Would you like to know the value of your Amazon FBA business?
This article gives you the basic foundation knowledge of how online businesses are valued – and what you can do to prepare your Amazon FBA business for maximum valuation & top dollar purchase.
So: before you fill out the request at the bottom of this page for your free phone consultation and FBA business valuation, be sure to read through the value-boosting information on this page.
What docs do I need in hand, to be prepared for my accurate valuation & listing my FBA business for sale?
It’s all about your numbers like gross & net income – and the documents that verify them. These 3 items are always recommended:
- Tax returns (3 years is ideal, but if your business is newer than 3 years that is acceptable as well)
- Profit and Loss statement
- Balance Sheet
Furthermore, these basic documents will help your business broker verify both gross and net income but also calculate other ratios that will be important for investors to know about how you run and operate your business.
What if my tax returns and/or profit and loss statements don’t show very much profit?
One of the benefits of being a business owner is minimizing taxable income. Many expenses are tax deductible to the business owner. Thus lowering your taxable income – but are truly not operationally required expenses.
For example, your son’s baseball team needed a fundraising sponsor. The $3000 donation you made was deductible from your business as a “charitable contribution”. But a new owner of your business would not be required to incur that same expense next year. That works in your favor. Your business broker will “recast the financials” whereby they identify such “add backs” or one-time, non-recurring (or personal) expenses that are not necessary for a future owner to maintain.
These optional expenses you chose to incur are then added back into the profit of the business, for the purpose of showing the real profit the buyer could expect.
A business broker can add back expenses like:
- Charitable contributions
- Federal and state taxes
- Owners salary and benefits/distributions
- One time expenses
Most importantly, this is a crucial part of the business brokers role: this detailed location of add backs & recasting of your financials, to calculate Seller Discretionary Earnings, or SDE. What is SDE? An example will help clarify:
Say your business shows annual profits of $25,000, and you pay taxes on this amount. Let’s also assume for last year, you report the following:
- Owners salary of $45,000
- Interest of $5700
- Depreciation of $2000
- One time expenses: $5000
- Expenses that we classify as owner benefits (meals, travel, coffee, etc.) of $10,000
To calculate SDE, the broker will compile the reported net profit plus all legitimate “add backs” identified for a total of $92,700. This becomes the key figure for your valuation.
How is my business valuation calculated?
The SDE of $92,700 is then multiplied by a standard market multiplier. Your business broker will have access to pull the appropriate market multiple at the time of your listing. Among other factors, they will average the multiples of, say, the last 15 transactions of similar business sales, as a baseline expected multiple for your business sale.
If the average multiple is 3.26, the broker will start with that figure and move the multiple up or down based on the individual strengths and/or weaknesses of your particular business. Then they take $92,700 multiplied by your custom multiple, plus the value of your inventory for a fair market valuation and likely sales range.
Here is a hypothetical example:
Market multiple: 3.14
Value of inventory: $150,000
Fair Market Valuation: $441,078
In this case, the likely sales range, depending on if owner financing was available or the business was SBA financeable, would be in the $400,000 to $450,000 range.
What if I don’t have organized financials like a profit and loss and my business tax returns are mixed together with other income?
That’s ok for now! Business brokers encounter business sellers in this position all the time. It’s not an ideal position though, and left that way, would hurt your valuation. However, with the help of your business broker and your CPA/bookkeeper, you can compile financials and rebuild your Profit and Loss statement and Balance Sheet.
Once these items are compiled, your business broker can calculate SDE and complete the valuation for you.
What can I do to increase the valuation of my business?
The best thing you can do is to have clean financials. Clearly track your expenses and be able to identify what expenses are truly business expenses and what expenses are owner benefits. This way your business broker can calculate and prove the SDE.
It’s always a give and take, as a business owner wants to minimize taxable income in order to pay as little in taxes as possible. But when it comes to the valuation, brokers want to report everything and get the highest valuation. In short, the best thing you can do to have the highest valuation is to show your business as profitable as possible.
How long will it take to sell my FBA business?
It really depends – and it largely depends on you! Typically it takes anywhere from 3-6 months, but we have seen businesses that are priced very aggressively sell in less than a week. In other cases, when business owners are unduly attached to a sale price point than the current market sustains, it can take quite a bit longer, or become impossible, to find a fitting buyer.
The key here is to trust your business broker! They will have the experience and credentials to give you an accurate valuation. At that point, you have two options. Go with the valuation presented and list your business. Or if you’re not satisfied with the current valuation, spend the next year building and growing your business profit. Then, in time, your valuation will increase as well.
Take The Next Step
If you’d like to speak to Trent Lee, a business broker who knows how to value and sell Amazon FBA businesses, and a trusted partner of HelloProfit, please fill out the form below for your free phone consultation now.