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If you are thinking of selling your Amazon FBA business in the next 12 months, you need to understand the difference between the exit process and being exit ready.
Exit Process: This is the sales process of your eCommerce business. It is a M&A negotiation that involves lawyers, accountants, due diligence, payment structures. It can take three to nine weeks from letter of intent (LOI) to final offer.
Exit Ready: All the steps needed to prepare your FBA business to attract the right buyers, and get the best offer. It involves preparing your financials and legal setup, supply chain, marketing, and more (covered in-depth below).
Entering the exit process when your eCommerce business is not ready to sell always favors the buyer and results in a lower payout for the FBA seller.
So, we launched The Fortia Group to ensure Amazon business owners are ready to sell their FBA, run a professional exit process, and achieve the best offer.
In this post, we will discuss ten ways you can prepare your Amazon FBA business to exit.
Before you try and sell your FBA business, you need to know how much it is worth. Contact us today for a no-risk, free valuation.
The Fortia Group works with FBA business owners as they build toward selling their business. We often advise from 1 – 2 years before an exit – ensuring every aspect is in order to achieve the highest payout.
10 Ways to Prepare your Business to Exit | The Fortia Group
If you have the time, much of what we share can be learned. However, some will require expert input (#6,#8 financial, #7 legal, #10 Buyer’s network).
For more on Becoming Exit Ready, download our free 95 page
Exit Guide for Amazon FBAs and reference section 4
#1 Maximize your Sales Revenues
Typically, eCommerce business owners can only grow sales revenues based on their resources: money, time, expertise and staff.
Whether launching new markets, new products or organically growing current business, we advise FBA business owners to explore brand growth options. Clearly presenting a roadmap for future growth will attract potential buyers when you start the exit process and positively impact your final offer.
#2 Optimize your Seller Discretionary Earnings (SDE) and Net Margins
Once you have identified growth opportunities, the next step is to ensure that Sales Revenues are generating healthy net margins. Below are some key benchmarks as a percentage of your revenue that you should consider.
Cost of goods (COGS) at 30% –– The cost of producing your product and shipping this from manufacturer.
Fixed Operational Costs at 40% –– Including all Amazon Marketplace Commissions, Storage and Fulfillment Fees.
Variable Marketing Costs at 10% –– Including all marketing costs, Amazon Advertising, Influencers, Social Media etc.
SDE Margins at 20% –– Resulting SDE margins after all investments.
#3 Develop your eCommerce Brand Equity
Amazon is very successful at commoditising brands by forcing them to play under the same rules of engagement (e.g. advertising templates, listing pages). However, businesses can still develop brand equity through these examples:
- Strong portfolio star ratings
- High quality review volumes
- High volume of Simple Notification Subscribers (SnS), where applicable.
- Strong parent category Best Seller Rankings (BSR)
- Strong ASIN performance against KPIs e.g. Clicks, Conversions, etc.,.
- Retail pricing stability
- Best in class digital content on product detail pages and Amazon Advertising Brand Store
Having strong brand equity will give buyers confidence that you have forged a positive brand perception with the consumer. Plus, it indicates how likely your brand is to sustain organic rankings compared to your competitors.
If you are considering an exit, it is important to be able to reference how your brand is performing in categories. This way you can address performance against the competition. Business owners should consider sales revenue as well as the Brand Equity KPIs (above).
#4 Diversify your Sales Revenues
Having one Amazon Standard Identification Number (ASIN) live in one market, doing 100% of sales revenues sounds simple and attractive.
However, this also comes with a lot of risk on sustaining revenues post acquisition. Therefore, it is attractive to buyers to see either a range of sales revenue by product, by market, by marketplace or a combination of all three.
It’s important to remember that Amazon has a history of changing rules of engagement. This can increase seller operating fees and restrict commissions. Your brand will become increasingly attractive to buyers if it can demonstrate the ability to de-risk these threats.
