amazon business?

One can sell the Amazon business on their own or through a broker, though consulting an expert is definitely advisable as they can negotiate a good price and take all the necessary steps for the selling process. 

How long does it take to sell an e-commerce business?

Selling an e-commerce business can take different amounts of time and usually depends on the type of business, the products, its growth potential and the amount of the price. 

What are the requirements for an e-commerce exit?

In order to be able to sell the Amazon business, the business activity must have taken place over a certain period of time, the relevant key figures must be available and a stable turnover must be apparent. The annual net profit is decisive for the sales price. 


 

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