Many ecommerce business owners have come to realize that a great way to generate life-changing wealth from their business is to sell it one day. Buying and selling ecommerce businesses has become mainstream, to the point that there are now multiple ways to sell your ecommerce business. You could sell it directly, you could “flip” it with a flipper service, list it on a marketplace, or take it through a process to get it ready for an exit using a broker.
In this article, we’ll discuss the benefits of working with a broker and what the process looks like.
Why Should You Sell Your Ecommerce Business?
Even if you feel like your Amazon FBA business is your baby and the thought of selling it is tough, there are several good reasons to consider selling:
- Perhaps you need the money to fund a new project that you’re more excited about than your current business.
- Maybe it is simply time to move on because you are no longer as committed to your ecommerce business as you used to be. That’s a clear indication that it is time to go because if you don’t have the enthusiasm to push it forward, a plateau or decline is usually around the corner…
- Or you just realize the business could be worth a lot of money and you’d like to use or invest those funds in another life adventure.
These are all great reasons to consider a sale.
How to Make Your Business Sellable and Valuable
In order to sell your Amazon business, it needs to be an attractive proposition for a buyer, and valuable enough to be worthwhile for you.
There are two ways to think about what makes your business sellable and valuable.
First, the seven foundations you as the business owner need to understand. The second way is through the Value Pyramid, a model created to understand a buyer’s perspective.
The Seven Foundations of Value
Timing-wise, your business should be growing, but not maxed out. A buyer wants to experience more growth for themselves. Leave some untapped opportunities for them, such as expanding to new international territories.
Stability refers to stable, low-risk attributes, such as a favorable niche (e.g. baby, home, garden, sports), transferable systems, and zero black-hat strategies. Is your business stable, or is it still a bit shaky?
Documentation refers to meticulous records of SOPs, financial records, accountancy reports, tax filings, IP certifications, etc. Is your documentation in good order? If not, it needs to be!
Defensibility means reducing the risk associated with ‘just another ecom business.’ It refers to building a legitimate brand, protected by intellectual property (trademarks and patents). It means building a legion of raving fans on social media who are subscribed to your newsletter. Do you have a brand? Or are you just selling “stuff?”
Diversification reduces the risk for a buyer and makes the business a more attractive proposition. For example, an having an omnichannel strategy across different marketplaces, social channels, and traffic sources. Shifting reliance away from just one or two SKUs can also help. What happens if 50% of your sales are from one product, and it gets suspended?
Suppliers are a huge component. When an organization buys your brand, they are also buying the relationship with your supplier. Does your supplier produce orders on time and have high standards of quality? Do they meet the most stringent safety, social, and environmental standards?
Finally, your business needs to be efficient. The more efficient your business is, the more attractive (and hence valuable) it is to a potential buyer.
The Value Pyramid
In addition to the Seven Foundations of Value, the Value Pyramid is another great tool. The Value Pyramid represents the five components of most importance to a potential buyer when they look at your business.
A business needs at least three of these layers to be in good standing/sellable. But to be valuable, the strongest layers, which will have the biggest impact, are at the bottom — growth and brand. Brand is most important layer; no brand equals no value.
How are each of these layers performing for your business? Is everything well documented, transferable, low-risk, growing, and supported by a strong brand identity?
How to Sell Your Ecommerce Business using a Broker
‘Amazon exits’ have become a huge topic in the ecommerce space. It’s great that the topic is being discussed, but it is overwhelming for sellers trying to decide what to do and which of the many options they should choose.
Selling your business is a major decision that can have far-reaching consequences. This is where working with a specialized broker can help. They should ideally have experience on all sides of the equation — owning and running ecommerce businesses, selling ecommerce businesses, ecommerce accounting, and deal brokering.
Working with a Broker
There are many benefits to working with an ecommerce broker, though these largely depend on the quality of broker. A successful business owner should hire experts at every point of their business journey: expert manufacturers, lawyers, translators, copywriters, PPC experts, photographers, and web developers. When it comes to selling your most valuable asset and getting the exit you deserve, it’s very simple — you should work with experts.
The key benefits of working with a broker are:
1. Expert Valuation
A significant portion of the broker’s fees are earned here. Full and thorough analysis of the financials, together with a deep understanding of the business operations, market, history, and opportunities will allow the broker to properly value the business and identify the opportunities to maximize the value before taking it market.
