The Dealmaker’s Terminology Guide: Important Terms to Know When Selling Your Amazon FBA Business
If you are planning to sell your Amazon business, you should learn and understand the different terms that are used in the world of FBA and third-party Amazon sales as you navigate the steps. This will help you find a better way to offer your business to the right buyer, while making the right impression, especially in terms of measuring the value of your business.
Understanding relevant terminology will help you manage the sales of your FBA business more effectively without getting lost in the process.
Let us dive into the dealmaker’s terminology now:
ASIN: Amazon Stock Identification Number
This term refers to the ten-digit alphanumeric code that is assigned to products sold on the Amazon platform. It is used to provide sellers and consumers on Amazon the ability to track inventory on the platform. ASINs help categorize the growing product catalog of Amazon.
APA: Asset Purchase Agreement
This term identifies the legal agreement that is used to determine the purchase and the contracted sale of the business assets. This documentation includes all the machinery and inventory that are included in the business. Keeping everything well-documented is necessary to clarify all the elements that are included in the sales.
Understanding the value of this term in the process of selling your Amazon FBA business–and how you may need to customize according to your needs and your buyer’s demands–is key.
This term refers to the very person who serves as the “bridge” between the seller of the Amazon business and the buyer. If you opt to use the services of a broker, understand that they have a commission for every sale. Nonetheless, the benefit to using a broker is that they will be in charge from start to finish, throughout the full process of the transaction. Your responsibilities are minimal, which can be ideal for some sellers.
Conditions of Closing Transactions
The closing conditions of the transaction are noted in the documentation confirming the final sale of the business. The role of the selling party and the purchasing party should be outlined in clear and definite clauses. This helps in satisfying the demands and expectations of both parties, allowing them to proceed with the set terms after the transaction has already been confirmed.
CIM: Confidential Information Memorandum
This refers to the documentation that the seller provides to the buyer. It contains an overview of the business which includes product information, revenue forecasts, target growth plans, and all the financial statements needed to prove the health and condition of the business.
When a buyer consults reviews from clients and analyzes the company’s financial records, they can learn about both the strong and the weak points of the operations of the business. Due diligence refers to the transparency in documents and company history, to determine where the business is currently and what paths of growth it may lead to. In the process of due diligence, any weaknesses should be addressed efficiently if the acquisition is to be completed successfully.
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This is the structure of payment that allows for the seller to continue seeing financial gains from the business even after the point of sale, usually set within a specific given time. There is an average of two to three years allowed for buyers and sellers to share profit earnings from the business being passed on through sale.
EBITDA: Earnings Before Interest Taxes Depreciation and Amortization
This is a means of measuring the business’s cash flow, excluding capital or debt.
This is often the most used measure of a business's primary worth when being put up for sale, as the buyer would be able to see its actual value without the other factors mentioned.
TEV: Total Enterprise Value
Unlike the EBITDA, this record includes the debt and other cash equivalents that affect the overall value of the business based on its operational outcome. This is often used to compare two companies that are being sold to a buyer before a final decision is made.
HB: Hold Back
This is an amount of cash set aside in escrow to serve as support in case of any unexpected situations requiring a sudden financial response to keep the business moving forward.
Often, hold back is set from between 3 - 12 months, provided for the buyer to use in the case there were future payments that the seller was unable to foresee before the completion of the sale.
LTM: Last Twelve Months
This approach is used to determine past business performance over the last 12 months before sale. This gives the buyer more in-depth information about the company and what needs to be done, as well as what to expect.
IOI: Indication of Interest
This is a formal letter where the buyer presents their sincere intentions in procuring your FBA business. Although this is non-binding, it shows the clear interest of the buyer, which sets the transaction in motion between the two parties, where they explore possibilities regarding the sale of the company.
LOI: Letter of Intent
This is similar to an Indication of Interest, and is also non-binding.
NDA: Non-Disclosure Agreement
This is a legally binding document that highlights the agreement between the two parties to be fully confidential. An NDA guarantees that each party will respect the privacy of the other and not divulge company secrets. Confidentiality about the business and the sale of the FBA Business will be honored.
This is some of the most important terminology you may come across as you begin to explore selling your Amazon business. These terms should help clarify the connection between buyers and sellers, thereby creating a much better understanding. If you are curious about the specific steps it takes to sell a business, Umbrella Fund’s team of experienced aggregators can easily walk you through the process.
Remember that once you decide to sell your Amazon business, you need to make sure you understand everything, during every step of the way. This does not only help secure your transaction with the buyer, but it also assures you of the best benefits you can get from the sale of your business.