The process of selling an FBA business is generally complicated. Therefore, it would be best if you had a general grasp of each significant aspect of the process beforehand to get the most probable profitable sale of your business.
Among the significant aspects of exiting an FBA business that you should understand is knowing what a “Letter of Intent” is.
This post is a part of the series of blogs designed to answer questions you should know when selling your Amazon business.
What is a Letter of Intent?
A letter of intent is a document where the buyer of an FBA business outlines every goal they have on the business being sold and more. This document also includes the payment structure of the transaction, the purchase price, a list of requests from the buyer, and clarification of which parts of the transaction still need to be negotiated between both parties pre-sale.
These documents have to be detailed so that each party knows exactly what they will get and what they have to give after the sale.
“LOIs” also states that the transaction cannot be accomplished if one party fails to provide any stated requirements in any of the forms present in an FBA business deal.
As a seller, you have to scan the whole document from start to finish because if you do not, you could potentially miss the slightest nuance that could lower your sale rate.
Contents of a Letter of Intent
A proper LOI contains the following four significant details: (a) the price of the business, (b) the payout after the transaction, (c) the “NDA” or “Non-Disclosure Agreement,” and (d) the due diligence process.
Price of the Business
One of the major details included in a letter of intent is the price for the FBA business being sold. The cost of an FBA business is negotiated by the two parties included in the deal and is usually based on basic industry standards. The two parties have to agree on the price mutually and should not only be in favor of one party.
Most FBA business buyers usually pay double even to quadruple the original value of the business itself. But this always depends on the size, revenue flow, and negotiating skills of both the buyer and seller.
Payout after the Deal
The second significant detail found in LOIs includes the payout. A seller is usually paid using three standard methods: upfront cash, stability payment, installment plans, or earn-out payments.
Letters of intent include one of the mentioned payment methods and the payment date. LOIs also comprise each step and the estimated dates and timeline for each payment schedule for installment plan payments. These dates can also be negotiated until both parties are satisfied.
When reviewing an LOI, make sure you scan through this section in particular and look for a clear and concise payment structure that outlines every single payment, every single date for each payment, and every single minor detail so that you do not lose out on your sale.
Non-Disclosure Agreement
An NDA or Non-Disclosure Agreement is a section found in LOIs designed to prevent the disclosure of potentially confidential documents if the seller decides not to pursue the sale of their FBA business. This agreement prevents any leaks of confidential information that could harm the FBA business being sold.
NDAs are designed to protect your business against others who might use the information they acquired through a canceled deal to start their own rival business or sell it to competing companies.
It is heavily recommended that you pay close attention to every single detail in the NDA section of your LOI to make sure you have everything covered. Scan each sentence and bullet point thoroughly to ensure you do not miss anything.
Due Diligence Process
The due diligence process is the final touch for an FBA business sale or any business sale. In the due diligence process, every single financial statement is checked along with stocks, inventory, supply, and the selling process.
LOIs must include the timeline of how long the due diligence will take once it has begun.
When going through the due diligence process, make sure that you review every document that the buyer will ask from you beforehand to provide them with no worries.
Understanding these four main contents of an LOI is key to having a successful and profitable exit from your FBA business. In addition, knowing what to look for in these four contents of an LOI is crucial in avoiding possible breaches in confidentiality, losing a lot in your sale, and harming the future of your FBA business.
Besides knowing the answers to the questions, you must also understand critical factors that will make your FBA business saleable.
What to Remember
Receiving a letter of intent is a significant step in selling your FBA business. This implies that your buyer is serious about the purchase and wants to make sure that both of you benefit from the sale.
Knowing what to watch out for when it comes to scanning and reading through a letter of intent can mean the difference between you gaining a profit from the sale of your FBA business and potentially harming and decreasing the overall value of your business.
So once that LOI comes in, make sure you are thorough in ensuring everything is properly taken care of and stated clearly and concisely.