11 Questions to Ask the Buyer When Selling an Amazon Business or Looking for an Investor
Are you an FBA seller who has successfully managed to grow their Amazon business from ground zero and now looking to take a profitable exit or investment to expand?
Countless hours must have gone into supplier negotiations, optimizing listings, and marketing your products to build a profitable asset. At this point, you’re likely looking to value your Amazon business at a reasonable price and want to see it perform well.
To achieve both goals, you’ll need to start vetting potential buyers. In this post, we’ll discuss what questions to ask a buyer when selling an FBA business to help narrow down your choices and successfully close the deal the best possible way, so let’s dive in.
1. What Type of Buyer Are They?
This question should be on the top of your list. Why? Because different types of people invest in Amazon FBA businesses, including independent investors, aggregators, and micro-syndicates, and each has varying objectives and agendas.
- Independent investors mainly invest in an existing FBA business to build a reliable secondary income stream. They see the acquisition as a long-term investment to help them retire and safeguard their family’s future.
- Aggregators, also known as Amazon roll-up firms and consolidators, specialize in buying turnkey Amazon businesses and scaling them into established brands. They operate with the objective of big exits.
- Micro-syndicates invest in FBA stores to diversify their portfolio and sell them down the line when needed.
Knowing your potential buyer’s intentions and preferences will help you to ask them the right follow-up questions. That way, you can ensure your Amazon FBA business lands in the right hands and get the maximum value for the years of hard work and efforts you’ve put into it.
2. What’s Their Background?
Once you learn about the buyer’s profile, the next step is to know more about their professional background. Sometimes the acquisitions make sense on paper, but in reality, the experience and expertise of the new owner should play a deciding role in the future of your Amazon FBA business.
Individual investors are incentivized by the potential profits that the e-commerce space has to offer. Usually, they are people looking for a career change in the medium term. They may or may not have any experience in running a business.
When it comes to Amazon aggregators, they specialize in mergers and acquisitions. It’s their forte! Most of them have experience in the Amazon space and know the ins and outs of how to move and scale in the marketplace.
Micro-syndicates typically come from a financial background. Unlike aggregators, they do not always have extensive experience running Amazon stores, but they are quite knowledgeable on how to grow a business.
3. How Big is Their Operations Team, and What Does Their Amazon Portfolio Look Like?
Managing an Amazon FBA business, especially during its maturity phase, isn’t exactly a walk in the park. It requires a team of professionals capable of handling the different aspects of an Amazon business, including operations, sourcing, and financial management. Without a team, your Amazon store might soon crumble.
Most aggregators have a structured approach to managing Amazon FBA stores, allowing them to maintain an extensive portfolio of businesses in different niches. While it’s easy to replicate processes for Amazon accounts in the same industry, they might make a few adjustments to meet the specific needs of your business.
Learning about your existing portfolio of potential buyers will help you determine if they have the expertise and resources to take your Amazon FBA business forward. Some specific questions you should be asking here:
- Which domain do you specialize in, managing wholesale businesses, running dropshipping stores, or working on private label brands?
- What niches have you sold in?
- How many SKUs do you manage on average per store?
4. How Many Amazon FBA Acquisitions Have They Completed in the Past, If Any?
It’s imperative to ask this question because it will give you a good idea about their experience and expertise in structuring Amazon business deals. Do they have no prior knowledge of buying an Amazon account? If they do, then you expect to face fewer hiccups during the transition phase.
Also, altering the ownership status of an Amazon FBA business involves executing complex tasks such as transferring the Amazon account, intellectual properties, social media handles, and business inventory (which, at times, is scattered across multiple fulfillment centers or warehouses). To ensure a smooth transition, you’ll need to get experienced and knowledgeable professionals on board.
If they have a prior history of acquiring Amazon FBA businesses, they’re likely aware of the intricacies and technicalities involved in the transaction.
Does a potential buyer tick all these boxes? Then know that your business will be in good hands.
5. How Are Those Amazon Businesses Performing Since They Bought Them?
For buyers with multiple Amazon FBA businesses in their portfolio, it is normal to assume they know how to run one successfully.
However, even then, it’s imperative to ask your investor about the performance of their existing stores to assess if they have what it takes to take your business to the next level. Look for the pre- and post-acquisition changes in:
- Product BSR (Best Seller Rank)
- ACoS (Advertising Cost of Sale) and ROAS (Return on Ad Spend) across all active PPC campaigns.
- Product manufacturing, sourcing, and shipping costs.
- Inventory Performance Index (IPI)
- Average product rating
- Number of reviews
Remember, there doesn’t need to be an improvement in every one of the above-listed metrics; however, a general upwards trend is a good indicator.
6. How Do They Plan to Grow the FBA Business After Acquiring It?
After looking at a potential buyer’s track record of acquiring Amazon businesses, it’s time to discuss their strategy to manage and grow the business. Do they plan to launch more products in the same niche or build an off-platform presence? What strategies do they have to optimize existing product detail pages to win the Buy Box?
