- Posted on April 6, 2022
- by Benedict Dohmen
The Ultimate Guide To Deal Structure When Selling Your Amazon FBA Business
So you’re thinking about selling your Amazon FBA brand, but have no idea how to go about the deal structure?
Today’s your lucky day—this blog post will walk you through your three options when it comes to deal structuring for your Amazon FBA business.
Table of сontents:
What Is an Amazon FBA Deal Structure?
There are three deal structure models you’ll need to think about when selling your business. Each plays out differently and may suit a different Amazon FBA seller and Amazon FBA buyer.
Before we move forward with discussing your options, let’s define what a deal structure is.
Deal structure is the way you are paid out for selling your Amazon FBA business.
To give an example, let’s say you sell your Amazon FBA business for $100,000. A deal structure would tell you how much of that $100k will be paid out in cash, how the seller plans to make it happen, and how long you’ll have to wait to get the full amount.
Now that you know what deal structuring is, it’s time to talk about the different deal structures in a typical Amazon FBA seller and Amazon roll-up firm sale.
1. Earnouts
Earnouts are the most common deal structure when selling an Amazon FBA business. Many Amazon FBA acquirer groups prefer this structure since it allows the Amazon FBA seller to earn their desired payout—and in some cases, more, depending on how well the business does over a set period.
Both buyers and sellers love the sound of an earnout structure when structuring deals. Beyond the possibility of earning larger payout overtime for the seller, it also lessens the overhead costs for the buyer.
Furthermore, it also displays the seller’s confidence in their business, which is something any Amazon roll-up firm appreciates. When a seller is willing to work with the buyer on a profit-sharing basis instead of walking away with upfront cash, the buyer knows that the business is bound to do well.
However, this kind of agreement comes with many risks for both parties. For the seller, it’s important to look for an Amazon aggregator or buyer experienced in running the business after the sale.
Otherwise, you might end up earning less than the listed price. Furthermore, you’ll want to be able to maximize your profits within the agreed-upon earnout period. Typically, an earnout structure covers 1-2 years of shared profits.
It’s also important as a seller to ensure that your business is well-structured before you decide to hand it off. This will give the buyer the best chances of making a good profit immediately after the sale.
Otherwise, if they have to spend months rebuilding the business, you might not see much of a payout either.
In a typical earnout structure, both parties agree to split profits a certain way for a certain amount of time. Usually, this means a set amount per month or around 50-75% of shares going to the seller.
2. Seller Financing
This deal structure is one way to make more money than you were initially offered. Seller financing typically works similarly to a car loan wherein the Amazon FBA buyer will pay a certain percentage of the total cost upfront, and repay the remaining in monthly installments with interest.
It may take a little bit longer, and it does sound a lot like an earnout deal. However, the main difference is that you as the seller won’t have to work for the remaining balance. Instead, you’ll wait for the money—plus interest—to be deposited into your bank account or other preferred payment methods.
It’s a good option for you if you want to negotiate a better deal with your Amazon FBA buyer who isn’t convinced or ready to pay full price just yet. The best thing about it is that you don’t even have to lift a finger.
One example of this deal structure would be if an Amazon acquirer were to pay 65% of the total asking price upfront. To settle the remaining balance, they’ll make monthly payments with a set interest rate that both parties should agree upon beforehand.
3. Upfront Cash
Perhaps one of the most hassle-free deal structuring methods in the book is when you negotiate to receive your full payment upfront, hand in the login information to your Amazon Seller Account, and move on.
There is a catch, however. In an upfront cash deal, you’re less likely to get the entire initial asking price. In most cases, an Amazon FBA buyer will haggle to the ends of the earth until you buckle and give in.
You may also find it more difficult to find an Amazon roll-up firm willing to pay in full, especially if your numbers and books aren’t as impressive as the other offers in their calendar. That said, it’s also one of the least stressful deal structuring methods since it only involves one transaction, after which you’re completely done.
It’s a good choice for anyone who wants to get paid immediately and doesn’t like waiting around for the rest of their money.
However, you may have to wait around for a buyer who’s interested enough in your business to meet your asking price.
In some cases, it may even take weeks or months before you can complete your exit.
Deal Structure Model Basics
There are many things to consider when it comes to structuring a deal between an Amazon FBA brand seller and an Amazon aggregator. It’s important to understand that deal structures cover only one part of the entire negotiation. Albeit, it’s one of the most important parts.
When structuring a deal with an Amazon roll-up firm, it’s important to keep a few things in mind:
Negotiation Guidelines
It’s important to state exactly where each party stands in the negotiation. This is also your opportunity to express the total discussed price and how the Amazon seller expects to be paid.
Risks, Evaluation, and Management
Another factor you should consider when it comes to structuring a deal is listing down latent risks involved with running your Amazon FBA business. As with any venture, there are bound to be surprises. However, this part of the deal structure will also detail exactly how both parties expect to deal with such risks.
Risk Threshold
No Amazon aggregator will stick around when a business is so full of holes that it’s bound to sink in a few years. The deal should also detail how much risk the buyer and the seller are willing to tolerate.
This includes unforeseeable dips in sales or other problems that may pop up. Worst case scenario, it may also mean letting go of the deal if things get too out of hand—so make sure your business is bulletproof before approaching buyers.
Termination
Speaking of letting go, the last item on our list talks about the terms followed when it comes to terminating the deal. In your structure, it’s important to specify exact rules and guidelines that detail when it’s reasonable to back out of the deal.
Key takeaway
To wrap up, it’s important to understand that Amazon FBA deal structuring isn’t as easy as you think. All of these forms of deal structuring require extensive planning.
You’ll likely end up with a deal structure that’s more complicated than the one you first negotiated, and it may take some time before you’re able to fully exit out of your Amazon business.
If you want quick results and smooth operations, then you should consider doing so through Amazon FBA seller financing or seller financing with upfront cash instead.
Before you decide on your ideal deal structure you should find out Amazon FBA business value and we offer a FREE business valuation within 24h
Now it is your turn – do you have a question for the Benitago team? Or maybe you want to start a conversation with like-minded individuals? Feel free to share your thoughts in the comment section below!
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