The business factors

Let's examine the business factors that can help you decide when to sell your FBA business. We'll break these down into factors within your control and those outside your influence.

Factors within your control

1. Your company's current valuation

Knowing your business's worth is crucial, especially if you're selling to achieve a specific goal. We'll delve much deeper into company valuations later in the guide. For now, it’s enough to know that Amazon FBA businesses are typically valued on a calculation of Seller Discretionary Earnings, or SDE, multiplied by a business multiple. 

Company Valuation = Seller Discretionary Earnings (SDE) x Business Multiple

SDE is similar to profit, so buyers essentially base their offer on a multiple of your profit. The higher your profit, the more you can expect to be offered.

Example:

Your goal: Sell for $2 million

Your yearly SDE: $500,000

Typical business multiple: 3x

Expected offer: $1.5 million ($500,000 x 3)

To reach your $2 million goal, you'd need to increase your valuation, which would probably require pushing back your exit timeline. The situation would have been different if your financial goal had been lower, say $1.25m. Your business would already be valued higher than your goal, so you could move your sale timeline forward, start the process, and try to secure an exit for a satisfactory amount.

2. Your company's growth rate

Your company's valuation isn't set in stone – it changes with your sales and profit figures. Ideally, you want to see an upward trend in your charts. Strong growth (especially 30%+ per year with 20%+ product margins) is very attractive to buyers.

But it's challenging to maintain high growth over time. To get the maximum price for your company, you need to consider:

• How many months or years of high growth do you have ahead?
• When might your growth start to flatten out?

Be realistic about your growth trajectory. Our best-selling products experienced massive growth in the UK and Europe during the pandemic. It would have been unwise to assume that the level of growth would continue indefinitely. We knew people would eventually leave home and our product would be substituted for something else. This would negatively impact our growth rate, making our business less attractive to buyers and decreasing our valuation.

3. Growth Potential

While your current and historical growth rates are important, so is its potential for future growth. Put yourself in your future buyer's shoes. They want a strong, growing business with potential for even more growth. 

Consider:

• Do you already have the top position in all markets?
• Are there new markets or products you could expand into?

Tip: Sometimes, not having the #1 spot in every market can actually make your business more attractive and be beneficial for your sale. It gives the buyer room to grow and improve, which can be a strong motivator for them to make an offer.

4. Balancing growth with Risk

If you have strong products with solid growth and potential, you might want to delay your exit to increase your business's value. After all, every additional $10,000 in SDE could mean $30,000 more in your company's value at a 3x multiple.

But waiting has risks. Ask yourself:

• How much of your net worth is tied up in the business?
• How would you handle extreme scenarios like an indefinite account suspension?
• Could you survive financially if your business failed?

Even if the risk seems low, consider bringing your sale timeline forward if failure would mean financial ruin.

5. Flat or Downward Trends

We’ve been discussing selling when your company’s growth is strong. But what if your sales are flat or falling? Unfortunately, this means your business's valuation is likely dropping too. You have two main options:

a) Turn things around quickly

•    Aim for at least six months of solid metrics before selling
•    This proves to buyers that your business is on the right track

b) Sell as soon as possible

• Be prepared for lower offers
• Remember: A fair price now is better than holding out while your value decreases

If you do manage to turn things around, you’ll generally want to wait until you have six months or more of solid metrics before you start shopping your business. Raising your average SDE will not only increase the value of your business but also proves to prospective buyers that your business is on the right track.

Tip: Don't be too hard on yourself if you're struggling. Amazon FBA is tough, and sometimes effort alone isn't enough. Be realistic about your chances of improvement.

These factors are within your control to some extent. By understanding them, you can make informed decisions about when to sell your FBA business. In the next section, we'll look at factors outside your control that can also impact your sale timeline.

Is your business large enough to sell?

The more sophisticated buyers, like private equity, aggregators and people who work with brokers, generally want yearly SDE over $100k, though these minimums can often be as high as $200k or more. 

There is a reason for this. When a business is small, the transaction costs involved in buying that business are relatively high. The buyer must still hire lawyers and accountants and conduct due diligence with their team. These proportionally higher costs decrease the buyer's potential return on investment, which makes smaller deals less appealing.

If you have a smaller business, you still have options, like selling privately or on a marketplace. But you shouldn’t expect to get the exact valuations as larger businesses.

Later in the guide, we’ll discuss the types of buyers for each business size and your selling options in much more detail.