There are endless articles out there on growing your Amazon business, optimizing your business, and even outsourcing your business but what is lacking is an emphasis on what should be done to prepare for an exit! I think most avoid this subject because of either its inherent complexity or the sheer nature of an unsexy idea. Everyone loves a good exit story but very few get as excited about the steps leading up to that exit. So, naturally, that’s exactly what we will cover today! If you are an Amazon seller looking to exit in the next few years, this article is for you. By the end of it, you will have a strong framework to positioning yourself for not only a higher multiple but a smoother experience.
Getting the boring stuff out of the way, naturally! Your business structure is critical to get right years in advance of an exit. I see so many sellers have scattered LLC entities with various Amazon business models which leads to muddy financials and confusing reporting. I’ll cut to the chase here. As an Amazons seller, you should structure your business in a very simple way: One LLC entity with each of your brands under a single Amazon Seller account.
The reasoning here is pretty straightforward. Buyers want to see easy, clear, concise reporting to verify your sales figures. They hate, absolutely hate bundled businesses where reports don’t match up. A perfect case here is all reports for your Amazon account line up with your monthly bookkeeping for your LLC entity and also matches up with your yearly tax returns. Buyers will want to see the last two years of tax returns. No funny business allowed here. It’s truly an “open kimono” experience where each and every dollar will be vetted and verified. Deals get killed over incorrect reporting all the time. Your best bet is to keep it clean from Day 1. It will make your exit infinitely easier.
When you start thinking about an exit, you really need to plan years in advance. The reason being that buyers will want to see consistent revenue growth for your brands. A typical range is between 50-100% YOY growth. Avoid major dips and fluctuations in the two years before an exit. They will be pulling your reports anyways, so there is no hiding from this. Knowing that this will come up will better prepare you for the questions during exit interviews with buyers. Major fluctuations with your revenue are red flags to buyers. If they see a dip, they will wonder if it was a hijacker, strong competitor, or Amazon suspension. Your goal is to get remove all doubt for buyers.
Now, I will say this, there are things outside of your control. A good example is a false Amazon suspension or product listing removal. If these types of issues happen it’s not game over by any means. Be strategic and have a good explanation ready to go. If anything, this will show a buyer that you were proactive, took care of it and protected your business. Buyers are much more prone to give your business little attention if they sniff out things like laziness or not managing inventory properly.
When you are nearing an exit, one of the worst things you could do is inform a potential buyer that you have zero new ideas for future product launches. Not only does this show them that you have no real vision, but it reeks of laziness. Buyers want to see a strong, healthy pipeline of potential product ideas! Once the exit is wrapped up, the buyer wants to immediately look at launching new products so make this easy for them! Have ideas lined up, including sketches, 3D models, factory discussion transcripts, and any other brainstorming you’ve done. An organized tracker would be best here as it would also showcase your professionalism.
At Black Label Advisor, I work with aggregators and business brokers on a regular basis. So, besides structuring your business properly, what are they really looking for? Well, I’m glad you asked! The following is a bulleted list of what is being sought in the market right now. If your business lines up, then you are more than ready for an exit. If not, go back to the drawing board and adjust as necessary. Don’t rush this process, if it takes you another year to get right, that’s OK!
-Multiple brands with a diverse product catalog offering. This way, if one brand dips because of stiff competition, the others will remain strong. A single brand is a risky proposition.
-Brand scaling potential. Buyers want to see ways they can further grow your business. This could be expansion into Walmart or launching ten new products.
-An established network of factory suppliers is a must. They don’t want to come into your brand and have to rework your logistics. They want your factory relationships to be strong for a seamless transfer.
-A willing seller to stay on board for 1 year plus to avert any crisis. This is new in the industry. They like to have an involved seller stay on for either extended training or consulting for the handoff. The reason being that a buyer has very little experience with your brands. Your history is invaluable! Be willing to assist post-exit.
-80-90% of revenue done on Amazon. It’s no secret that Amazon owns and controls 50% of all digital sales in America now. This number is only going to get bigger, so buyers want to see Amazon be a dominant force in your business.
-Trademark and patent mania! Trademarks are a must but many sellers neglect design and utility patents. These can bump up your multiple substantially. Knowing that some of your products will be protected for years to come is a huge plus.
-Avoid revenue dominated by a single listing! What you want to have is a diverse product catalog with each listing bringing in steady volume. Avoid the “homerun” situation surrounded by “singles.” It’s OK to have a star product, but that one product should not make up 50%+ of your entire revenue. You should avoid this anyways as it places YOU in a risky position if something ever happens to the listing like a flood of competition.
If you made it this far, you now have a stronger understanding of the market than most Amazon sellers. Preparing in advance is key. The sellers who wait until the last minute either have zero interested buyers or ultra-low multiples. Like most, your business is probably your baby. Neglecting the steps leading up to your exit doesn’t line up with the time and effort you’ve put into it. Your exit deserves the best! Just like boxers or UFC fighters, the months of prep work before a fight are what matters most. Simply follow this guide and you will be well on your way. In fact, a buyer or aggregator may ask you how you are so well prepared for an exit! Won’t that be quite the compliment!
About the Author, Black Label Advisor
Jon Elder runs Black Label Advisor, a consultancy focused on helping brands expand their business on Amazon and reach countless new customers. Having grown his own Amazon private label business to 8 figures and exiting for mid-7 figures, he has a passion for helping other business owners achieve the same level of success. You can contact him by emailing him at email@example.com.