Cashing Out! Sold My First Business (Amazon FBA)— A bittersweet moment
I’ve recently just closed on a deal to sell my first business a few days ago it is a bitter-sweet moment, to say the least. Money is in the bank, but I am waking up the last few days without seeing any product sales from the business I sold, almost like a part of me is missing.
Could be a case of Seller Remorse? Upon further reflection selling, it made all the sense in the world. I think it's the emotional attachment to the business and the product, as it has been a major part of my business career up to this point. As the old saying goes “It is the journey, not the destination” it couldn’t have been more true. Looking at all the sweat equity pour into the business.
A bit of a background, this business/brand is my first E-Commerce business. The business model is Amazon FBA, if you want to learn more type “Amazon FBA” on YouTube, you will see more results than you would want. Choosing this business model turns out to be a very important decision as the other side of the market (the buyers) has been growing for the last 3–4 Years. I believe with the situation with Covid-19 and continue dominance with Amazon this market will continue to grow.
To the casual observers, I reckon some responses are “You can actually sell a small E-Commerce/Online business?!?!” buying and selling businesses seem such a wall street thing and the online thing so novel. Yes, there are buyers for these mid-market online businesses, brokers such as FE International, QuietLightBrokerage, and EmpireFlippers facilitate these transactions. What they get is, is my opinion, the goldilocks of businesses, fast-growing, low overhead, low operating leverage businesses without the risk of a startup. At the same time the valuation is still quite attractive, approx 3–4x PE Multiple. But…..it is not a passive investment by any means and needs at least some time and experience to run it successfully.
Growing a business that is sellable and building an asset is also an exercise in delayed gratification
Growing a business that is sellable and building an asset is also an exercise in delayed gratification. I guess I could have sold courses or did some dropshipping business, but neither of which could have been sold, and would have only gratified myself instantly with profits. At the same time, I must say I love the grind of entrepreneurship and the goal of building towards something, so I guess this delay gratification thing comes as a 2nd nature to me.
The Sales Process
- Finding the Brokers
As with anything done the first time it seems more difficult than it seems. The first step is to find a broker, the right broker is one that will fight for your business on your behalf and would vet potential buyers, for it was hard to tell which ones were better than the next because although I did know friends/connections who have sold their online business I am getting conflicting signals on which one is better. Fortunately, I bumped into a fellow Amazon seller in Manila who recommended me to QuietLightBrokerage, I spoke directly to CEO and felt comfortable giving them the deal. We are off to the races!
2. Valuation and other Business Summary
For me, business is an accumulation of thousands of both reoccurring and ad-hoc decisions and when it came to valuation, boy am I glad that I had regular accounting/bookkeeping done! Else the valuation process would have been 10x worse. The valuation is basically 1)Grab sales and expense data from the last 3yrs down to the SKU level 2)Organize the data in step 1 into a yearly P&L (Profit & Loss Statement), which can be quite overwhelming as you see spreadsheet below
3) Now that you have produced the P&L your valuation is between 2–4x your last 12 months Net Profit, so its profit after all expense (employee salary, shipping, marketing etc) but the expense does not include anything you pay yourself. The 2–4x multiple is a big range, it is down to really 3 things:
- The quality of your revenue (margins/diversification/how reoccurring)
- Growth
- Does it have a team in place? How much or how little time does the buyer have to spend
My business ends up with a valuation of 2.48x profit @ the asking price of $620,000.
Now that we have all that information about my business out there, the next step is to talk to interested buyers.
3. Buyer and seller calls (A lot like dating)
For the next 3 months or so I had calls with potential buyers maybe 1 to 2 times a week. It is kinda like dating, you put your cards on the table without saying too much. There are buyers who buy for different reasons, such as businesses consolidating Amazon business, strategic buyer and people whom just want to start on Amazon by just purchasing a business instead of starting it.
Since all potential buyers for Amazon businesses are based in the US and I am here in Hong Kong there is a large time zone difference and I would do the calls around 10 or 11 pm. After a while it did get exhausting, this was around February 2020 the height of the Covid-19 situation, the buyer seems to be kicking the tires and hesitating.
