You might be wondering whether to buy an Amazon FBA business for sale or start your own from scratch and to be honest, it’s a tough call. One that needs careful consideration of your particular goals, interests, and capabilities.
On one hand, you could fully invest yourself into building something on your own and learning all the various elements of the business as you grow.
On the other hand, buying an Amazon FBA business could provide a unique opportunity to jumpstart your life as a lifestyle entrepreneur, able to travel the world while reaping the rewards of an already money-making business.
Read on to learn more about how to find and buy an Amazon FBA business for sale so you can make an educated decision based on what’s right for you!
Why Buy an Amazon FBA Business?
When considering whether to buy an Amazon business for sale or start one from the ground up, it’s helpful to understand the benefits buying an established business can provide;
- Established customer base – You can benefit from customers who are already familiar with Amazon, so you don’t have to start your customer outreach from scratch.
- Established track record – With an established track record, you already know the business is successful and profitable.
- Established systems and processes – The systems are already in place, so it’s easier to get up and running faster.
- Faster time to market – Buying an Amazon FBA business means you can go to market quicker than if you had to build it from the ground up.
- Reduced risk of failure – Since there’s a proven track record of success, buying an existing Amazon business reduces potential risks of failure.
However, it’s not all champagne and roses. There are some potential downsides to buying an already-established Amazon FBA business including;
- The business may come with existing products and suppliers that you may want to change, but cannot due to contracts or other commitments.
- You may find it difficult to determine the true profitability of the business, as estimates are often inaccurate.
- Tax liabilities and/or legal obligations might have been incurred by the previous owners that now fall on you.
- Business reputation can be hard to rebuild if there were any negative reviews or customer service issues in the past.
- Established processes, technologies, and automation might need to be altered for your needs.
- It may be difficult to convince existing customers of a smooth transition from one owner to another.
With this in mind let’s have a look at how to find and buy an Amazon FBA business for sale and how to mitigate as many risks as possible associated with doing so.
Learn How to Build Your Own 7-Figure Amazon FBA Business
Part of the Junglescout suite of excellent FBA tools, the learning academy is a comprehensive video training library containing hours of content, including training videos, webinars, and interviews with successful Amazon sellers.
Whether you’re just starting your business, or growing your brand, get expert training from Amazon sellers without the hefty price tag.
How to Find an Amazon FBA Business for Sale
There are several different routes to finding an Amazon business for sale. Here are some recommended ways;
Amazon FBA Business Brokers: These are professional brokers who specialize in selling Amazon FBA businesses.
They usually have a database of businesses that are available for sale and can help you find the right one.
Online Brokerage Marketplaces: Online marketplaces such as Flippa, Empire Flippers, and Quiet Light Brokerage offer a variety of Amazon FBA businesses for sale.
These marketplaces have filters that allow you to search for businesses that meet your criteria.
Social Media: Some business owners may advertise their Amazon FBA businesses for sale on social media platforms such as Facebook, LinkedIn, or Twitter.
Joining groups or communities that are focused on buying and selling businesses can also help you find FBA businesses that are available for sale and start to ask key questions..
Industry Events And Conferences: Attending industry events such as Amazon seller conferences, meetups, or trade shows can help you network and find Amazon businesses that are for sale.
You may also meet business owners who are interested in selling their businesses.
Image credit: eComEngine
Reach Out Directly To Brands: Emailing current brands on Amazon is a good way to find potential businesses for sale. Most people will not do this as it takes time and effort, however, with this targeted approach, you can approach any business you would consider buying.
You may get many ‘No’s’ or be mostly ignored, but you could find some gems using this method.
How to Buy an Amazon FBA Business for Sale
Before you start looking for an Amazon FBA business for sale, it’s important to analyze your goals and criteria.
Determine what kind of Amazon business model you’re looking for, the budget you have, the product categories you’re interested in, and the revenue and profitability goals you want to achieve.
This will help you focus your search and identify businesses that meet your criteria.
Let’s have a look at the most important criteria to consider when buying an Amazon FBA Business for sale.
1. Financial Condition of the Amazon Business
Before investing, it’s important to review the financial health of a business. Analyzing its balance sheet, income statement, and cash flow can help you assess whether an Amazon FBA Business is worth buying.
Review the revenue, profitability, and expenses of the business to determine its financial health. Look for any red flags such as declining revenue or unexpected expenses.
2. Current Customer Base
Assessing an Amazon business’s customer base will give you an idea of potential profit margins and future growth. Reviewing customer feedback or reviews may also help you understand how satisfied people are with their services or products.
3. Product Range and Competitive Advantage
For an Amazon store to be successful, it needs to offer relevant products for its target audience. The products should also be in line with your interests and expertise.