2. Expert Positioning
Brokers know how to professionally present your FBA business to the right buyers. They understand how to pitch opportunities for growth, how to spin mishaps the right way, and how to package and market you or business. After going through a thorough process, the business will be ready to go with a bow on top, alongside all the appropriate data and supporting analysis. It’s very difficult to do that on your own.
3. Expert Guidance
Selling your business can be an emotional journey. But it is vital to separate emotion from decisions. A good broker will manage not only your expectations but also your emotions. They will guide you through the process at every step and ensure you are fully informed so you can make the decision that is best for you.
Choosing a Broker
The best brokers are more than just “middlemen” who connect buyers and sellers. Rather, they actively work to position and prepare your company for the best possible valuation, deal, and exit.
A good broker will vet your business, bring the right buyers to the table, and arrange M&A legal representation for the deal negotiation. So you want to look for a broker who wants to build a relationship with you and is not in a hurry. You’ve built your business over several years. Why rush the most important part? The best brokers take their time to understand you, the business, the market, and get the strategy right. This may take just 6 weeks, or it might take 12 months. A patient broker is a smart broker.
Next, look for a broker who will help you organize your business so that it is as attractive as possible to a buyer. In order to do so, the broker will need to have experience on all sides — as an ecommerce operator, M&A and accountancy expert, and even as a buyer themselves.
Finally, a good broker should do the work rather than simply “list” the business. They should crunch the numbers to produce an accurate valuation, conduct research to identify the right buyers, and actively market the business to them.
The Process of Working With a Broker
Every business owner has different goals, values, and aspirations. Every business has a different niche, revenue, profit, history, and potential.
What follows, therefore, is a very high-level and general summary. A good broker will tailor their approach to you. Beware of any service that treats your business like a number.
The broker should sign an NDA before they request access to your data. This will generally mean read-only access to Seller Central, Shopify, or any other marketplaces you use to generate revenue. They might also require access to your accounting software like Xero or Quickbooks, and Amazon accounting tools like Sellerboard or Seller Legend.
Using the financial data, combined with an interview to understand the specifics of your business — products, IP, fulfilment, marketing, industry, etc. — and deeper analysis of your niche, the broker can then value your business.
2. Due Diligence and Preparation
In preparation for going to market, the broker should support you in getting the business ready for potential buyers’ due diligence processes. This involves ensuring that you have all the appropriate data that they are likely to request, in the right format, and suitably packaged.
Meanwhile, the broker should do their homework to identify the right buyers!
3. Going to Market
The broker will prepare a sales prospectus. This is essentially a brochure which shows how awesome your business is and highlights why it’d be a great acquisition.
4. LOIs, Negotiation, and Closing
Ideally, you will have several interested buyers who will submit a “Letter of Intent” — a non-binding letter that essentially states: “we want to buy your business; here is our anticipated offer subject to due-diligence.”
The broker should support you in assessing the LOIs and potentially at this point connect you with legal counsel (though this may come later).
After an LOI is signed, you enter a period (typically 30-45 days) of exclusivity whereby you agree not to sell the business to anyone else while the buyer conducts their due diligence.
At the end of the exclusivity period, all being well, the buyer will submit a formal offer to purchase the business. Together with the broker and your legal counsel, the deal will be hashed out to ensure it reflects the true value of the business; that it is a fair and reasonable offer and is suitably worded to protect you (particularly with regards to any pay-out!).
Then the deal is signed, money is wired, and your business is sold!
Here’s to your exit!
About Ecom Brokers
Ecom Brokers makes selling your ecommerce business simple, hassle-free, fair, and clear. Ecom Brokers are experts who will work with you to position for the best outcome. Founded by Ben Leonard and Allison Walker, they’ve been there and done it — on all sides (seller, buyer, broker, and accountant)!
If you are interested in getting a valuation on your eCommerce business, schedule an introductory call today!
Ben Leonard is Ecom Broker’s brand ambassador and digital marketer. He built a business on a laptop, in a cupboard, in his spare time, to grow an international 7-figure business, which he successfully exited after 3 years.
Allison Walker is an award-winning, industry-trained Fellow Chartered Accountant (FCMA) with over 20 years of experience, the MD and owner of Mint Accounting, and a specialist in e-commerce finances and growth.