3 Keys to Raising The Value of Your Amazon FBA Business
The FBA (Fulfillment by Amazon) business model has quickly become the Best Seller in the online business brokerage universe. Private label sellers, wholesalers and those who’ve built a solid FBA business are now wanting to cash in on their hard work. They want to sell their business, get top dollar and move onto a new challenge.
So how do you prepare to sell for the highest possible price? Keep in mind three important S’s for selling your FBA business – Salability, Scalability and Supply Chains.
Salability: This is one of the most overlooked and misunderstood keys to selling an online business. Have you created a sellable, transferable business? Several great books have been written on creating a transferable property, including John Warrillow’s ubiquitous “Built To Sell”. Just because you’re currently grossing $3 Million in sales doesn’t mean your buyer will. It is critical for an owner to take concrete steps to disengage from the business BEFORE it goes on the market. If yours is a one-person business, buyers will have very legitimate concerns about how your absence will impact relationships with suppliers and customers.
When possible, put vendor relationships into written contracts rather than handshake agreements
Try to limit the number of hours you put in each week by automating or delegating – buyers don’t want to strap into 80-hour-per week commitments
Simplify the accounting, inventory and CRM management processes whenever possible
Spread your customer acquisition marketing across paid and organic methods.
Dish off some responsibilities to VA’s, contractors and part-timers
Diversify the earning power of the business so that the owner is not so strongly tied to revenues
Scalability: Buyers thirst for scale. Nothing heightens value as quickly as the perception of a fast-growing, highly-scalable business. It’s sometimes a gray area in the eyes of business buyers as to what will help expand revenues. There are many factors that lead buyers to believe a business will continue to scale under their new leadership.
Year over year growth above 20%
Steady upward earnings month-to-month
Growing customer bases demographically and geographically
Highly sustainable and diversified referral traffic
Flat or reduced expenses in recent months
No major new competitors in your niche & high barriers to entry
Supply Chains: Buyers are guaranteed to take a deep dive into your company’s sourcing, lead times, shipping obstacles, trading terms and operational structures. Nothing hurts an FBA business more than when you’ve run out of stock and it’ll be two months to get back on track. Here are surefire ways to improve the appeal of your operation.
Automate as many processes as possible with your suppliers
Write SOP’s for employees, contractors, VA’s explaining each supplier’s system and timelines
Negotiate better storage terms with suppliers so products spend less time in Amazon locations warehouses wholesale terms into contracts
Improve your credit terms with suppliers and wholesalers
Improve your account health if you’re selling in restricted categories
Reliably outsource as many customer service functions as possible if you have dozens or hundreds of suppliers
These are just a fraction of the possible tweeks that can help improve the value of the business prior to sale. In the end, cash flow and profitability trumps them all. Don’t put expensive changes in place just before hitting the market, thereby strangling growth. Many of these actions should be incorporated into a one-year or two-year exit strategy. eBiz Advisers can help entrepreneurs design an exit which will put maximum dollars in your pocket by minimizing buyer risk and ensuring a smooth transition.