Additionally, analyzing what gives the seller an edge over competitors can identify and highlight areas of growth.
4. Liabilities and Legal Agreements Associated with the Business
Reviewing any legal liabilities or agreements before buying can be essential as they could affect profitability.
An analysis of risks related to the investment should provide you comfort (not anxiety) when making a decision.
5. Scope of Risk Involved in Investing in an Amazon FBA Business
When looking at buying an Amazon FBA Business, you need to understand the different types of risks you could face such as product liability, currency fluctuations, etc.
Knowing these risks will assist you when making your choice. A professional broker can help with this.
6. Profitability of the Business
Figuring out if a business is profitable before investing is necessary for success after purchase.
Looking at past performance data will allow you to anticipate your possible earnings from this investment.
7. Amount of Competition Present
Knowing about competition in a particular market is key for anyone wanting to buy into an Amazon business opportunity; this provides insight into the difficulty level for gaining customers post-purchase.
Understanding who your rivals are and what advantages they have over you should aid decision-making during the purchasing process.
8. Seller’s Reputation and Commitment to Running a Successful Business
It’s always good practice to check on a seller’s reputation before buying anything from them – even more so with an Amazon FBA Business where expensive consequences could occur if things don’t go as planned!
A positive online reputation can increase trust, sales, and brand value, while a poor reputation can pose potential risks.
Furthermore, assessing how committed sellers are with regard to quality control or customer service will give assurance that investments have been made wisely.
Learn How to Build Your Own 7-Figure Amazon FBA Business
Part of the Junglescout suite of excellent FBA tools, the learning academy is a comprehensive video training library containing hours of content, including training videos, webinars, and interviews with successful Amazon sellers.
Whether you’re just starting your business, or growing your brand, get expert training from Amazon sellers without the hefty price tag.
Complete Full Due Diligence On An Amazon FBA Business For Sale
When considering buying an Amazon business, it’s important you don’t skimp on the due diligence part of the buying process.
This is when you’ll get a chance to dig deep into the company’s financials and look behind the curtain at how the business is actually performing and whether it suits your needs.
Here are the critical metrics to review and investigate when doing your due diligence;
Key Seller Metrics To Review During Due Diligence
- Quality of Products: Check to make sure the products are up to standard before making a purchase.
- Positive Reviews: See what customers have been saying about the seller’s products and services.
- Seller Rating: Gauge how well the seller is viewed by their peers and customers.
- Inventory Performance: Monitor how quickly inventory moves out and how often it needs to be replenished.
- Order Defects / Refunds: Investigate any issues or complaints from past orders, such as refunds or returns.
- Sales Conversion Rate: Figure out how likely shoppers are to buy after visiting the store or product page.
- Amazon Fees: Consider all applicable fees from Amazon when evaluating a deal.
- Understanding The Competition: Research other sellers in the same space for comparison purposes.
- Position In The Ecommerce Market: Analyze where this business ranks against others in terms of market share and sales volume.
- Cost Of Goods And Supplier Agreements: Review any agreements with suppliers related to pricing, discounts, and availability of goods.
- Legal Protections: Look into if there are any legal risks involved with taking on this business.
What To Clarify Before Signing A Letter Of Intent
It’s important to remember that letters of intent (LOIs) are often considered non-binding; they can still lead to issues later. Non-binding terms can be viewed as a verbal agreement, making it difficult to alter them later without appearing untrustworthy.
This is true even if you didn’t pay much attention to them when you first signed on since they were non-binding. Additionally, binding terms, such as “exclusivity periods,” can also bring about their own complications.
It’s critical to have an experienced M&A attorney review any LOI before you sign it.
What Happens to the Amazon Account Reserve Balance?
During the closing process, there may be cash reserves in the Amazon account that are left over. The buyer typically becomes the owner of the account and will receive the funds, unless the letter of intent (LOI) stipulates otherwise.
Some people may argue that it is reasonable for the seller to receive these funds since they purchased the inventory and were responsible for managing the account during the time when the sales were made.
Many buyers agree to this and will modify the LOI to include language that obligates them to reimburse the seller for any reserve balance present in the account at closing.
What’s Involved in the Seller’s Discretionary Earnings Calculation?
When determining the purchase price for an Amazon FBA transaction, the seller’s discretionary earnings (SDE) is often used as the basis for calculating the multiple.
SDE is essentially the company’s profits, with certain unrelated or one-time expenditures added back (“add-backs”). However, during the financial due diligence process, buyers may disagree with the seller’s add-backs, leading to complications that can cause delays in the transaction.
To prevent this from happening, I recommend that buyers include a definition of SDE and standard add-backs in the initial draft of the LOI. This approach can help minimize surprises for both parties and lead to smoother negotiations.
What’s the Time Frame for Calculating Seller’s Discretionary Earnings?