#5 Articulate your Brand Growth Plan
Potential buyers of your online brand will focus heavily on growth opportunities. This includes both tactics for increasing Sales Revenues and SDE/Net Margins.
As capital and resources increase, it is important for FBA entrepreneurs to understand what actions are available to them. And, they should provide data points as to what positive impact this can have to a P&L.
#6 Ensure your Accounts & Financials are “Buyer ready”
Simple mistakes on your net profits can negatively impact your SDE and final offer. This is why it is essential to get your financials in order before starting an exit process.
For more on financials, download our Exit Guide for Amazon FBAs and reference sections 4.1 and 4.2
“Before starting any sales process, we would recommend engaging an accountant to put the financial metrics –– that will be shared with investors –– on firm footing.”
We cannot stress the need for professional accounting enough as it puts your business in a good negotiating position when it comes to the exit process. The Fortia Group works with accountants that specialize in this field and can recommend one for your business.
#7 Ensure your Business is Legally Prepared
Organizing the legal aspect of your business can be time consuming. So, make sure you prepare it ahead of a Buyer’s due diligence –– as it can delay negotiations.
“Brand owners can significantly reduce time in the acquisition process by making sure all the documentation and legal requirements are in place.”
A recent deal we advised on was delayed by more than a month. It was due to a lack of practical and commercial lawyers on both sides of the transaction. This was costly, and could easily have been avoided with experienced legal counsel.
The Fortia Group works with lawyers that specialize in this field and can recommend one for your business.
For more on financials, download our Exit Guide for Amazon FBAs and reference section 5
#8 Maximize your Proceeds Through Tax Advice
No seller wants to pay more tax than they need. It pays to obtain smart tax advice in advance of an exit process. This can help with understanding the difference between a stock purchase agreement (SPA) and an assets purchase agreement (APA). And, how they can affect a company’s founder differently.
For example, buyers prefer assets purchase deals because they are cleaner transactions. Only the assets transfers, as opposed to trading a company with its associated history. Depending on your tax jurisdiction an asset deal may not be the most tax beneficial exit for you. Careful consideration needs to be given to the transaction structure to determine the impact of tax on deal proceeds.
The Fortia Group works with tax advisors that specialize in this field and can recommend one for your business.
#9 Refine your Financial Pitch with KPIs
Once your financials are prepared, constructing the story of your business to highlight KPIs is essential to attracting the right buyer.
When presenting your brand to potential buyers, at The Fortia Group we like to show off key acquisition highlights or the metrics that make your brand attractive. These can include:
- Product’s position within a niche category
- Strong year-on-year growth graphed out by revenue and margin since the companies inception.
We also identify if there are areas for improvement so buyers can quickly see the unfulfilled potential of the brand.
It is important to tell the story of your brand, and not leave it up to the perception of the buyer.
#10 Obtain Early Feedback from Buyers
Once your FBA business is in good shape, we recommend getting a first opinion from a selection of the most likely buyers.
“No battle plan survives contact with the enemy.” – Helmut von Moltke
Of course, aggregators are not the enemy. We have great relationships with all the top buyers. However, the rationale is that early feedback from buyers allows us to make changes before we bring your business to market. Whereas, pivoting during negotiations is unprofessional and can undermine the whole process.
Partner with The Fortia Group for a Higher Valuation
It is very difficult to continue growing your eCommerce business (full-time job) while selling your eCommerce business (also full-time job) at the same time.
Both are full time jobs, and there is not enough time in the day to do it all. Typically, when you decide to exit, you will focus on the sale of your business, trying to get the best offer. And, the running of your business will slow down.
Here’s the problem: If revenues decline, net margins shrink, or ratings plummet while you are in the exit process (from LOI to offer), the buyer will factor this in to the final payout.
You will have less money in your pocket at the end of the deal.
To maximize your final offer, partner with The Fortia Group. We will work with you to ensure you are Exit Ready before running a professional Exit Process, that gets you the payday you deserve. Contact us today for a no-risk, free business valuation.