Guest written by Denyn Bird for A2X Accounting.
Fulfilment by Amazon (FBA) provides online sellers with access to vast economies of scale in the warehousing and fulfilment space. At present, Amazon has operations in 15 countries, and ships products throughout most of the world. Using FBA to store and ship your goods allows you to leverage Amazon’s resources to your advantage.
In our latest eBook ‘How To Sell Your Amazon FBA Business’, we look at a range of considerations when it comes to developing, optimising and preparing an FBA business for sale. This article is intended to shine a light on some of the ways that you can increase the value of your Amazon business and make it more attractive to potential buyers.
1. Operations – Automate, Outsource and Systemise
One of the joys of modern eCommerce is that there are apps and third-party contractors for almost everything when it comes to operating and growing your business. Here are a few of our favourites:
Prep warehouses – before your stock is sent to FBA warehouses, it is vital that someone checks for damage and faults, package the items ready for your customers to receive and attaches labels for warehousing purposes. Prep warehouses are your eyes and ears on the ground and can help to keep your suppliers honest and customers happy.
A2X – connects your seller central account with Xero or QuickBooks Online cloud accounting software. Whenever Amazon creates a new settlement file, A2X automatically crunches the data, generates a summary of revenue, expenses and other transactions, and posts this information to your accounting software in the form of invoices and journals entries. Not only does this save lots of time, but it also improves the accuracy and integrity of your financials, making your business more attractive to potential buyers.
Feedback Genius – automatically sends follow-up emails to customers asking for feedback, product reviews, or both. This creates a self-reinforcing cycle: more positive reviews result in more sales, which leads to more positive reviews, and so the cycle continues.
It’s important to understand the seasonality of the items that you are selling. If your products are highly seasonal, consider selling goods that perform well during the low season. For example, if your main product range consists of swimwear and beach clothing, it might be worth looking at selling winter clothing such as jackets and hoodies as well. This will help to balance your cashflows and provide a more stable income throughout the year.
If you are planning on selling your business, it can be a good idea to remove any unnecessary overheads at least 6 months prior to listing your business for sale. Things like home offices, company vehicles and travel costs that can be cut out should be removed. For tax purposes, it is a good idea to list every reasonable expense. However, for valuation purposes, you only want to include outgoings that are necessary to keep the business running successfully. Old stock that is hard to sell can be a major obstacle for potential buyers. Drop these lines and focus on what is making you money.
Develop systems and processes, document how relationships with suppliers work and integrate your business into existing systems wherever possible. In fact, if you are going to do something more than once, it’s worth documenting the process so that someone else can do it for you. – DOWNLOAD THE EBOOK HERE
How many SKUs are you offering to the market? If most of your sales come from 2-3 product lines, this can represent a risk in the eyes of potential buyers, as new competition could enter the market and diminish your customer base, or for one reason or another, Amazon could potentially remove your products.
On the other hand, if you have too many SKUs and only a few product ranges are making up most of your profits, this can become a management nightmare. Apply Pareto’s law, and focus on the products that are driving your business success, but make sure that you have enough diversity in your product lines to ensure that your business is robust.
4. Types of FBA business
FBA businesses can be broadly categorised into three groups: re-sellers, private labellers and proprietary distributors. Re-sellers simply purchase existing products and resell them on Amazon. Private labellers add their own brand to existing ranges, augmenting the product offering and creating a point of difference. Proprietary distributors develop new products, formulate new recipes, and offer goods that are fundamentally different to what is already on the market.
As a business moves up the value chain from reseller to proprietary distributor, more value is added, the business is more defensible to increased competition, and can command a higher valuation from potential buyers.
Adapting your product offerings to create more value is a great way to increase the worth of your business, however, it’s important to make sure that you conduct proper research first, as the key factors for success change as you move up the value chain.
5. Presence outside of Amazon
If you are selling exclusively on Amazon, it can be a good idea to build a website for your brand/storefront – potential benefits include driving web traffic to your Amazon listings, earning affiliate commissions on your product sales, and developing brand value outside of the Amazon platform. This is also a great way to create a customer mailing list, which is valuable to potential buyers for re-marketing efforts in the future.
However, if you think that other uses of your time such as researching and adding new SKUs might be more effective at growing your income, then it may be worth doing these tasks instead. As yourself: in the long run, what is going to yield the most benefit?
If possible, try to sign exclusivity agreements with suppliers. Although these agreements are not always strictly honoured, they do provide value to prospective buyers, and represent a barrier to entry for potential competition.
For popular products which you cannot secure exclusive access to, try to get favourable terms – such as first pick on new production runs, extended payment terms, and better pricing.
Astute business buyers will want to know that they can continue to source inventory from the same suppliers with the same terms and that no interruptions will hinder business operations on the supply side. If production lead times are an issue during peak season, see if your supplier would be willing to hold stock in their warehouses on your behalf.
The 6 topics listed above are just a few of the points discussed in our eBook ‘How to sell your Amazon FBA business’. Some of the other topics that we cover in detail include:
• How much is your Amazon business worth, and how do you value it properly?
• What are the types of buyers of Amazon FBA businesses?
• When is the best time to sell your Amazon FBA business?
• Ways of selling an Amazon FBA business.
• How to properly handle the sale – steps to success.
• Practical considerations when selling your Amazon FBA business.