Whether you’re actively planning your Amazon exit strategy to sell or just beginning to scale your Amazon wholesale business, it’s smart to start thinking about an exit strategy. Even if you’re not planning to sell any time soon, having a goal in place will ensure that you’re prepared to exit your Amazon wholesale business successfully when the time comes. For many sellers, the exit from their Amazon wholesale business is the most lucrative aspect of their venture, but this isn’t guaranteed. By planning ahead to exit your Amazon wholesale business you can create and maintain a strategy preemptively, guaranteeing a seamless process and the maximum profit possible.
Understand the State of Your Amazon Business
While it may seem like an obvious first step in preparing to exit your Amazon wholesale business, verifying that your bookkeeping is up to date and thorough is one of the most important steps for success. This is especially true because making a successful exit from your Amazon wholesale business requires a lot of due diligence where confidential information about your Amazon business is shared.
Proper bookkeeping requires more than just documentation of your financial history, it also includes legal records regarding your business, such as LLC paperwork, supplier contact information, customer information, social media accounts, and more. It’s also important that you’re capable of sharing the methods your business uses for storing information and how it can be replicated. Without this type of proper bookkeeping your business could potentially be undervalued or seen as too risky to purchase, so preparing this information ahead of time is invaluable for a profitable exit.
The Financial Position
It’s typical for potential buyers to require visibility into the last 24 months of your business’ sales to understand the financial health and trajectory of your Amazon wholesale business before committing. In order to make this information as readily available and easy to access as possible, it’s smart to maintain a monthly balance sheet. This balance sheet should include your sales number, profits, margins, and expenses– at a minimum. Some prospective buyers may ask for more information in order to understand the growth of your business and the health of its cash flow.
Don’t be afraid to hire an accountant to help you get organized. The earlier that you begin tracking and maintaining your finances, the more time that you’ll save when you exit your Amazon wholesale business. Additionally, the more data you have to verify your business’ success, the greater profit you stand to make off an exit. While accountants may seem expensive, going into an exit without a clear financial picture of your business can make or break the sale–costing you a lot more money.
The Market Position
Although you may not think of legal documentation, supplier information, and the brand’s advertising as part of bookkeeping, having these things organized will help you present a more complete picture to potential buyers. Documentation of more qualitative information like this will help interested buyers assess the time and effort it takes to onboard fully into the business, as well as give them a better understanding of the brands you work with. To successfully exit your Amazon wholesale business you will need to find a buyer who sees the value in all aspects of your business, not just the bottom line.
The more information available about a supplier or brand owner that you have prepared, the easier transferring relationships will ultimately be, meaning greater value for the business. Brands also attract different types of model customers, and in wholesale you’re leveraging an already established reputation, so you need to be able to explain what the customers of each brand you work with look like and how to interact with them.
Prepare Your Expectations Now
Once you’ve done a full inventory of your bookkeeping, you’ll have a clear picture of exactly where your business stands. This information is incredibly useful when you’re setting and managing your expectations for what an exit from your Amazon wholesale business will look like. False expectations about the sale value of your business will breed disappointment and frustration when you exit your Amazon wholesale business, so being honest throughout is critical to satisfaction in the long run.
In addition to taking into consideration the financial and reputational realities of your business when setting your expectations, it’s also smart to do research. You wouldn’t sell your house without taking into account the state of the economy and the housing market, and you shouldn’t exit your Amazon wholesale business without understanding what’s happening in the ecommerce marketplace. Ask questions like, “What is the going rate for businesses similar to mine?” that will help you make smart negotiations.
Go to Market Strategy for Buyer
Perhaps the biggest expectation a potential buyer has when purchasing an already established business is that it will continue to grow and appreciate in profit. However, a new buyer won’t instantly understand the history and trajectory of your Amazon wholesale business or the best way to capitalize on the success you’ve had. To provide more value to your potential customers, it’s wise to build out a post acquisition go to market strategy that will help bring them up to speed quickly and allow them to start their new venture running.
