It’s essential to maximize the appeal of your FBA business when it counts most; at your exit point. Optimizing your available FBA reimbursements alongside setting up proper FBA business fundamentals can help you maximize your valuation.
Ah, the two words every Amazon seller loves to hear aside from profits and sales; Amazon Exit. If you’re an Amazon FBA seller, your most crucial and momentous occasion aside from deciding to embark on your entrepreneurial journey will be that of your exit.
With the global expansion in e-commerce has come the flood of investment opportunities in the Amazon FBA aggregator world. FBA businesses have become highly sought-after investment opportunities, with sellers seeing valuations like never before.
Having a robust exit strategy at play to help maximize your outcome is crucial to your valuation and your exit.
Amazon FBA Reimbursements are a vital component to your Amazon Exit. They can effectively help increase your valuation and make it more appealing to you, the seller, and the buyer.
In this article, we’ll break down the fundamentals of an Amazon business valuation, the calculations used to attain a healthy valuation, and the importance of FBA reimbursements to selling your Amazon business.
Your FBA valuation is the real dollars and cents that your business generates. It’s how your exit number is determined and so understanding the valuation process is a critical component to your exit strategy.
An accurate valuation is determined by several factors, all considering the financial health of your business and then attaching a multiple to the valuation. When determining multiples, earnings are the prime consideration. Essentially, what is the net revenue the business is bringing in?
SDE - Seller Discretionary Earnings is a valuable calculation method that is negotiable to help sellers increase the valuation of their FBA business. The SDE accounts for what the business is making after expenses.
SDE = Net Revenue - Cost of Goods Sold - Operating Costs + Discretionary Earnings (Compensation or Salary)
Example: A seller generates $1M in annual revenue, their cost of goods is $600k, and they paid themselves $100k in a yearly salary. The SDE is then $400k.
EBITDA - Earnings Before Interest Taxes and Depreciation is a more practical calculation that accounts for the net profit of a business.
EBITDA = Net Earnings + Interest + Taxes + Depreciation + Amortization
Example: A seller generates $1M in annual revenue, and their cost of goods is $600k. They paid themselves a yearly salary of $100k. Without SDE factored into the calculation, the business is valued at $300k.
You can see from the above examples how the SDE helps increase the value of the business with what is called add-backs.
Typically, a multiple is the factor by which you multiply the annual profits of an organization. Once the net earnings are determined, the multiple is formulated. Multiples can be calculated in a variety of ways, just like valuations.
When a buyer is interested in purchasing a business, they are interested in attaining the yearly profits of that business. A seller is then interested in selling the business at an annual multiple to include future forecasted earnings of the business.
An Amazon seller chooses to sell their business to another Amazon seller. The buyer offers to pay the seller at 3 times (3X) what the business is expected to generate in annual profit. 3X is the multiple.
Multiples generally allow sellers to enjoy a handsome profit and embark on a new journey leaving their Amazon business behind. Buyers benefit by being properly positioned to take over the business to adequately scale and eventually turn a healthy profit.
Maximizing your valuation should be at the forefront of your exit strategy, yet maximum valuation also shouldn’t be viewed as a one-step singular approach. Here are a few considerations to help you maximize your multiple:
Efficiency is everything. As you scale your Amazon FBA business, you should be developing clear and effective processes within your business and organization. This includes outsourcing tasks, developing standard operating procedures, growing a reliable team, and developing lean strategies and effective internal communications.
A healthy business operation will also include a proper exit strategy, so keep that point in mind. Your exit strategy should be developed early on and act as a well-oiled machine that ebbs and flows as you grow.
Buyers will want to know that your brand sets apart from others and is known on social platforms and online.
A strong brand identity may mean that you offer a healthy product line and a variety of products instead of one SKU. Branding in a hot market may also mean that you have built a community through various content sources and that this community trusts your brand aside from others.
Being Brand Registered on Amazon is almost a must coming into mid-2021 and can also help the valuation of your FBA business. Brand Registry on Amazon offers protection from particular fraudulent behavior seen on the marketplace. It’s also an added assurance that your brand is trusted by the platform more so than the average seller who may not be trademarked.
A strong brand identity shows the buyer the brand potential and helps them have confidence in their purchase decision.
Healthy financial reporting is a must in your Amazon FBA business, and you should start as early as possible.
Hiring accounting teams if necessary and maintaining accurate and balanced numbers will be essential to your exit. This is an area in which many businesses fail to operate adequately, and therefore we can’t stress its importance enough.
Educate yourself as much as possible about your business’s financials so that when an exit becomes an opportunity, there is nothing that slips through the cracks and catches you off guard.
Amazon Audits, Amazon Claims, and Amazon FBA Reimbursements should be at the forefront of your business, throughout your selling journey, but also at your Amazon Exit point.
Amazon FBA Reimbursements are money owed to you by Amazon and come from discrepancies in lost, damaged, destroyed, disposed, and overcharges in Amazon fees.
Sellers at the exit stage may fail to see how impactful maximum recovery of funds can be to a valuation and an exit.
Sellers may not be aware of the money they are not adequately recouping in their FBA business. Amazon FBA Reimbursements should be a standard operating procedure, but unfortunately, many sellers are task saturated and fail to perform proper and detailed Amazon audits, and Amazon claims.
Having an FBA reimbursement solution helps assure potential Amazon business buyers that your business operates smoothly and performs due diligence in tracking discrepancies.
Creating awareness about missing money in your business is the first step to reaching a maximum valuation.
Maximizing your FBA reimbursements is key to maximizing your valuation.
If you’re ready to pull the trigger on selling your Amazon business, not so fast. Even if you’ve outsourced FBA reimbursements and think you’ve tackled all of your discrepancies, it’s wise to hire a solution to come in and perform a final Amazon Audit.
Not performing a final detailed Amazon audit upon your exit could mean you leave large sums of money in your valuation.
GETIDA’s case study shows that 1-3% of a seller’s inventory will be affected by a discrepancy in its lifetime. A complete Amazon Audit can help provide the seller with a 3X - 5X multiple at the time of exit.
Having an FBA reimbursement solution in place helps increase value, but it also helps create a systematic approach to proper Amazon claims in your business. Aside from maximizing your value, you’ll want to show potential buyers that your Amazon account is in a healthy position and good standing.
The importance of FBA reimbursements at an exit is to bring awareness to the seller while also maximizing recovery to increase the valuation of the FBA business.
Selling your Amazon business can be a stressful time with many moving parts. Having an exit strategy early on will help you navigate your exit for a best-case scenario once you are ready.
Educate yourself as much as possible on valuations, work towards a maximum valuation and reap the benefits of your hard work.
Do you outsource your FBA reimbursements or do it yourself? Get $400 in Free Amazon FBA Reimbursements with GETIDA.
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