Business Exit Planning and Strategy
Deciding it’s time to walk away from your current FBA business and venture into something new takes time and planning in order to be strategic and profitable upon exit. After spending ample time building and improving your business over several months or years, getting the most out of it when you’re ready for a change will help solidify a successful experience.
One of the questions to ask before selling your business is, what is a business exit strategy? By definition, a business exit strategy is the plan for selling your company to another company or investor. The goal of any business exit planning process is to make a substantial profit based on its projected profitability in the future. Establishing a solid business exit plan includes knowing what to consider before selling your FBA business and the different types of business exit strategies available.
Once you have checked “create a business exit plan” off of your selling a business checklist, you can move through the process with confidence and deliver an outcome that will feel worthy of all the work you’ve put into your business.
Why Sellers Sell Their Business
There are several reasons why Amazon FBA sellers may be ready to sell their businesses. First, an initial goal for many entrepreneurs is to eventually sell their business for a profit. The time and effort it takes to run a successful FBA business can be taxing, and the time may inevitably come when business owners are ready to reap the rewards of their hard work. They may either then explore a new venture or seek other opportunities outside of the Amazon FBA business model altogether.
Another reason why Amazon FBA sellers may be enticed to sell is the high valuation of their company. Companies with products in popular-selling categories that have established a notable brand may want to cash in on the value of their business when it’s at its peak, in order to gain the most profit by selling. An in-demand brand has the opportunity to gain years’ worth of company profits in a single buyout, depending on how it measures up in the eyes of investors.
A third common reason to create a business exit strategy is to have cash flow to cover financial burdens or invest in new projects. As people’s lifestyles change, so might their priorities and entrepreneurial goals. Some FBA sellers start their businesses as a side project and see it grow larger than they’re capable of or want to handle. Others have a set timeline and growth targets they’d like to achieve to make it viable for sale.
Additionally, as the industry changes, so does the drive and interest for many business owners. With consumer trends, platform updates, and technological advances to consider, it can be a lot to keep up with maintaining a profitable FBA business. Whatever the individual reason is, there are a few common factors every business owner should consider before selling.
Factors to Consider Before Selling
As you begin to put together or solidify your business exit strategy, think about factors that will help execute the best possible outcome. The business exit planning process starts with having a general idea of the potential buyer network and the criteria of each opportunity.
For example, at Forum, we look for Amazon FBA businesses that already have a highly-engaged customer base and an annual net profit of at least $200K. We are also interested in businesses that have inventory essential to daily life, with most sales (70%+) stemming from the Amazon FBA platform. Knowing the basics of potential buyers’ criteria will help determine if your business is at a point to sell.
From there, determine the valuation of your business. This requires several steps, including organizing financial documentation and updating your inventory. Those that have kept meticulous records from day one find themselves in a far better position come time to sell. Organize financial statements by date to reflect growth percentages year-over-year. The number of conversions and predictability of future sales are part of what investors will look for when making an offer to buy.
Knowing your growth rate going into your business exit planning will help you align with the criteria necessary for a sale. During the valuation process, check for inaccurate, incomplete, or missing financial records and other business documents. Take care of any areas that may present a cause for concern from potential buyers. Preparation is paramount. Anything that requires further research and investigation will delay an offer and may take the opportunity off the table altogether.
Another factor to consider before selling your FBA business is the status of your inventory. How well does your inventory perform on Amazon? Which product listings need to be cleaned up or cleared out? Correct categorizations and regular maintenance of your e-commerce inventory will save you time down the road. Additionally, identifying any items that have seasonal popularity or proposed new products and inventory are all part of what will boost your business’ valuation for buyers.
FBA Business Exit Planning and Strategy: Which Path Is Best?
When it comes to business exit planning and strategies, there is no one-size-fits-all selling model. Although every FBA business follows the model outlined by Amazon, each company is unique. While there is a wide spectrum of how businesses operate and grow, there are essentially two options when it comes time to exit: close or sell.
The first option of closing your business requires selling your inventory as quickly as possible. While this may seem like a convenient route, the hefty disadvantage is that you will only receive the money for sale of your assets versus the valuation of your company as a whole. What you’ve built likely far exceeds the dollar amount of inventory you have remaining.
Liquidating your business can also be tricky depending on the quality and number of buyers interested in your inventory. You may have to reduce the value of your products in order to sell everything in the timeframe you want.
The second main business exit strategy is finding a reputable buyer. This means you will be able to sell to a new business owner who will take over ownership of the brand you’ve built. At Forum, sellers that meet the criteria can cash out years of profits in a single day, based on the valuation of the company, with a closed deal in 30 days or less.
To explore this route, you’ll want to prepare your finances, organize business information, and decide how you’re going to share the news with your employees and customers. Once you agree to selling terms, the process to finalize the sale can move quickly.
Prepare Your Finances
Once you’ve decided on a buyer, preparing your finances should already be well underway through the valuation process. This includes any business revenue you have, in addition to revenue received through Amazon sales.
Having all documents updated, properly stored, and classified in a clear manner will make the transition process feel efficient. In addition to sales and customer viewership, organizing costs and any acquired business debts is also important.
Organize Business Information
Transferring an e-commerce business requires sharing a list of all domains, website log-in credentials, and Amazon FBA seller account information to the new buyer. Other business information to review and update includes contact lists and product listing categorizations, social media account information, and supplier information.
Documentation of all of this information in a single platform makes it easier to review and identify what’s missing when planning your business exit strategy.
Sharing News with Employees and Customers
Being transparent with your exit strategy and sale may be time-sensitive. In the early stages of valuation, you may refrain from sharing news of a potential sale until there’s a contract in place. A valuation may take longer to complete than anticipated, and potential buyers can back out. It’s best to be in a solid position and share relevant information with your employees and customers when the time is right.
The biggest part of communication is sharing how the sale will affect them. For employees, will they still work under the new buyer? Will anything regarding their role and pay change? If so, how and when? For customers, they’ll want to know if they’ll see any changes in the quality of products and customer service. Typically, when a company changes leadership hands, it should not impact the customer base in a significant way. The goal is to make the acquisition as seamless as possible and sustain the profitability of the business.
Making the Most of Your Business Exit Strategy
Business exit planning works best when there is a high attention to detail. Meticulous records and a broad understanding of every aspect of your business are crucial when finding the right buyer and starting your business exit planning.
Take time to go through your financials, inventory, and other records to ensure they’re in good shape and ready to share with buyers. It’s worth the time and effort in order to deliver the payout you deserve for the investment you’ve put in your business.
Working with an experienced Amazon FBA business operator like Forum Brands can make the process go much smoother and give you the assistance necessary to create a successful experience.