You can talk about some challenges you encountered during your Amazon journey to put their knowledge to the test. For instance, if your lead time was above-average, you can ask a potential investor how they would resolve such an issue. And what steps would they take to improve overall supply chain processes?
Similarly, you can ask about issues that popped up in prior Amazon FBA acquisition deals and how they were able to overcome them. A good rule of thumb is to discuss these points during the initial negotiation meetings to get a better idea of whether they’ll be able to run your business effectively.
Savvy investors have a proactive plan of action ready to grow their next investment. Growing an Amazon FBA business once it is established is tricky. Buyers who think out of the box about growing existing ventures are more likely to scale your Amazon business to new heights.
7. Do They Have a Good Understanding of Your Business Product Category?
There are over 30 product categories on Amazon, so it’s essential to apprise buyers based on product categories they’ve previously worked on. For instance, popular categories like Home and Kitchen and Sports and Outdoors require sound knowledge regarding PPC advertising and competitor research.
On the other hand, for the less competitive categories, a decent grasp of Google Trends and third-party research tools is needed to assess consumer interest. In some instances, inspection certifications are required to gain product approval, e.g., sellers dealing in automotive parts, health supplements, and beauty products.
In addition to compliance, understanding a particular niche or sub-niche also gives an advantage in sourcing products at lower prices.
8. How Would They Like to Structure the Deal If You Come to an Agreement for Your Amazon Store?
The way the sales process for an Amazon business works is that a seller has an upfront payment, stability payment, and performance payment. Some buyers may be ready to make the complete payment upfront, while others may propose spreading it over months or quarters.
Similarly, some buyers might be willing to release half the payment in advance and the rest once they have acquired complete control of your business.
You should determine your cash flow requirements and preferences in advance to negotiate and structure the deal confidently.
The performance payment (also known as the earn-out agreement) is a significant part of the Amazon FBA acquisitions deals that can help you sell your Amazon FBA business for a higher value than the listed price. The milestones for the payout are agreed upon by both the buyer and seller, such as a revenue target.
For instance, you’re selling a business that consistently generated $2.5 million per annum in revenue. Your deal may include a performance payment clause proposing that you receive 30% of the income exceeding $2.5 million for the next two years.
Performance payment is a smart way to attract big buyers who don’t mind paying a higher price for a successful Amazon business to manage cash flows more efficiently.
Make sure the potential buyer allows you to structure the deal and choose your preferred mode of payment. After all, it’s your business, and you should be able to decide whether you want to get a direct deposit or earn a performance payout.
9. What Will Be Your Commitments After the Transfer of the Amazon Business, If Any?
You must ask if they will need your assistance to help during the transition stage or the first few months of the business. If yes, it’s crucial to set the expectations and scope of your involvement in advance to avoid post-acquisition disagreements or disputes. This is important due to many reasons.
First, you might be unavailable after selling your business. For instance, you may have decided to spend more time with your loved ones or pursue your hobby or interest. In such cases, you might not want to remain involved and choose not to go with a buyer expecting your involvement.
Amazon FBA business deals that follow an earn-out pay might require some commitments from your side post-acquisition. You can expect payment in exchange for your services (perhaps in contractual form), such as providing consultations or handling certain business operations.
10. How Long Do They Think It Will Take to Close the Sale?
Lastly, ask potential buyers for a realistic timeline for closing the sale—transferring an Amazon FBA business to a new owner isn’t as simple as handing over the keys to your home. Different variables are involved, and disagreements or mistakes can push transactions forward by weeks or even months.
Some buyers request a 2-week due diligence period to inspect performance and sales as described by the seller. Once the due diligence process is complete, you’ll be entitled to receive your money as per the contract. Closing a deal can take a few days to several weeks.
11. Can They Put You in Touch With Any Of Their Previous Clients?
Finally, an excellent question to ask a potential buyer is whether you can get in touch with any of their previous clients. This is important for understanding who you would be working with.
You can get to know how the buyer likes to operate, what it’s like to work with them if they have the actual funds, and, most importantly, whether they can be trusted.
Why Asking Questions is Important When Selling Your FBA Business
Selling your Amazon FBA business at a profit and to the right people requires that you do your homework. You must determine the value of your business and decide on a buyer profile. Of course, you’d want the maximum return on your asset.
However, you also need someone competent to take over your business. Asking these questions is essential when selling your FBA store to ensure you pick a buyer willing to pay a fair price and grow your Amazon business for months and maybe years to come.
Conclusion
It’s essential to evaluate different buyers to ensure you’re making a good decision for yourself and the future of your business. Gather as many offers as possible, and then once you find a profile that ticks all the boxes (or most of the boxes that matter!), move forward with the deal.
Are you interested in getting a free valuation of your Amazon FBA business? Check out this eComm company valuation calculator!
