How a Well-Timed Exit Helped This Seller Become a Millionaire in Just 5 Days
September 7, 2021
How would you like to become a millionaire in less than a week?
It’s an opportunity that few people would turn down. What many business owners don’t realize is that this opportunity is well within their reach. To date, Empire Flippers have helped 54 people become millionaires and achieve financial freedom by selling their businesses on our marketplace!
The question is, when is the right time to sell your business?
Your business is at its most valuable when it offers buyers a unique opportunity or an edge over competitors. In the case of one seller, this golden opportunity presented itself in the form of a well-chosen niche.
A fast-growing niche helped one seller turn a $50 business into a 48x multiple exit and a sale price of $1,500,000.
When it came time to list the business with us the seller was in disbelief: “I started this brand with $50 just 3 years ago. I never thought I’d be selling it, let alone for this amount!”
Read on to find out how the seller took advantage of their highly sought-after niche and the current hunger for FBA assets to make a profitable and quick exit from their business.
Creating a Successful Business
Today we follow the story of an entrepreneur who decided to funnel their passion for health and nutrition into a new Amazon FBA business. The business venture was well-timed as it coincided with a boom in the specialized diet and nutrition industries.
Looking for ways to increase the value of the business, the seller experimented with a range of different products. After identifying which items were most popular, they cut their offering down to only a handful of flagship SKUs.
By sticking to flagship SKUs the seller realized the key benefits of a pared-down product offering. These benefits include reduced shipping and manufacturing costs, simplified operations, and more time to focus on flagship SKUs.
Over and above their FBA sales, the seller branched out into retail and launched their most popular product in 117 stores across Canada.
In three short years, this small start-up business blossomed into a successful company that brought in $31,298 in net profit every month.
Success Isn’t Always So Sweet
Achieving these levels of success is every business owner’s dream, but rapid growth comes at a price. A surge in online shopping demand meant the seller had to scramble to keep enough inventory in stock.
This dilemma is not uncommon and was particularly problematic in the early days of the pandemic. Supply shortages, shipping restrictions, and Amazon inventory limits hindered the availability of stock. Some sellers had to resort to expensive shipping methods to meet consumer demand and avoid Amazon penalties.
So, while some sellers were making more sales than ever before, the exorbitant logistical expenses and investments into larger order sizes were putting a huge dent in their bottom line.
With a bit of perseverance, business owners can weather these storms, but in the case of our seller, this particular battle came at a bad time. The seller had started a new venture that demanded more and more of their attention, and as the success of their existing business started to get out of hand, they began to consider making an exit.
Negotiating the Sales Price
As with most things in life, selling a business comes with a certain amount of give and take. If you want to sell your business quickly, you’ll likely have to settle for a lower sale price. If you want to list your business at a higher price, it often takes longer to sell.
This is the conundrum the seller faced when placing their business on the market.
The seller wanted a speedy sale so that they could cash out and focus on their new project. After valuing the business, we suggested a sales price of $1,514,402. This was calculated using an 11 month pricing period and a 48x multiple.
The true growth potential of the business weighed on the seller’s mind though. They knew this business offered a wealth of opportunities to prospective buyers. After mulling it over, the seller asked us to up the sales price even though they initially preferred a lower price that would encourage a quick exit
We used a shorter, 10 month valuation period (to exclude low sales months affected by Covid) as well as a 52x multiple to achieve an increased sales price of $1,683,566.
Satisfied that this was an accurate representation of their business’s worth, the seller gave us the go-ahead to list the business on our marketplace.
How to Gain an Edge Over Your Competitors
As we previously mentioned, when selling your business for a higher than average price, it usually takes a little longer to generate interested buyers. But our seller had a secret weapon that gave them an edge over other sellers on the market – a highly sought-after niche.
Why is a well-chosen niche important?
Historically, the selling of online businesses has leaned towards being a buyer’s market, but in the past year or so things have changed.
We’ve seen a shift into what we affectionately call “the Season of the Seller”, where a sudden influx of new capital and buyer demand has boosted competition, creating a winning scenario for sellers.
This influx of new capital has come from the rise of aggregators.
Aggregators are a powerful force in the online business world. They are companies that have large amounts of capital at their disposal. They use this money to purchase online businesses in specific monetizations (namely Amazon FBA) and niches, effectively allowing these similar businesses to feed off of each other to increase the aggregator’s overall market dominance.
Our seller struck gold because their business operates in a niche that is popular among aggregators.
The Feeding Frenzy Begins
A variety of aggregators and high net worth individuals trawl through our marketplace every week, hunting for their next acquisition. When an attractive business goes live, competition between these parties heats up, and the competing offers pour in.
Our seller experienced this first hand. When their business went live, interested buyers began unlocking the business on our website a mere seven minutes after it was posted! By the end of its first day on our marketplace, the business has generated a whopping 13 unlocks.
As you can see on our State of the Industry cheat sheet, Amazon FBA businesses spend an average of 67 days on the market. The fact that this business was drumming up interest so quickly was a clear sign that it had piqued the interest of the aggregators who were ready to act with speed.
An Offer the Seller Couldn’t Refuse
A few days after the business went live, the seller received an intriguing offer from an aggregator. The offer came in the form of a performance-based earnout.
These types of earnouts are not uncommon when buying a business for large sums of money. By acting as a form of seller financing, earnouts provide buyers a way to mitigate their financial risks and help sellers close deals faster. In the case of a performance earnout, the seller has the opportunity to make money on the future growth of the business and buyers get the chance to create a compelling opportunity that a seller may accept over other offers.
In this case, the seller made it clear to interested buyers that while they were open to an earnout, with the caveat that they wanted a majority of the deal in cash, upfront.
An aggregator put in an offer of $1,500,000 for the business. The details of the earnout included $1,200,000 upfront, 10% of the closing amount to be allocated as a holdback, and a three-year performance earnout.
This offer was lower than what the seller had originally wanted for the business, but what sealed the deal was a unique invitation from the aggregator.
Added into the deal was an invitation to join an elite community of like-minded entrepreneurs, run by the aggregator. This was an opportunity the seller simply couldn’t pass up.
When accepting the offer the seller told the buyer: “I really believe that this is a perfect opportunity for both parties. I would rather do a deal with [this buyer] at a slightly lower valuation than I would with someone offering close to our asking price. The reason being, I would love to be a part of [your] founder’s network and I think the learning opportunities, connections, and future exits/investments are priceless.”
After a successful negotiation, the business was sold in just five days, achieving the seller’s goal of making a quick exit.
Are You Sitting on a Gold Mine?
With aggregators creating feeding frenzies in the market, now is a great time to test the waters and see if it’s worth considering an exit.
As a business owner, the keys to success lie in lining your business up with what aggregators are looking for. Consider the type of business you own, the state of the industry, and the niche you operate in. If you can align these elements of your portfolio up with aggregators’ interests, your business can sell for a profit in the blink of an eye.
Take the first steps towards your own seller success story by using our free valuation tool to find out how much your business is worth. If you’d like some expert advice about the process of selling your business, schedule an exit plan call with one of our expert seller Advisors.