A post acquisition go to market strategy provides a blueprint for what the buyer should do with the business next. If you’ve been maintaining a list of strategies for growing and expanding the business, such as potential new products or suppliers, include these. Any opportunities that you’ve considered but weren’t ready to take advantage of should go here so that they know what your thought process was. Your go to market strategy should also include information about your financial forecasts and any external funding that you would consider taking on to achieve the next set of goals for the Amazon business.
Although it may seem obvious, your shipping and distribution strategy can also significantly impact the value of your Amazon seller business. If you’re planning to exit an Amazon FBA business it’s important to consider what that means for your go-to-market strategy. While FBA businesses require less manual labor and expedite the shipping process, an FBA business also immediately has more expenses. If your business manages both Amazon FBA and FBM transactions, it’s important that you document the success, cost, and efficiency of both methods.
Many buyers also want breakdowns of your previous annual go to market strategies before your exit from your Amazon wholesale business. These breakdowns will help provide context for where the business has been, how it operates, and how it’s evolved over the years– therefore better preparing them to run it effectively.
Scale Your Business to Exit Ready
According to FBA Flip, most Amazon FBA business transactions, including Amazon wholesale businesses, take place between the 1 to 5 million dollar range. However, it’s not uncommon for Amazon sellers to exit their Amazon wholesale business outside of these numbers, depending on a wide variety of factors. In order to make your desired profit when you exit your Amazon business, especially if it’s a wholesale business, it’s crucial that the business is scaled to a proportional level. It’s possible to exit your Amazon wholesale business at any size, but the “sweet spot” for wholesalers is considered to be around 75K in net profit each year, at a 20% margin. This ensures that your business is attractive to potential buyers since they’ll be confident that they’ll make their investment back and more. If your wholesaler business is below 10% in terms of net profit margins, your business will become less attractive and less likely to garner the type of exit numbers you’re hoping for.
Don’t stress if your wholesale business isn’t already at this size, many Amazon sellers have had successful exits from smaller businesses. However, if you’re hoping to reach that million dollar exit, it might be worth considering how to scale up your business before opening it up to potential buyers. The more you can scale before talking to potential buyers, the better chance you will have at making an immensely profitable exit.
Consider Taking on Funding
While scaling your business may seem like a daunting task, it’s very likely that your Amazon wholesaler business is already scaling– just at a slow rate. It’s very common for wholesale businesses to be limited by their own cash flow, stunting your growth and preventing you from taking advantage of new opportunities. This is typically the result of cash flow “gaps” where your business is between payouts and doesn’t have the funds to purchase more inventory.
To combat this cash flow slow down and eliminate the gaps between payouts, it’s worth considering taking on external funding. Working capital solutions, especially those designed specifically for Amazon wholesalers can help increase your buying power, allowing you to invest in greater inventory at lower margins, launch new products, upgrade your marketing, or more. Over time, this will help you scale to exit your Amazon wholesale business at your ideal numbers–whether that is 300K in sales per year or more.
While many sellers have a negative association with any type of debt, a healthy dose of funding often can take your business to new heights in half of the time. The most important thing when taking on external working capital, like Wholesale Accelerator, is to have a plan for how that funding will be allocated. If you’re planning to exit your Amazon wholesaler business in the foreseeable future, this plan is often as simple as more frequent or larger inventory purchases. Additionally, once you’ve proven that funding has the ability to expedite growth sustainably and maximize opportunities for your business, you’ll have created another tool for your potential buyers in the go to market strategy– making the exit from your Amazon wholesaler business even more lucrative.
Although you may not be ready to exit your Amazon wholesale business yet, or maybe even ever, it’s always beneficial to have an exit strategy prepared. Continuously evaluating your Amazon wholesaler business on whether it’s “exit ready” or not will allow you to grow in a sustainable and smart way, as well as prepare a solid foundation for if your business ever does change hands.