They Almost Lost Out On $700,000 When Selling Their Business!
Sometimes, selling your business can be like walking a tightrope.
On one side, you’re unsure of how much interest you’ll receive from buyers and are tempted to snap up the first offer that comes your way.
On the other side, you’re holding out hope that a better deal will come along. But it’s a risky move to turn down a perfectly fine offer in the hope that something better is just around the corner.
Managing your fears and expectations as a seller is a delicate balancing act.
Thankfully, as one of our recent sellers learned, a little knowledge and expert advice can go a long way to quelling your fears and achieving a profitable exit.
When we first met the seller, they had a tough decision to make. A private buyer had offered them $1.4m for their Amazon FBA business, but we believed we could far exceed that offer by listing the business on the Empire Flippers marketplace instead.
The seller had a life-changing choice on their hands, but they ultimately made the right decision and walked away with $700,000 more than the initial offer!
Read on to discover how this success story played out…
Building a Powerful Asset
The business in question was a family-owned Amazon FBA business that had been operating since 2015. The business offered a diverse range of SKUs in the automotive niche and sold products on Amazon marketplaces in the US and across Europe.
The mark of a good entrepreneur is the ability to be flexible and pivot to meet changes in the market. This seller did exactly that in the early days of the pandemic.
Wise to the fact that COVID-related lockdowns would likely cause supply chain issues, the seller made use of a 3PL warehouse to store extra inventory that could be shipped to Amazon in the event of a stockout. This built a moat around the business, protecting it from Amazon penalties and allowing the seller to take advantage of the influx of online shoppers that the pandemic created.
As the seller would soon find out, the business’s established sales history, diverse product offering, and strong supply chain would make it a very attractive asset to future buyers.
A Leap of Faith
After years of growing their business, the seller was finally ready to move on to greener pastures.
As luck would have it, the seller was approached by a private buyer who offered them $1.4 million for the business. Being given the chance to earn over a million dollars in cash is a once-in-a-lifetime opportunity for most people, and can often leave sellers’ heads spinning.
Luckily, the seller kept their wits about them and took the time to assess their options. Unsure about whether this was a good offer or not, the seller decided to reach out to one of our business advisors for advice. Our team quickly got to work creating a valuation for the business.
This is where things got tricky. Aware that competition may be closing in, the private buyer gave the seller an ultimatum; 24 hours to accept the offer, or the deal is off the table.
After conducting a valuation of the business, we were confident that we could help the seller achieve a higher sale price than the one offered by the private buyer.
With all to play for, the seller turned down the offer from the private buyer and put his trust in our full-service brokerage.
How It Played Out
The seller’s business was listed through our Select Listing process. This is an exclusive program that we offer to qualifying businesses that we believe will attract a high level of interest from buyers.
The sellers of popular listings previously became snowed under with a large number of offers in a short space of time. The Select Listing process provides the buyers with a clear window of time to register their interest in the business and affords the seller the time to properly consider all offers before making a decision.
We were right to suspect that this business would attract a lot of attention – a total of 36 interested buyers unlocked the listing via our marketplace, and the business was on the market for just 10 days before being sold.
The crucial question is, did we succeed in selling the business for more than $1.4 million?
The answer is an emphatic yes! The business was sold for an impressive $2,1 million, a cool $700,000 more than the seller would have originally received if they had accepted the offer from the private seller.
As a cherry on top, the seller is still earning from the sale to this day due to the nature of the earnout agreement.
The lesson learned is that rushing into a sale can leave you blind to more lucrative opportunities. It’s best to take your time, seek out advice and make an informed decision.
The Off-Market Fallacy Explained
Buyers and sellers both want the best deal possible, but when you drill down into what this actually means, you’ll see that both parties ultimately have conflicting interests.
Buyers want to buy businesses for the lowest price possible so that they can recoup their capital outlay faster and maximize their ROI.
Contrastingly, sellers want to sell their business for the highest price possible to make up for years of hard work and the recurring income they’ll no longer receive.
Many sellers are unaware of this conflict of interest, and are flattered when a private buyer approaches them with “an offer they can’t refuse”.
Sometimes, buyers will add an expiration date to their offer, pressuring you into making a hasty decision to sell before you can explore counter-offers from other buyers. This is a tactic savvy buyers use to pressure you into a sale while eliminating the threat of outside competition.
Private buyers also ward off competition from brokers and marketplaces by spreading a myth we like to call the “off-market fallacy”.
Private buyers discourage sellers from selling through a brokerage by claiming that sellers make a lot less money due to the commission and fees they have to pay the brokerage.
The benefit of using a broker is that our interests align. We aim to sell businesses for a fair market price. This keeps both buyers and sellers happy, ensuring they’ll return to our marketplace in the future.
We’ll give your business an honest valuation, and let its strengths and weaknesses speak for themselves when marketing your business to buyers.
Speaking of buyers, using a broker gives you access to a large pool of verified buyers. Empire Flippers is currently sitting on almost $7 billion in verified liquidity. Exposure to a larger audience of buyers increases the chance of competition, which can drive up the sale price of your business.
This means that even when you take a broker’s commission into account, you’ll likely still walk away with more money by selling through a broker.
Take Time to Consider Your Options
As you can see, rushing to sell your business to the first buyer who makes you an offer can be a costly mistake.
Taking the time to explore all of your options can help you reduce last-minute stress and get the best price for your business.
This is where exit planning really proves its worth. As the name suggests, an exit plan is a blueprint that outlines all the steps you need to take to achieve a profitable and smooth exit from your business.
The key to a good exit plan is knowing how much your business is worth. Armed with this knowledge, you confidently negotiate a fair price for your business, and identify low-ball offers straight out of the gate.
Use our free valuation tool to get an idea of how much you can expect to receive for your business.
Once you know how much your business is worth, you can focus on a few key areas to improve your valuation.
Reducing owner involvement in the business, strengthening your supply chain, streamlining production processes, and diversifying revenue streams are all great ways to boost your valuation.
Schedule a call with one of our specialist sales advisors for more information on our valuation process and how to sell your business for the best price.
Familiarizing yourself with the market, and getting your ducks in a row with an exit plan will put you in the best position to accept the right deal when it comes along.
Look Before You Leap
Selling a business can be overwhelming, and the relief of finding an interested buyer can lure sellers into jumping on the first offer that comes their way.
As tempting as this might be, you owe it to yourself to get the best value for the business you’ve poured so much time and energy into. As the seller in this case study learned, seeking advice from industry experts can make all the difference.
We are always happy to provide advice and guidance to sellers. Schedule a free, no-obligation call with one of our business advisors to figure out your next steps.
If you’re ready to gain access to our audience of interested buyers, submit your business to our marketplace today.