Channel Deep Dive
If you’ve already decided that you should sell your business, you may find yourself wondering, “what is my business worth?” The answer to that question involves a lot of factors.
In this article, we’ll reveal the primary factors to understanding the value of your business, how to get a strong estimate of your business value, and how to increase that value. of your Amazon consumer health business. We’ll focus on Amazon consumer health brands, but these tips will work for just about any small business.
The short answer is “yes”. You probably can sell your Amazon business. However, the question you should ask is: “Can I sell my business for what I think it’s worth”?
There are three main factors that buyers and sellers consider when evaluating an eCommerce business.
First, which type of business do you have? Depending on how you do business, your perceived value to potential buyers will vary.
If you’re selling an exclusive product - unique to your company - you’ve got the best upside if you choose to sell your Amazon business. An example of this would be a custom supplement that you formulated, but you outsource the manufacturing.
The product is yours, and you have built a business of loyal customers who will likely pay more for your brand. Customer loyalty is certainly an intangible asset that could secure future cash flow for an investor.
Your products aren’t exclusive, but your brand name is. While your business isn’t based on your own intellectual property, you own some valuable real estate in the market.
Your business may own less tangible assets, but if you’re steadily growing, you can command some buyer interest. An example of this would be if you sell women’s health products from a wholesaler that sells to other health and wellness brands. They produce products like fertility strips and package them in wrappers that contain your name and branding.
If you live and die by the Buy Box, the only thing you have to offer a business broker is your Amazon Seller Central account. Your profit margin is completely reliant on how low your sale price can go.
An example of this would be if you purchase bulk overstock or clearance workout gear from others, then sell it for a small profit. While it is possible to sell such a business, when a broker calculates your business worth, it will likely be less than your annual sales.
How long have you been operating your company? If it’s been more than two years, you’re in a great spot. At this age, you can likely prove stability and performance. More data means a buyer can make an informed decision on future growth rates.
If you’ve been operating for under two years, it’s not a deal breaker. In the Amazon space, things move faster than other, older industries. You may have to work a bit harder to prove your value. However, unique aspects of your business like your niche, first-mover advantage, or brand equity can increase what your business is worth.
The answer to what your business is worth has most to do with annual net profit. Before we get any further, make sure your accounting is accurate and up-to-date. Your finances, more than anything else, will make or break a sale.
The annual net profit is perhaps the most important factor when valuing any business, but especially business without a brick-and-mortar location. Buyers of Amazon businesses want to see positive, upward trends in your revenue and profit.
Upward trends are determined by analyzing your annual net profit using an equation called EBITDA (earnings before interest, taxes, depreciation, and amortization). EBITDA is used to assign value to your business if your revenue is more than $10M annually.
Smaller businesses with a lower revenue can use a simpler equation: Seller Discretionary Earnings (SDE). SDE is very straightforward:
SDE = Your revenue - Cost of Goods Sold - Operating Expenses + Owner Compensation
Regardless of the size of your business, you need to keep an accurate record of your expenses. As you can see, they play an important part in assigning a value to your Amazon business.
As owners, we put so much into our business - hours, emotions, sweat equity - and possible savings. However, many business owners can’t separate their emotional attachment from their business’ true value.
The only way to understand the actual value of your business is through a business valuation. This will reveal the dollar amount for which you can probably sell a business. For health and wellness brands, Intrinsic offers a specialized free valuation that combines broad industry expertise with deep knowledge of Amazon.
Depending on the valuation method, there are many factors that determine what a buyer or investor will pay for an Amazon business. Keep an open mind and look at the facts, not the feelings.
A session with an Intrinsic expert is extremely valuable, even if you’re just starting to investigate selling your Amazon business. It’s a great way to better understand your actual value and get advice on how you can improve.
While you’re working towards a business valuation, you can start to understand what someone buying Amazon businesses will review. The documentation they will review will include:
Intrinsic approaches every brand differently - and we bring in resources and experts that are specifically selected for that brand. For example, some founders we work with are on a cash basis accounting model and need help moving to accrual basis. We bring in our trusted partners who can help move that business to accrual basis accounting in a way that’s cost-effective, and gives the founders confidence.
Another example we often see is the supply chain - as an incubator focused on health and wellness products, we have unique relationships with reputable, well-run suppliers.
"Founders who are ready for that next adventure need thought partners - and we bring health and wellness experts, including our advisors Dr. Mehmet Oz and Tony Robbins - to help. Even during that crucial product-market fit stage, we help our founders think through hypotheses and do the research ... You don't have to go it alone." - Erum Hasnain, VP of Acquisitions, Intrinsic
We help the brands that need support refining and improving their supply chain by identifying weaknesses and bottlenecks. Then we introduce the right partners to solve those problems. Plus, the added concerns about wellness products can create some concern for a business owner who wants to sell.
If you’re going it on your own, you’ll have to provide evidence that your manufacturing practices and supplier relationships are creating safe products. Again, working with partners - or selling to an acquirer - who is an expert in the health products space will be a great advantage.
Any business owner wants their business value to be as high as possible. Once you see your discounted cash flow analysis, you may wonder if there are ways to increase that number. Some things that any Amazon business owner should consider include:
Amazon health and wellness products are a specialized niche, however. As a consumer health business, you should pay additional attention to:
To learn about about the best ways to increase the value of your Amazon business, read our recent blog. The Intrinsic experts can also help advise you on specifics for your brand.
Intrinsic is here to help you take your next step towards selling your Amazon business. We’ve described the basics of valuation, but if you’re ready to get the details, start by getting a business valuation.
We can guide you clearly as we talk through your business specifics. The time is never too early to research the process, so if you’re even considering a future sale, schedule a consultation. With a clear understanding of what it takes, and what you should do, you’ll be better prepared to make the right decision for yourself.
Regardless of your mindset today, it’s always a great choice to think about the future. Get started on your next chapter by connecting with Intrinsic.