30 Key Questions When Buying an Existing Amazon FBA Business in 2023

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Buying an existing Amazon FBA business can be a smart investment, as it can save you time and effort in setting up a new business from scratch.

In 2020, the FBA Aggregator trend led to a surge in FBA acquisitions, with new firms launching and announcing high valuations regularly. However, the landscape has since shifted after some aggregators shut down while others consolidated or slowed down acquisitions.

This shift can be attributed to the lack of discernment in the aggregators’ acquisitions. They purchased too many businesses too quickly and didn’t focus enough on the quality of the businesses they were acquiring.

Are FBA businesses still attractive acquisitions?

The market is constantly shifting, so it’s always wise to check for current trends. To avoid making the same mistake when buying an FBA business, it’s crucial to prioritize quality. Simply put, don’t buy a bad FBA business.

Instead, take the time to carefully examine the target business’s financials, customer base, product quality, and market trends.

By conducting thorough due diligence and evaluating the potential risks, you can make an informed decision and invest in a business that has the potential to thrive in the long run.

Before buying an existing Amazon FBA business, it’s essential to ask the right questions and do your due diligence.

In this article, we will discuss 30 key questions to ask when buying an existing Amazon FBA business. Some of these questions may point to a similar answer, but that’s okay. It’s always good to have different angles on things so you are sure not to miss anything.

With these questions in mind, you can proceed with confidence and clarity. Let’s dive in.

Broad Overview

What is the current state of the Amazon FBA business?

Before buying an Amazon FBA business for sale, it is important to understand its current state. This is rather obvious and basic, but equally important. This includes analyzing its sales trends, financial performance, and customer base.

It is also important to review any available data on the seller’s previous year’s sales and compare them to the current year’s performance. This can help identify areas of improvement or potential concerns that need to be addressed before closing the deal.

Assess the current state of the business, including its financials, inventory, and customer base. Look at its revenue, profits, and expenses to understand the business’s financial health.

The majority of this post will essentially help you answer this initial question. When it comes to an Amazon FBA business, just like any business, there are a lot of small cracks you must look at to make sure you’re not buying a bad business.

What is the history of the business?

Understanding the history of the business is crucial when buying an existing Amazon FBA business. Find out how long the business has been in operation, its past performance, and whether it has faced any legal issues.

What is the business’s unique value proposition?

You need to understand what sets the business apart from other Amazon FBA businesses. Does it offer unique products or services? Does it have a loyal customer base? Knowing the business’s unique value proposition can help you identify its growth potential.

Key Amazon FBA Risks & What To Look For When Buying an Existing Amazon FBA Business

Is the review risk significant?

The most significant risk involved in purchasing an existing Amazon FBA business is the review risk. This potential risk can be ambiguous and constantly changing, making it a major concern for potential buyers.

Amazon’s policies and regulations are subject to frequent updates, which can result in the removal of reviews, account suspensions, and product delistings. Since reviews are a critical aspect of the Amazon ecosystem, it is crucial to monitor this risk closely.

Several methods can help identify risky reviews when assessing an Amazon FBA business for purchase. One approach is to conduct a manual review check by searching for phrases like “in exchange for,” “unbiased opinion,” and “full disclosure” within product listings.

Another method is to examine PayPal statements for patterns of refunded payments, which indicate fake reviews. Additionally, you can check the public Facebook ad library for giveaways that may signal review manipulation.

Numerous software tools, such as Helium 10, Review Velocity, and Fake Spot, are available to check review velocity consistency as well.

Finally, it’s crucial to look for performance notifications that Amazon may have flagged the account or product for review manipulation. By adopting a multi-pronged approach to evaluating review risk, you can gain confidence that the risk is minimal.

What is Cost of Goods (COGs) risk and why is it important to understand it when evaluating an FBA business?

COGs risk involves the possibility of accounting discrepancies, fraudulent supplier invoices, and variable freight rates, all of which can result in inaccurate cost of goods calculations.

Understanding and managing COGs risk is critical to making informed decisions regarding pricing, profitability, and the overall feasibility of the acquisition.

By accurately assessing COGs risk, buyers can avoid substantial losses and ensure the sustainability of the business.

As a thought leader in the due diligence space, our company is committed to providing our clients with the necessary tools and expertise to conduct thorough evaluations, including identifying potential COGs risks, mitigating them, and optimizing profitability.

What are some common reasons for discrepancies in the cost of goods calculations and how can they be addressed?

There are several common reasons for discrepancies in the cost of goods calculations that must be considered during due diligence.

One of the most significant reasons is preparing the cost of goods on a cash basis instead of accrual, which can result in inaccurate cost of goods calculations. Not accounting for unpaid invoices, incorrect freight or tariff classifications, and volatile freight rates are other common reasons.

To address these discrepancies, a comprehensive approach is required.

A complete P/L (profit and loss) rebuild is recommended, which involves verifying the cost of goods calculations in accrual, reviewing all invoices for accuracy, and considering various scenarios for freight rates and tariffs.

Additionally, buyers should thoroughly review the supplier contracts to identify any potential risks and take the necessary actions to mitigate them.

Addressing discrepancies in cost of goods calculations is crucial when evaluating an FBA business for acquisition.

By conducting a thorough P/L rebuild and reviewing supplier contracts, buyers can mitigate the risks associated with COGs and make informed decisions regarding pricing, profitability, and the overall feasibility of the acquisition.

How can buyers align the cost of goods calculations with their accounting methods and future business plans?

To ensure that the cost of goods calculations align with their accounting methods and future plans for the business, a potential buyer should take a comprehensive approach.

One effective method is to conduct their own calculations based on how they plan to operate the business. This involves reviewing all invoices and ensuring the accuracy of the cost of goods, as well as exploring various scenarios for freight rates and tariffs.

The goal is to achieve complete transparency in the cost of goods situation, enabling the buyer to make informed decisions.

By aligning the cost of goods calculations with their accounting methods and future plans for the business, the buyer can gain a more accurate understanding of the business’s financial situation and make decisions accordingly.

The objective here is to have full clarity on the cost of goods situation so that the best decision can be made.

Are there any legal or regulatory issues when buying an existing Amazon FBA business?

It’s also important to investigate any potential legal or regulatory issues surrounding the business.

Look for any patents, trademarks, or copyrights that the business may be infringing upon, and determine if the seller has obtained the necessary licenses and permits to operate the business.

Additionally, check for any past or pending lawsuits involving the business, its products, or its suppliers. If the business operates in a regulated industry, such as health or beauty products, it’s important to ensure that it is in compliance with all relevant regulations.

Supply Chain & Production

Who are the suppliers and manufacturers?

Knowing the suppliers and manufacturers of the products can give you an idea of the quality of the products and whether they have a good reputation in the market.

What does the supply chain look like?

A successful eCommerce business heavily relies on a well-established supply chain, making it vital to have a clear understanding of the seller’s suppliers, freight forwarders, storage facilities, and 3PL partners.

Start by inquiring about the number of suppliers the seller is working with and if they have any formal contracts in place. Knowing the timeline for inventory replenishment, order frequency, and average order size is also essential.

It is crucial to keep in mind that inventory is often not included in the purchase price. Therefore, you should be prepared with extra capital to reorder inventory after acquiring the business.

Additionally, ask about any potential supply chain disruptions or challenges that the seller has faced in the past, such as shipping delays, supplier quality issues, or regulatory obstacles.

By gaining a comprehensive understanding of the supply chain, you can assess the risks and potential opportunities involved in running the business and make an informed decision.

What is the current fulfillment strategy?

Assess the current fulfillment strategy, including the shipping and delivery times, the packaging, and the returns policy. Identify any issues that need to be addressed to improve the customer experience.

How many products does the Amazon FBA business sell?

Knowing the number of products sold by the Amazon FBA business can provide an understanding of the business’s potential growth.

A business with a diverse range of products is more likely to have a steady stream of income than a business with a limited number of products. It is also important to identify which products are the most profitable and which are not performing as well.

What is the current monthly revenue of the Amazon FBA business?

Again, this is obvious but essential nonetheless. The current monthly revenue of the Amazon FBA business is an important factor to consider when evaluating its value.

It provides an indication of the current financial status of the business and its potential for growth.

How many SKUs does the Amazon FBA business have?

Knowing the number of SKUs (stock-keeping units) in the Amazon FBA business is crucial to understanding its complexity.

A higher number of SKUs could mean more resources are needed to manage the inventory, which could result in higher costs. This also correlates to your vision for the business and your strategy on how to move things forward.

What is the return rate?

A high return rate can be a red flag for quality issues or poor customer service. It’s important to know the return rate and the reasons for the returns. You may also want to check the seller’s return policy to see if it aligns with your own.

What is the percentage of private label products versus other products?

Private-label products are those that are created and sold by the business itself. A high percentage of private labels is an indicator of the Amazon FBA business’s control over its supply chain and its potential for higher profit margins.

This is good to distinguish before you take over the business.

What is the current inventory level, and what is the inventory turnover rate?

Inventory is a significant factor in an FBA business’s success, and understanding the current inventory level and turnover rate is critical.

Excess inventory ties up capital, increases storage fees, and reduces profitability. On the other hand, low inventory levels can lead to stockouts and lost sales.

Look at the inventory turnover rate to understand how quickly the business is selling products. A high turnover rate indicates strong demand, while a low rate may be a warning sign.

Operational Diligence When Buying an Existing Amazon FBA Business

What are the operating costs?

Operating costs are the ongoing expenses associated with running the business, such as Amazon fees, shipping costs, and employee salaries. Understanding the operating costs is critical to determining the profitability of the business.

Look at the historical operating costs to determine if they are in line with industry standards and if there are any cost-saving opportunities. Additionally, look for any upcoming changes in costs, such as changes in Amazon fees or shipping rates.

How much time and effort is required to run the business?

Running an FBA business requires a significant amount of time and effort, and it’s important to understand the level of involvement required. Look at the current owner’s involvement in the business and the tasks they perform.

How does the business handle customer service and support?

Good customer service is essential for any business to succeed. Know how the business handles customer inquiries, returns, and complaints. If the seller has an established customer service team or process, it can be a valuable asset for the business.

Consider whether you have the necessary skills and experience to run the business or if you will need to hire additional assistants. Additionally, consider if you are willing and able to commit the necessary time and effort to ensure the business’s success.

What will the seller’s involvement be post-acquisition?

Before finalizing the deal, it’s important to discuss the seller’s involvement after the acquisition. Many sellers are willing to provide support in various forms, such as email, phone calls, video calls, or in-person meetings.

As most sellers have a vested interest in the business’s success, establishing clear expectations and boundaries is crucial to ensuring both parties’ alignment.

What skills are necessary to expand this business?

Whether you’re a seasoned business buyer or new to the field, it’s always a good idea to assess the abilities and knowledge required not only to run the business but also to expand it.

This is where having comprehensive standard operating procedures (SOPs) can be incredibly useful. SOPs break down the various tasks and processes necessary to operate the business step-by-step, allowing you to identify any gaps in your knowledge.

Bear in mind that if you lack the skills required to maintain a certain aspect of the business, it doesn’t have to be the end of the world.

You can always outsource that work to a qualified professional, freeing up your time to concentrate on other areas of the business where you have more expertise.

Marketing

What is the percentage of sales from organic vs paid traffic?

It’s important to know the source of the sales in the business.

Organic traffic refers to the customers who found the product through a search engine, whereas paid traffic refers to those who clicked on an advertisement.

A balance between the two sources is ideal, and if paid traffic accounts for more than 60% of sales, there may be cause for concern.

If the business relies heavily on paid traffic, it’s important to understand the cost of acquiring those customers through advertising. You’ll want to look at the business’s historical cost of customer acquisition and whether it is sustainable in the long term.

What is the brand’s overall reputation?

The brand’s reputation is critical when purchasing an FBA business.

Negative feedback or reviews can severely impact sales and make it difficult to build trust with customers. Look at the brand’s reviews and feedback to determine the level of satisfaction customers have with the product and the seller.

Additionally, search for any mentions of the brand outside of Amazon, such as on social media, blogs, or news articles. This will give you an idea of the brand’s reputation beyond the Amazon marketplace.

What is the average order value (AOV) and lifetime value (LTV)?

Knowing the average order value can help you calculate the potential revenue and profit for the business.

It can also help you determine if there is an opportunity to upsell or bundle products to increase the AOV. Knowing the LTV of a customer is also crucial and can inform the rest of your marketing strategies.

Are any of the products seasonal?

Seasonality is another important factor to consider when purchasing an FBA business.

Some products have strong seasonal demand, such as Halloween costumes or Christmas decorations. If the business is highly seasonal, it’s important to understand the timing and volume of sales.

Additionally, you’ll want to look at how the business handles seasonality. Does it stock up on inventory before the season, or does it rely on just-in-time inventory management?

Understanding the business’s approach to seasonality will help you prepare for any potential inventory or sales fluctuations.

You’re not just looking for red flags here; rather, you’re exploring the ins and outs of how the business runs so that you know what moves you can make if you do end up acquiring the business.

What is the customer demographic?

Knowing the customer demographic can help you determine if there is an opportunity to expand the customer base or if the business is targeting a niche market. It can also help you determine the marketing and advertising strategies that will be most effective.

What is the current marketing strategy?

It’s important to know the current marketing strategy and how effective it is at driving sales. This can include paid advertising, social media, email marketing, or any other tactic. It can also help you identify areas for improvement or opportunities for growth.

What are the growth opportunities for the business?

Consider the potential for growth and expansion.

Are there opportunities to introduce new products, expand to different marketplaces, or target new customer demographics?

Identifying growth opportunities can help you determine the long-term potential of the business and whether it aligns with your own goals and vision. It’s also a good idea to ask the owner this question, as he/she will probably know of some other opportunities.

What is the current pricing strategy?

Assess the current pricing strategy, including the pricing of the products and the profit margins. Look at the competitive landscape and identify opportunities for pricing optimization.

Pros and Cons of Buying an Established Amazon FBA Business

Pros:

1. Lower Startup Costs: Acquiring an existing FBA business typically involves lower startup costs compared to starting from scratch.
2. Proven Sales History: Established Amazon FBA businesses often come with a track record of sales, providing a clearer picture of their revenue potential.
3. Immediate Profits: With an existing business, you can potentially start generating profits sooner, as the FBA business model is already up and running.
4. Customer Base: These businesses often have an existing customer base, saving you the effort of building one from the ground up.
5. Streamlined Operations: Many processes and systems are already in place, streamlining day-to-day operations.

Cons:

1. Higher Initial Investment: Acquiring an existing FBA business may require a significant upfront investment, especially if it’s well-established.
2. Risk Assessment: Assessing the risks, such as hidden liabilities or legal issues, is crucial and may be more complex with an existing business.
3. Adapting to Existing Business Model: Adapting to the previous owner’s business model may limit your ability to implement your strategies.
4. Market Changes: The FBA model is subject to market fluctuations, and an existing business may have to adapt to changing market conditions.
5. Competition: Established businesses often have competition, and it may be challenging to stand out in a crowded marketplace.

Buying an existing FBA business offers several advantages, including reduced startup costs and a proven sales history. However, it’s essential to carefully evaluate the potential risks and the fit between the existing business and your own business goals.

The Most Important Questions – Summary

Asking the 30 questions outlined in this post will surely point you in the right direction, but only you can know if the business is a good fit for you.

When it’s all said and done, you should have the answer to the one question: Do I feel confident enough to acquire this business?

Buying an existing Amazon FBA business can be a smart investment. However, before making the purchase, it’s crucial to do your due diligence and ask the right questions.

By asking these questions and analyzing the answers, you can make an informed decision and ensure that the business you buy is the right fit for you.

Here’s a summary of the questions:

Broad Overview

1. What is the current state of the Amazon FBA business?
2. What is the history of the business?
3. What is the business’s unique value proposition?

Key Amazon FBA Risks & What To Look For

4. Is the review risk significant?
5. What is Cost of Goods (COGs) risk and why is it important to understand it when evaluating an FBA business?
6. What are some common reasons for discrepancies in the cost of goods calculations and how can they be addressed?
7. How can buyers align the cost of goods calculations with their accounting methods and future business plans?
8. Are there any legal or regulatory issues?

Supply Chain & Production

9. Who are the suppliers and manufacturers?
10. What does the supply chain look like?
11. What is the current fulfillment strategy?
12. How many products does the Amazon FBA business sell?
13. What is the current monthly revenue of the Amazon FBA business?
14. How many SKUs does the Amazon FBA business have?
15. What is the return rate?
16. What is the percentage of private label products versus other products?
17. What is the current inventory level, and what is the inventory turnover rate?

Operational Diligence

18. What are the operating costs?
19. How much time and effort is required to run the business?
20. How does the business handle customer service and support?
21. What will the seller’s involvement be post-acquisition?
22. What skills are necessary to expand this business?

Marketing

23. What is the percentage of sales from organic vs paid traffic?
24. What is the brand’s overall reputation?
25. What is the average order value (AOV) & lifetime value (LTV)t?
26. Are any of the products seasonal?
27. What is the customer demographic?
28. What is the current marketing strategy?
29. What are the growth opportunities for the business?
30. What is the current pricing strategy?

There are many uncertainties when it comes to running a business, but hopefully, this post will help you ask the right questions that will give you the clarity to move forward with confidence and ease.

If you want some help finding businesses that match your specific criteria, I encourage you to check out Centurica’s Marketwatch App.

Marketwatch is a free tool that helps you search listings between $20,000 and $5 million USD across multiple sources without the headache or time wasted doing it manually.

It allows you to search over 200 established Internet business listings from over 30 different business brokers worldwide.

Buying an Amazon FBA Business: FAQs

Can you buy an Amazon FBA store?

Yes, you can purchase an existing Amazon FBA business. Many entrepreneurs choose to buy established FBA stores as it can be a more efficient way to enter the e-commerce market compared to starting from scratch.

Is buying an Amazon FBA business profitable?

The profitability of buying an Amazon FBA business depends on various factors, including the business’s sales history, net profits, and your ability to manage and optimize it. Proper due diligence is crucial to ensure you’re investing in a profitable venture.

How much is an Amazon FBA business worth?

The Amazon FBA business cost varies widely based on factors such as its sales, profits, brand reputation, and industry trends. Business valuation methods like multiples of net profits or revenue are typically used to determine the worth of an FBA business.

How to buy an FBA business?

To buy an FBA business, you should start by identifying a business that aligns with your goals. Conduct thorough due diligence to assess the financials, risks, and growth potential. Once you’re satisfied, negotiate the terms, and consider enlisting the help of professionals experienced in online business acquisitions.