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The sale process - steps to success

So what do you need to do in order to sell your Amazon business? Below, we look at a general overview of what the selling process might look like, and how this works when a good broker is involved.


General overview of selling process

  • You decide to sell your FBA business.
  • Get a valuation for your business.
  • Develop a prospectus - providing an overview of how the business operates, financial information, market analysis etc.
  • Search for buyers of the business.
  • Negotiate a deal with potential buyers - agree upon a price, terms etc.
  • Complete the transaction. Transfer the assets of the business to the buyer, and receive payment for the business (payment is often held in Escrow until the buyer is satisfied that they have received what they expected).
  • Run the new owner through the systems and train them to operate the business.

Selling process through a good broker

The selling process listed below is an abbreviated version of the process covered in detail in this top quality guide by Quiet Light Brokerage. If you are thinking about selling your FBA business through a broker, this guide is definitely worth a read. Not all brokers will follow this exact process - they all have a different way of doing things. However, as a starting point, it does provide valuable information:

  1. Produce clean financials:
    • As discussed above, A2X Accounting software makes this task a breeze for FBA businesses.
    • Once your accounts are clean and easy to understand, create an addback schedule to determine SDE.
  2. Determine the "value range" - multiple of SDE range that can be expected from sale of the business:
    • Your broker can help you to estimate how much your FBA business is worth. Refer to section 3 of this guide for more information on factors that affect the value range.
  3. Determine costs/benefits of selling your business:
    • Costs that are incurred when selling your business include broker’s commission, legal fees and taxes.
    • Tax is generally payable on the proceeds from selling your business. Tax is not paid on inventory sold at cost.
    • Consult professionals where required to get accurate advice.
  1. Sign an engagement letter between business owner and the broker:
    • Guarantees a period where the broker has the exclusive right to sell the business. What really matters is the relationship between you and the broker. 90 days is an appropriate period of time, however this may vary depending on the nature of the business, and relationship between you and the broker.
    • Some brokers try to win your business by offering non-exclusive agreements, but this often turns sour, with multiple brokers fighting over who gets the commission.
  2. Develop a marketing package/prospectus:
    • This is an in-depth overview of how your business operates and the financials.
    • Potential buyers must sign an NDA first - confidentiality is key.
    • Good brokers often do an in-depth client interview to understand history of the business, threats and opportunities, hiccups, trends and what the business represents in your eyes.
    • Using this information, they can draw up a vision for where the business is going and answer many of the common questions that may arise during due diligence. This streamlines the sale process and reduces the amount of questions that you have to answer later on when buyers are asking questions about every issue that concerns them.
  1. Buyer conference calls
    • Before accepting a letter of intent (LOI), a buyer and seller have a conference call - to get to know each other and understand more about the business. This is to make sure you are doing business with someone that you know, and feel comfortable to move forward with.
  2. Letter of intent
    • A letter of intent is the first step in a written commitment for a buyer to purchase your business. The purpose of this letter is to act as a framework for the final and binding purchase agreement. It allows for the buyer to conduct due diligence and explains the agreement in clear and simple language.
    • The letter of intent is a non-binding agreement which is seldom checked by lawyers.
    • If the buyer is satisfied, then an asset purchase agreement will be created to create a legally binding transaction that transfers the assets of the business.
    • A typical time period from signing the letter of intent to agreeing on the asset purchase agreement and closing the deal is 30-40 days.
  1. Due diligence
    • This is the time to verify (through third parties) that the information provided is in fact, correct. The buyer will reproduce the profit and loss statement from third party data (such as Amazon stats), and check a number of other things (such as: financial statements, agreements with vendors and contractors, registration of the business, relevant licenses, making sure that there are no open lawsuits against the company etc.).
    • Some suppliers will try to renegotiate terms that are more favourable to them and less favourable to the buyer when they hear that the business is being sold. Buyers will seek verification that they can enjoy the same payment terms, discounts etc.
    • As a seller, you want to make this process as straightforward and simple for your buyer as possible, as this represents a major potential roadblock.
    • Buyers generally produce a due diligence request list - information that they require from you to conduct their due diligence.
    • If there is any discrepancy between the earnings and what the buyer calculates the earnings to be, the buyer will either walk, or you will have to reduce your price by the difference in earnings x valuation multiple (e.g: if there is a $10,000 discrepancy and your valuation multiple is 3x, the buyer would expect a $30,000 discount). You can say no to providing a discount, but this will generally result in the buyer backing out of the deal.
  1. Asset purchase agreement
    • Once the asset purchase agreement is signed, the transfer can be completed.
    • The buyer sends money to an escrow operated by a lawyer, or another 3rd party escrow service such as escrow.com.
  1. Closing, transition and training
    • Assets that are listed in the asset purchase agreement are transferred to the buyer's business entity.
    • Unlike selling a bricks and mortar business or a house, this process is largely done directly between buyer and seller. Most of the asset transfers are done remotely - items such as the Amazon Seller Central account, social media accounts and business webpages are transferred online, so there doesn't necessarily need to be a physical meeting between you and the buyer.
    • For training and transitioning, sellers will generally offer up to 40 hours of service within the first 90 days. However, this can vary depending on the complexity of the business.
    • Training and transitioning most often happens via telephone, screenshare and email. Sometimes, training happens in person, however this is quite rare.
    • Generally, buyers don't need all 40 hours, as running an Amazon business is very easy once set up. It is recommended that both parties keep a record of the time consumed with training to avoid any disputes.