If you don't want to start an Amazon business from scratch, you have another way to start. You can find an Amazon FBA business for sale and buy it. Read how to do it.
Recently, it has become more common to buy Amazon businesses instead of starting new accounts. The market of buying and selling of Amazon businesses is growing, and you can much easier find an Amazon FBA business for sale, than three years ago.
There can be a lot of reasons why you may consider buying an existing account on Amazon.com instead of creating it from scratch. First of all, you save time and avoid headaches associated with business startups, thus concentrating on growing sales and profit instead. You will avoid unnecessary risks and careless mistakes many inexperienced e-commerce sellers make in the beginning. Also, if you have any skills, knowledge, or other tools you can use to boost sales, you can apply them to improve and grow an already existing business. If your account is banned, you may consider buying an existing account as well, to keep your online shopping users.
In this blog we are going to tell you how to buy an Amazon FBA business and valuate it, and what you need to look at when buying FBA business.
Can I Buy Amazon Seller Account?
In principle, when it comes to buying and selling an account, Amazon would generally say no. Then why do you have a lot of proposals for buying and selling Amazon businesses elsewhere? Are they not TOS-compliant?
Though Amazon states, that “Seller accounts generally are not transferable”, in practice, if the seller addresses the request to the seller support and gets approval, they would allow changing the account information.
What Information Do I Need to Change in the Account I Buy?
When the account ownership is transferred, it is very important to update all business information to successfully accomplish all financial operations. You need to update account name; legal address; payment method (credit card details); deposit method (bank account); tax information; email address. In other words, you need to change all essential personal or business data, associated with the account.
How Much is Amazon Business for Sale Worth?
In order to understand, how to value Amazon FBA business fairly, you need to consider a lot of factors influencing the real value of your business. These are, for example, the age and consistency of business; the business’s net profit; the type of Amazon business; the sales process efficiency, etc.
If you want to receive a qualified valuation on how much FBA business for sale is worth, it’s better to address one of the brokerage companies that can help you with the purchase, as they know what indicators exactly matter on Amazon, and will do the due diligence fast and professionally.
However, you can roughly estimate the value of the business you’re going to buy, based on net profit or sales.
How to Value a Company Based on Sales?
Value of business based on sales is applied when you’d like to determine a median value of the business, to take a preliminary decision whether it’s worth buying or not. To value a business based on sales, the average price is estimated usually as 2.5 to 4.5 multiple times the 12-month average monthly net profit. The multiple is the higher, the better are sales metrics and the lower are risks.
To estimate Amazon FBA earnings, you can use the seller discretionary earnings (SDE) valuation method or Earnings before interest, taxes, depreciation, and amortization (EBITDA), depending on the scale of the business.
To get the SDE, use the formula: Revenue – Cost of Goods Sold – Operating Expenses + Owner Salary.
This method is applied to businesses valued at $5,000,000 or less.
Earnings before interest, taxes, depreciation, and amortization (EBITDA) is another method to estimate your Amazon FBA earnings. It is applied to evaluate the profitability of a business, and it’s used for businesses valued at over $5,000,000. When using any of these methods, you need to consider add-backs.
How to Find a Business on Amazon?
An Amazon business purchase is very similar to buying any other business, with the difference that Amazon has a number of very specific sales metrics. The process includes looking for a deal; comprehensive business audit; due diligence; legal documents; deal closing and fund transfer.
It is highly recommended that you conclude a deal through a professional broker, especially if you aim at a multi-million deal. You will save time, money, and minimize risks. Professionals will help you with negotiations and audits.
How to Ensure that Buying an Ecommerce Business Is Safe?
When you start looking at a potential object of your deal, it’s a good idea to look at an FBA business first, preferably at private label brands. They have good growth potential, while brand awareness and loyalty add value, being an intangible asset.
Apart from good growth potential and product diversity, the business you buy should be able to bring sustainable profit. Therefore, you need to buy a business that is over one year old, to see how it develops over time and how the sales figures behave during the year. For the same reason, you need to closely look at a category of business you buy. Product categories like Electronics are becoming outdated quite fast, the same way as products in the Fashion category. You would need to look at something which will always be in demand. Very popular Amazon business categories to buy are Home and Garden, Pet Supplies, Baby Products, Outdoors, Health, and Personal Care.
Before buying a third-party seller Amazon account, you need to valuate it, and perform due diligence – analyze what you are buying and estimate the risks. This includes not only the price tag but also the estimation of a lot of metrics – there are certain standards applied when buying a business, including investigation of growth potential, diversity of SKUs, etc. As said, it is highly recommended that you involve professional auditors in this process.
Before buying an Amazon business, you need to consider the following factors:
#1. Type of business (FBA Private label or proprietary products are preferred);
#2. Age and sales history (starting from 1 year old, no suspensions);
#3. Expandability and growth potential (scalability, global sales);
#4. Accurate numbers and clean financials (growing sales metrics, clean P&L, and tax liabilities);
#5. Perfect listings and positive reviews;
#6. Product diversification;
#7. Optimized supplier chain;
#8. Reason for selling (find out why the account is sold to avoid unnecessary risks);
#9. Optimized management (smooth sales processes);
#10. Intangible assets (trademarks, brands, branded domains and websites, social media accounts and followers, etc.).
How to Buy Amazon FBA Business?
The essential steps to buying a business are as follows:
An Amazon business purchase is very similar to buying any other business, with the difference that Amazon has a number of very specific sales metrics.
The process includes looking for a deal; comprehensive business audit; due diligence; legal documents; deal closing and fund transfer.
It is preferable that you involve a professional broker when concluding the deal, especially when it comes to a deal worth a fortune. You will save time, money, and minimize risks. Professionals will help you with negotiations and audits.
If you are thinking of buying your Amazon business and don’t know where to start, SageGroup is here to help you. We will find the best deal for you in a short time, perform a comprehensive audit, and take care of the deal. You are welcome to contact us now.