Do you want to get in on the Amazon FBA action, but skip ahead a few steps? The good news is that you can do that by buying an existing Amazon FBA business for sale! Quite the market has developed around the sale of Amazon FBA businesses. You can even find them listed on sites such as BizQuest.
However, be wise …
Whenever you make a transaction such as this, it’s crucial that you do your due diligence. Knowing precisely what you get for your money is important to bear in mind. After all, you will also be the one running that business from that point onward.
In this article, we will name and discuss the things you need to watch out for when purchasing an Amazon FBA business.
What’s so good about buying Amazon FBA businesses?
- Scalability: The Amazon FBA model takes over the fulfillment and customer service. This frees up your time to focus on growing your business. Additionally, you don’t have to pour money into expensive infrastructure and more employees. The benefit- you can expand in other ways.
- Simple business model to take over: There is minimal physical infrastructure to take over with an Amazon business. Once the product is in the Amazon warehouse, it’s effectively out of your company’s hands. Unless they manufacture their own products, you are the “middleman” between the supplier and Amazon.
- Easy to run: Compared to most other companies and brick-and-mortar stores, running an Amazon FBA business is relatively simple. It’s the quickest and easiest way to become an entrepreneur in your own right. More so, when you are taking over an existing business. You also have access to free tools from Amazon to help you run the business.
Yes, more benefits
Here are additional benefits in buying an Amazon FBA business:
- Profitability: A well-run Amazon FBA business has the potential to be hugely profitable. There is little overhead. Therefore, all your profits primarily hinge on a simple equation of profit = total of items sold – Amazon fees – cost price of merchandise from supplier.
- Fulfillment: Amazon takes care of all fulfillment. As a result, many are undeniably drawn to the platform. Every Amazon seller success story mentions it as one of the prime reasons for their success.
- Can integrate easily with your existing business: Do you already run some kind of online store or have physical stores that sell in the same niche? Then you can easily make an Amazon FBA business part of it. The reason why you would want to take on an existing account is merely to skip the early awkward phases. It might be hard to build your own following on Amazon.
Why is the Amazon FBA business for sale?
Just like with any business acquisition, knowing the reason for the sale is an integral part of doing your due diligence. It’s completely reasonable to wonder why someone would want to sell a business if it’s doing so well.
If you are suspicious of the reasons for the sale, try and establish the following:
- Is the business profitable?
- Is it very difficult or time-consuming to run?
- Does it have an abysmal “Best Seller Ranking” that’s prohibiting it from going further?
- Are there limited opportunities to grow?
- Is the supplier trying to strongarm the owner of the Amazon business in any way?
- Is the business in decline even though it might still be profitable for now?
It may or may not surprise you to learn that many Amazon FBA businesses are not up to date on their taxes. Some may not even be registered. This is partly due to Amazon not taking part in any enforcement when it comes to tax obligations on their marketplace.
The naivety of most sellers is a fault as well. Many sellers also don’t want to start paying taxes. They see the effect it will have on their profits after all this time operating without it.
However, in the last year or so, Amazon has resolved to toughen their stance. Working with authorities to improve the tax compliance of their sellers has started. This might eventually lead to more sellers paying their taxes and being in good standing with the taxman.
Don’t mess around with taxes
For now, it’s a serious concern, particularly when buying from individual sellers. Depending on how the sale is structured, you might need to take on all the accrued tax debt.
There is also very little chance of making a massive purchase like this without alerting the tax authorities. There are ways to structure the sale so that you don’t take the overdue taxes. However, this might affect the asking price.
What you get for the sale
A relatively simple business like an Amazon FBA business has numerous parts. There are a variety of ways to structure a sale of an Amazon FBA business. Know exactly what you get for your money. Here are some aspects of the business that the purchase agreement could include:
- Liabilities: It’s vital that you know precisely what how much debt you are taking on. This could consist of taxes, unpaid utilities, etc. Liabilities can be excluded from a sale if it’s structured as an Asset Sale.
- Physical assets: This could be any storage facilities, packaging equipment or manufacturing equipment if they make their own products.
- Amazon account: Not all sellers sell their account along with the business. Whether or not you take over the account has huge implications for the business going forward.
- Branding: If you also plan to take over the Amazon account, you probably want the right to their branding. If they have any. You could save the money and time of building a brand yourself.
- Suppliers: If it’s a successful seller, they probably have good relations with a stable supplier. It would be ideal if you can use the same supplier on the same terms that the previous owner did.
We go more into some of these in the following sections. This will give you a better understanding of how it works and what to look out for.
Supply chain considerations
Good relations and terms with a supplier is what makes it possible for a seller to achieve real success. Moreover, it scales their business to the point where it’s big enough to sell. As such a crucial part of the business, try to keep that relationship as intact as possible when you take over.
That makes getting to know the suppliers of the business one of the first things you should do.
Where are they based? How many suppliers does the business need? How do you contact them? What language do they operate in? Is their process in place to handover suppliers?
Do the necessary research
You should also look into the service history of the supplier. Checking to see if there have been any problems in the past will avoid potential problems. For one thing, it affects your seller ranking if your products are out of stock.
This makes it important that the supplier is reliable. You need to consider how they are affected by the most demanding seasons. Consider how often their products are late and how they make up for late deliveries.
Lastly, you need to be knowledgeable about the previous business terms with the suppliers. Would the same terms apply to you? That includes the base price of products, the rate for amounts you can have shipped, and the payment process.
Ask about any transferred discounts or bulk buy prices. Who owns the trademarks on the products?
If you would like to expand on what products you sell, you should check whether the same supplier can manufacture and ship them as well.
Product niche and mix
Of course, whenever you talk about any retail business, you can’t get much more important than the actual products they sell. The first thing you want to look at is what the actual products are. Consider what niche they are selling.
Most established sellers on Amazon sell multiple products that might fit neatly into one niche. Or might be distributed among many.
First of all, you need to decide if the niche is something you are interested in. If you have any technical or market knowledge in that field, it can only help you go further. It also doesn’t hurt if it’s something you happen to be passionate about.
Things to consider if it’s successful
If it’s a successful business, it should already indicate that there is a healthy demand for the product. However, you should still consider the following:
- Seasonality of product: Does it only sell well during certain times of the year? For example, Easter hampers probably only sell well before Easter weekend. A heavily seasonal product can lead to bottlenecks during peak seasons. A plan to supplement your income during more quiet periods is highly advisable. For certain products, prices can also fluctuate over time.
- Room to expand/diversify: Is it possible to start incorporating related products? It’s easiest to grow within your niche at first. The competition in the niche and the type of products available determine this.
- Product dimensions: Heavy or oddly shaped products incur extra shipping costs. This affects your bottom line.
Be calculative, concise, and wise
Look at the current portfolio of products to determine which is the most “important”. Certain products may provide a lopsided amount of income. It might be worth focusing solely on it and entirely scrap the rest.
It could also indicate where you need to sharpen up.
It goes without saying that you should investigate the profit margin of the product. Amazon charges different shipping and referral fees for selling different products. You can calculate these using Amazon’s fee calculators.
But you will still need to know the cost price of the items to get the full picture.
Amazon account performance
How you perform as a seller can drastically affect your success in the Amazon marketplace. Sellers are rated according to their customer service and quality of products. The ability to always have products in stock and the rate of products returned are rated, too.
One of the best ways to determine the standard at which a seller operates and the performance of their products is to look at their products Best Sellers Rank. Products are ranked according to their performance in relation to other products in their categories. If an Amazon seller has a few products with a decent rating it indicates that their ship is in order.
This makes the Best Sellers Rank both a good measurement of the business as well as the performance of the products.
Transfer Amazon FBA account
At this stage, you might be wondering if owners of FBA businesses can transfer their seller accounts to facilitate a sale? The answer to this question is slightly complicated.
Amazon doesn’t make it easy to transfer an account directly because the sales and performance history of that account should remain unquestionable.
If an Amazon FBA changes ownership, there is no guarantee that it will perform at the same level that it did before. Because Amazon relies so heavily on the ranking of businesses and products for their service, they want users to be able to rely on this information.
Any attempt to sell an Amazon FBA account must go through a lengthy Amazon verification process. There is also no guarantee that it will be approved in the end. What this processes, details aren’t clear. Rest assured, your proof of operating at the same level forms part of the decision.
Be prepared for additional steps if you take the easy route
To avoid the trouble and delays associated with this, some people just sell their business without the Amazon seller account. This means you basically purchase the brand, the rights to manufacture/distribute the product, take over their supply contracts as well as any other physical assets.
The major downside is that you will need to build a reputation on Amazon from scratch. Additionally, you’ll have to drive new traffic to your products.
Get ready for what’s ahead but don’t assume
We hope that this article sheds light on this very critical and potentially complicated aspect of Amazon FBA. If you find an Amazon FBA business for sale, it doesn’t mean a good or bad opportunity. For further amazing insights into the current Amazon FBA buyer/seller market, check out this case study by Empire Flippers.
Once you got your hands on your very own Amazon FBA business, check out our blog for articles to help you make it successful. Good luck, and happy selling!