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We spent a lot of time mentoring and coaching Amazon sellers into success, and we’ve been realizing lately how few sellers view their business as an asset. Even if you don’t plan on selling your business, it’s still useful to know the value of your business in case your situation changes. Plus, how awesome will it be to tell your friends how much your thriving business is worth?
Who To Sell To
Your eCommerce business can be an attractive investment for the right person, for example, someone who feels they don’t have the skills, knowledge, or time to start their own company. Online retail is a thriving industry, with Amazon leading the charge. If your Amazon business is a well-oiled, profitable machine that is chugging along nicely, you may be surprised to learn how much your company is worth!
How To Sell Your Amazon Business
The selling process if fairly straight forward but can be more complex and take more time depending on the size of the business. In general, most sales will be structured like this:
- You get a valuation of your business
- You develop a prospectus (all the facts and figures about your business)
- Find potential buyers for your business (whether you use a broker or sell it yourself)
- Negotiate a price with potential buyers (total price and also terms of the deal)
- Transfer the assets & money
- Help train the new buyer to run your business
Calculating Your Company’s Worth
The value of your business is in its ability to produce profit. The amount a buyer is willing to pay will all come down to the company’s return-on-investment (ROI) and relative risk. The lower the risk, the higher the price and vice-versa.
The team at Empire Flippers, one of the most trusted brokers for selling eCommerce businesses, use the following formula to determine valuation:
Valuation = (Monthly Net Profit x Multiple) + Inventory At Cost
When determining your Monthly Net Profit, try using a 12 months average. Sometimes a 3 or 6 month average can be used when the business is in a high-growth phase, but only if it’s indicative of a realistic view of the future. Remember, the average needs to be extrapolated from what a buyer would expect to make on a monthly basis going forward, and only things that are absolutely required to maintain your business will be taken out of your monthly net profit as expenses, for example, business trips to China.
The Multiple range can be anything between 20x – 40x or higher. Larger multiples will typically be the businesses that have been around longer, are larger in size, with more longevity and proof (12 month averages, at least), and less risk for the buyer. Smaller multiples tend to be smaller businesses with less longevity and a shorter 3-6 month average monthly net profit.
If your business is less than a year old, you may still be able to sell your business, but you are much less likely to get a larger multiple.
The Inventory at Cost simply refers to the landed cost of your inventory, including packaging, shipping, etc. If you have stocked up with lots of inventory, this might be scary to a potential buyer of your business. They won’t know if that inventory is dead or if the price is reasonable. On the other hand, running out of inventory can cause issues with negotiations, too. The new buyer won’t want to immediately run out of inventory when they take on your business.
Sites That Can Help You…
There are plenty of resources out there to determine the value of your online business, but always feel free to reach out to the experts. Digital Exits and Empire Flippers have been in the industry for a long time and have tons of experience helping successful entrepreneurs like yourself.
It’s time to start dreaming about the bigger picture! We want to help you create a business that can not only survive, but thrives beyond an Amazon listing. Even if you’re not in the market to sell right now, knowing the value of your company will allow you to dream about the future.