If you want to put your ecommerce business in the best position to be acquired, at the highest valuation possible, there are a clear set of best practices to follow in the current environment.

In this webinar, Empire Flippers, one of the largest marketplaces for ecommerce business acquisitions, highlighted critical trends amongst businesses selling quickly for the highest valuations.

Here’s what we covered

Show Notes

Watch the Full Replay:

Webinar Highlights

Set personal goals for acquisition

Greg has seen a lot of entrepreneurs sell their business and then experience entrepreneurial depression becuase they don’t know what to do with their time anymore. He advises having a post-acquisition plan for yourself to really make the most of what may be the largest personal influx of capital you’ll ever experience.

 

You should sell if you get closer to your personal or business goals by selling. I always tell people have a plan because that plan will defeat entrepreneurial depression. You’ll be able to hit the ground running with that life-changing capital, and you’ll be much, much happier for it. So don’t worry about the market, worry about you. That’s the most important thing. 

 

And this leads into the doors of possibilities. When you do sell your business, this is the largest life-changing capital you probably have ever seen. And if you have a good plan, that opens up the doors of possibilities for you, that just simply did not exist for you before.” – Greg Elfrink

 

→ Pro Tip: Be aware of the potential for entrepreneurial depression and have a plan to beat it.

 

What are the characteristics of businesses that get sold?

Greg said that his team analyzed FBA businesses that sold to discovered what characteristics they had in common. Here’s what they found:

 

You want 20 SKUs or less ideally. And the real sweet spot tends to be between three to eight products. 

 

And usually out of those products, there’s one or two that are what we call a hero product that’s really carrying a lot of the business, that’s driving a lot of the growth, and the other products are almost like accessories to this hero product.” -Greg Elfrink

 

→ Pro Tip: Buyers like a business that has some aspect underoptimized, whether that be product listings or advertising campaigns. Leave something for them to optimize.

How can you optimize operationally for acquisition?

In addition to these characteristics, Greg talked about operational tips to prepare a business for acquisition. These included a smooth supply chain, solid quality control, using a 3PL warehouse, liquidating dead products, creating detailed SOPs (Standard Operating Procedure), and being prepared to explain dips and spikes in sales.

 

Obviously this is the hardest one right now, which is a smooth hands-off supply chain. Make it easy for the buyer, which right now is not easy for anyone. So this is a tough one to do, but if you could do it, that would be fantastic, and it makes you much more attractive… which allows you to sell your business in a much smoother process. It doesn’t always increase your valuation, but it can help you have a smoother sell.” -Greg Elfrink 

 

→ Pro Tip: You can save money and increase flexibility by utilizing a 3PL warehouse, not relying solely on Amazon warehouses.

What tasks should be on a pre-acquisition checklist?

In the final months leading up to a sale there are a few tasks Greg says you should be sure to attend to. This is the time to liquidate any dead SKUs and pause any experimental programs. Focus instead on the core tasks that keep your business running smoothly. Be sure to have at least three months of inventory on hand so you don’t risk stocking out mid-acquisition. Organize all your books including a P&L statement and any invoices from suppliers. And finally, clear your schedule so when the offers come in you have time to evaluate them and respond.

 

The worst thing that can happen is say you have a $7 million Amazon FBA business that is going through migration. The deal is struck, you sold the business, and during migrating the business – which can take a while with Amazon FBA because you need to work with Amazon and we all know that’s an elaborate process – the worst thing possible is during that you have a stock-out and that can create all sorts of issues. ”-Greg Elfrink

 

→ Pro Tip: If your books aren’t in top shape, hire an ecommerce bookkeeper or a broker like Empire Flippers to get you organized.

Watch out for these acquisitions myths

Greg rounded things out by sharing acquisitions myths and uncovering the realities behind the myths. Many sellers believe in the “off market fallacy” which says that they can make more money if they sell without a broker. While this is sometimes true, it’s not true as a rule. Brokers can help you make more money by negotiating better terms like revenue-sharing. Another pitfall is to accept an urgency-based deal. This happens when the acquiring makes an offer but it comes with an expiration date, and that creates a sense of urgency where business owners end up selling without enough time to evaluate whether this is the right sale.

 

As FBA entrepreneurs, we understand when it comes to marketing scarcity and urgency. And that’s what they’re using on you. So put on your copywriting hat and remember don’t fall for the urgency because if you have a high-quality business, there are a slew of buyers out there… Make all these people compete for your brand. That’s how you get some of the best deals possible. Especially in the aggregator space. These people are highly competitive and these are the best buyers in the world. I love our aggregator customers. When they see a deal, they will compete fiercely for you for what you have built, because what you have built represents huge amounts of leverage for them.” – Greg Elfrink

 

→ Pro Tip: If an aggregator makes you an offer, another aggregator may take that as a good reason to make an offer as well, because they’ll consider the first offer to count as due diligence. 

 

Want more perspectives on preparing for acquisition? Read our blog on ensuring your business is ready to sell: