Buying an Amazon FBA Business. Part II : Legal Aspects.

How Much Should an Amazon Business Cost?

The answer to this question depends on many factors, as mentioned above. To ensure you end up paying a fair and reasonable price we suggest going through a reputable broker. That being said, the price could range from 18x-36x monthly profits, plus the value of inventory.

Insights from Andrew Morgans and the Marknology team in Kansas City.

How do I Find an Amazon Business to Buy?

We strongly urge you to use a professional broker when purchasing an Amazon business instead of attempting to negotiate a deal yourself. As a third party to the deal, the broker will facilitate the sale, including the transition of the storefront from the seller to the purchaser. Yes, there will be a brokerage fee, but this is the only way to ensure everything is completed legally. The funds would be held in escrow, ensuring your interests are safeguarded during payment and transfer of the storefront. 

An experienced broker will ensure you’re kept informed every step of the way through the negotiation progress.

You need to ensure you’ve covered all legal aspects. Ask to see Safety Data Sheets, Quality Management Certifications, and GMP Certificates. All these FBA regulations must be covered in the supplier’s processes.

What you’re looking for in a good storefront is consistent growth. You may notice when browsing for a storefront that many new or new-ish accounts have sudden bursts of sales. Don’t be fooled by this - you’re looking for a proven and established business.

 Another red flag is the extreme seasonality of product sales.

Does the product concerned have a unique competitive advantage, or is it just a trend at the moment? Is it possible that other sellers can use a tool like Helium 10 or Jungle Scout to locate the product and take over your top keywords?

Is there any risk of the seller account being suspended or of the product being removed from Amazon? Check with your seller about any history of performance and account health issues. Product-specific and account suspensions are not uncommon on Amazon. If you do suspect that a storefront may have been suspended in the past, check the sales history and search for periods where there’s no sales data.

Pay close attention to seller reviews and account health. The last thing you want is to be cleaning up the metrics of someone else’s poor performance.

What is your risk of financial liability should a customer be harmed? You need business insurance, but you certainly don’t want to be held accountable for mistakes made by the seller. 

 1.Costs

You should be aware of every expense related to the Amazon business, including but not limited to:

Software

Ad spend, both on and off Amazon

Inventory

Storage fees

Payroll (if applicable)

Promotional expenses

Freight (if applicable)

2. Transition Support 

Any good transaction involves a smooth transition between the seller and the buyer. It’s important that both you and the seller clearly communicate what’s expected, prior to the sale being finalized.

 How long will the seller be available to help you through the process?

What aspects of the business will they help you with?

What will be your communication style - Skype, in-person, email?

 Note that an expensive storefront should include transition support over several weeks.

3.Reason for Selling

It’s quite acceptable for you to ask why the seller is leaving their business. Owners of Amazon FBA businesses have various valid reasons for selling their business.

4. Value of Inventory

Request that a value be put on the resale of physical inventory included in the sale. You’ll find that some storefronts have hundreds or thousands of units in warehouses while others have little or no inventory. Ask the seller if you’re paying full retail price or paying what they paid? When calculating the storefront value, this number should be added to the profit multiplier. For example: An Amazon storefront making $10k/month with an inventory of $60k selling at a 24x multiplier would be worth $300k. 

It should be noted that the inventory is not included in the purchase price with some third-party brokers. It’s up to you to verify that the storefront you’re purchasing comes complete with inventory, or if the inventory is an additional cost to you.

5.Intangible Assets 

Intangible assets of an Amazon FBA business include :

1) Website and branded domain

2) Trademarks

3) Mailing lists

4) Social media accounts

5) All the above add value to a storefront.

6.Diversification

Consider diversification when assessing risk with your new Amazon business. Diversification can refer to the uniqueness of products being sold, and if the products are being sold on other platforms. Businesses that sell products on Amazon as well as platforms like Shopify, are usually worth more money than businesses that only sell on Amazon, simply because there’s less risk. This way it’s not the end of your brand if you have a permanent or temporary account suspension or if you diversify off Amazon.

In Conclusion

If it’s your goal to purchase an Amazon Seller Account, make sure you do your research and fully understand what’s involved. It can be difficult getting into E-commerce, especially as there are already so many established online stores. An Amazon FBA business is the perfect opportunity for you to get started in the E-commerce field and continue on with the success of your new business venture.

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