The seller’s discretionary earnings (SDE) is usually computed based on a trailing twelve-month period. However, this leads to a critical question about which twelve-month period should be considered.
Is it the trailing twelve months as of the offer date, the closing date, or some other date? The period used is open to negotiation and can have a significant impact on the SDE calculation.
Add-Ons for Operating Expenses
Amazon sellers are often taken aback by this add-on. During the due diligence process, some buyers will add an estimated operating expense to the seller’s earnings to account for their own expenditures once they take over the business.
This addition decreases the Seller’s Discretionary Earnings (SDE), decreasing the purchase price. The Operating Expenses (OPEX) is usually a percentage of revenue, typically ranging from 1-8%. A common range for OPEX add-ons is 2-4%.
The buyer should incorporate any charges or adjustments that will impact SDE, such as an OPEX charge, in the initial draft of the LOI and negotiate as necessary.
How Can Inventory Value Be Determined in an Amazon FBA Deal?
In most cases, buyers offer to purchase inventory at landed cost in addition to the purchase price. This option is beneficial for sellers since they receive more cash at closing.
However, sellers must be cautious since some buyers may consider inventory over 150-180 days old to be “stale” and exclude it from the Amazon FBA business for sale. This can result in a significant loss for the seller.
It is crucial to clearly understand how the buyer will value inventory, and the specific terms should be clearly stated in the LOI.
If the inventory is older than the buyer’s cutoff but is still saleable, it can be negotiated to include it in the sale, as it is advantageous for the buyer to have additional saleable stock.
What is the Duration of Exclusivity in an LOI?
While LOIs are mostly non-binding, one exception is ‘exclusivity.’ It implies that the seller cannot negotiate with other potential buyers once the LOI is signed.
While exclusivity is usually not an issue if the deal proceeds smoothly, it can significantly reduce the seller’s bargaining power if problems arise. This may leave the seller with no option other than waiting for the exclusivity period to expire. Therefore, sellers should ensure the exclusivity period is as short as possible.
It is fair to grant buyers a certain exclusivity period while conducting due diligence on the deal. A typical exclusivity period is 30-60 days, which allows the buyer to spend resources on due diligence without worrying about competing offers.
How is Account Migration Handled?
The process of account migration can vary significantly between buyers. While some can complete it within days, others may take weeks and require the seller to keep running the account during the transition period.
Buyers may link payment to the complete migration of the account, which can cause delays in receiving cash payments. To avoid any confusion, it’s important to discuss this issue during the initial conversation between the buyer and seller and establish clear expectations.
It’s recommended to negotiate the early release of cash at close and ensure that the LOI reflects the agreed-upon terms.
What is the Difference Between an Asset and Stock Deal in an Amazon Sale
An Amazon asset deal is often quicker and easier to finalize than a stock deal because liabilities don’t transfer to the buyer, and the buyer isn’t responsible for managing a new entity.
However, some foreign-based sellers may want to pursue a stock deal due to significant tax benefits in their home country. It’s important to consult with a local tax specialist and discuss the possibility of a stock deal during the LOI stage.
Not all buyers will agree to a stock deal, and those that may adjust the price to compensate for the added risk. It’s critical to have this discussion before signing the LOI, as it alters the fundamental nature of the transaction.
How to Find and Buy an Amazon FBA Business for Sale – FAQs
Where Can I Find Trusted Amazon FBA Business Brokers?
From our experience when selling our Amazon FBA business, I suggest you speak to;
- Joe Valley at Quiet Light Brokerage: A well-established brokerage that specializes in buying and selling online businesses, including Amazon FBA businesses.
- Greg Elfrink at Empire Flippers: A well-known online business brokerage with a dedicated Amazon FBA marketplace.
- Coran Woodmass at the FBA Broker: Specializes in helping entrepreneurs navigate the complexities of finding and buying an established Amazon FBA business.
How Much Do Brokers Charge for Buying an Amazon FBA Business For Sale?
Brokers typically charge a commission on the sale price of the business, which can range from 8% to 15% or more, however, it is the buyer who is responsible for the broker’s fees.
Can Someone Do the Due Diligence For Me?
Yes, you can use a company like Centurica to complete the Amazon business due diligence on your behalf. They have been helping buyers invest in Amazon stores since 2013.
How to Find and Buy an Amazon FBA Business for Sale – Summary
Buying an Amazon FBA business can be a great decision for lifestyle entrepreneurs who want to jump-start their online businesses, but it is important to understand the potential downsides as well.
With the right guidance, due diligence, and a clear plan, buyers can quickly find and purchase an existing business that fits their goals and objectives, thereby taking the hassle out of building an Amazon business from scratch and affording them more time to focus on growing their businesses and living the dream!
Good luck!