4. Letter of Intent (LOI)/Offer
During the height of the Convid-19 environment, I had almost given up hope in getting a legitimate offer and was very close to just pulling the plug on the listing and move on, when I had a call with a buyer in Texas. The call was not out of an ordinary with other calls, he didn’t give an impression that he was very keen on the business.
BUT…a week after the call I received an offer (Letter of Intent)
The letter of intent (LOI)is only a start, it starts you on another process until the deal is closed and money is in the bank. The LOI not only includes the offer price but most importantly it allows for the buyer to perform due diligence on the business for a specified period of time, exclusivity period, during which the seller will not be allowed to negotiate with other potential buyers until a specified date.
As for the purchase price, it was a sizable discount to the listing price, but I am realistic about the current environment so I thought the offer was fair enough, but there other things that I can counter, such as the % of the holdback. If the % of holdback is higher it would be advantageous to the buyer as the buyer can purchase the business with less money down and less risk vice versa for the seller. So I countered with a lower holdback % and the offer was accepted, the LOI is now signed by both parties.
5. Due Diligence
This can make or break the deal. So it is in the seller’s interest to be upfront with all the information or else if any major skeletons are caught it would be a major waste of time.
I imagine this process is so much easier for online businesses because most online platforms, in my case Amazon, allow for different user login permission. This mostly eliminates the risk of forgery on any sales and expenses, and allows for the efficiency of due diligence since all records are all in one place. Basically, the buyer will attempt to make sure the underlying data matches the P&L from step 2.
I am glad that I do report on my business on a monthly basis and was able to quickly provide the data necessary for due diligence to the buyer. There were a few back and forth in terms of requests for more data. At this point, you have just wait until either the buyer has completed the due diligence or the end of the exclusivity period.
6. Asset Purchase Agreement
Since this is an Asset purchase, the buyer, if ok with the due diligence will present an Asset purchase agreement (APA). This is a legal agreement that specifies the purchase price, how the purchase price will be paid out, what is the commission structure, the asset to be transferred, and another 20 or so pages of legalese. In this stage, it was pretty much smooth sailing, the buyer presented the APA, and I returned it signed
7. Escrow/Asset Transfer/Payment
For the actual transaction to happen, the buyer will fund a 3rd party account aka an escrow. When all the assets are transferred all parties will notify the lawyer who is in charge of disbursement of the escrow to all the parties involved.
Basically, that’s the entire sales process, although there is a training/handover period of 120 days, after which I get the holdback amount. The holdback amount is relatively small compared to the overall deal, so I would say the deal is 90% complete.
Why this is bitter
I feel such an emotional attachment to this business and its products. It has been a major part of my last 3 years. As I have built this business from the ground up, seeing it grow past 7 figures in sales and hiring all of its employees. The process of learning with this business I will sorely miss. Not seeing any sales from this business anymore will also take getting used to. I liken this business to the old rusty bike that you first learn how to ride and don’t want to get rid of.
Why this is sweet
With the Covid-19 and also the protest here in Hong Kong, there has been a lot of news of businesses going out of business and be wiped out on something that is beyond their control. I feel beyond grateful not only I have survived this very challenging climate but was able to sell my business and de-risk.
I also feel a certain level of achievement and justification of thousands of small decisions that had to make. Although it is good to have this “track record” and vindication of my thought process, of which a lot of times it was against popular belief, I hope I don’t get complacent and stubborn due to just one-base hit.
With additional time and capital from this sale I can look towards working on my new SaaS startup, SellerMetrics, the prospect of that is very exciting in itself.
In Conclusion
If you have read all the way here you probably is asking what is the purchase price, lets say I can do nothing and play golf for a while and enough to fund my future ambitions. The sell of my business took longer than expected, but I feel the sales process itself went as smoothly as it can go. Special thanks to my account manager at QuietLightBrokerage.
With my free time I will be working on my weaknesses, such as sales and marketing/branding. If you are good in any of those areas love to be connecting and learning from you.
Thanks for reading my humblebrag, to conclude one word that sums up what I am feeling. Onwards!
Rick Wong is the owner of Hong Kong base E-Commerce business. Feel free to connect and follow him on LinkedIn here
