This Issue's TLDR...

• A rundown of the different types of debt financing for your business (Pay attention if you need capital)
• DEAL ALERT - An Amazon FBA business in the Sports & Outdoors niche
• How to unlock Amazon-optimized split shipments

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BEST From Me

This week kicks off a three-part series on debt financing for your Amazon (or eCommerce!) business. If you don't need capital to grow your Amazon business: Congrats! You're in the minority. Everyone else, pay close attention to the next three issues of B@A and save them for future reference.

Part 1: The Different Types of Debt Financing for your Business

Part 2: A Side-By-Side Comparison of Debt Options (and How to Evaluate Them)

Part 3: Insider Secrets from a Commercial Lender

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People often ask what I do these days. Where I "fit" in the Amazon ecosystem.

The short answer is that I wear a lot of different hats, and don't fit cleanly in any given circle.

The slightly longer answer is that most of my "Amazon consulting" happens at the intersection of Amazon brand operations and commercial financing.

Put differently, most of what I do these days is help Amazon business owners secure low cost capital that doesn't bury them under a mountain of debt while also ensuring that there's enough "dry powder" for growth.

I basically help owners cut through the bullshit marketing language that various non-traditional lenders use to sign these owners up for debt that is predatory and inappropriate for the business.

Turns out, being honest in the finance world is something of a rarity and, outside of an early career in finance that makes me a bit more conversant in finance-speak than the average business owner, I'm mostly just a guy that likes to help people get out of tough situations.

To that end, I want to use this B@A platform to educate; to provide "prophylactic information" about debt financing for Amazon/eCommerce businesses. If, by reading this newsletter, a single business owner takes a pause and reaches out to me before signing an agreement for "growth capital" that was made available to them in less than 48 hours, then I've succeeded.

So, without further ado, let's start this series with some basic education around the different types of debt.

Part 1: The Different Types of Debt Financing for your Business

Debt financing comes in various shapes and sizes, each tailored to different business needs and stages.

What's a bit frustrating though, is that the debt options in the Amazon space are often hidden beneath jargon ("growth capital") and obfuscation.

I know this because I speak regularly with lenders, who are often updating me on "new" products that they're introducing.

I actually had one lender tell me that they were launching a Working Capital Line of Credit product; but, when I pressed for details, it was really just a Term Loan.

C'mon man.

So, with that being said, here's a comprehensive look at the typical debt options for Amazon/eCommerce businesses, in order of best to worst (in most cases):

Line of Credit

• What it is: Like a credit card for your business, a line of credit offers revolving access to funds, up to a set limit. You draw money as needed and pay interest only on the amount used.
• When it's good for your business: Ideal for managing cash flow, especially to cover short-term operational costs or unexpected expenses. It’s perfect for businesses with seasonal sales patterns or those that need a cushion for slow periods.
• When it's bad for your business: If used irresponsibly, it can lead to a cycle of dependency on credit for daily operations, potentially leading to unsustainable debt levels if not managed carefully.

Term Loans

• What it is: A term loan provides a lump sum of cash upfront, with a fixed or variable interest rate and a set repayment schedule. It's straightforward and predictable.
• When it's good for your business: Best for making significant one-time purchases like equipment or funding specific expansion projects that have clear, measurable returns.
• When it's bad for your business: If the investment (likely into inventory) doesn't generate the anticipated return, you may struggle with repayments. It's also not suitable for businesses looking for flexible repayment terms.

Purchase Order (PO) Financing

• What it is: PO financing gives you the ability to raise funds based on confirmed purchase orders from customers. Lenders pay your suppliers directly to cover the cost of producing and delivering goods.
• When it's good for your business: Ideal for businesses that receive large orders but don't have the capital to fulfill them. This can help you grow without diluting equity or taking on debt tied to your company's broader financial health.
• When it's bad for your business: Not ideal if your profit margins are thin, as the costs can be high. It's also dependent on the creditworthiness of your customers, not just your business.

Invoice / Receivables Factoring

• What it is: This involves selling your invoices at a discount to a factoring company that then takes over the collection. The factor advances most of the invoice amount upfront.
• When it's good for your business: It's beneficial if you have long invoice payment cycles (not typically true for Amazon/eCommerce businesses) and need quicker access to cash. Factoring can improve your cash flow, allowing you to continue operations and grow without waiting for customers to pay.
• When it's bad for your business: It can be expensive and you lose a portion of your revenue. Additionally, your customers will pay the factor directly, which might affect your customer relationships.

Revenue-Based Financing (RBF)

• What it is: RBF provides capital in exchange for a percentage of ongoing gross revenues, with the total repayment amount capped at a predetermined multiple of the borrowed amount.
• When it's good for your business: Suitable for businesses with steady revenue streams and those not wanting to give up equity or take on fixed monthly payments. It aligns payment schedules directly with your cash flow, reducing the pressure during slower sales periods.
• When it's bad for your business: It can take a substantial portion of your revenue, especially if your revenues are volatile. The total cost of capital can be high compared to traditional loans, especially if your revenues grow significantly.

Merchant Cash Advances (MCA)

• What it is: An MCA provides funds upfront in exchange for a portion of your future sales, typically through daily credit card receipts.
• When it's good for your business: Useful for businesses needing immediate capital with minimal qualification hurdles. Good if you have high credit card sales and need quick access to cash.
• When it's bad for your business: They come with high costs and can significantly cut into your daily cash flow. This option can create a dangerous debt cycle if your sales don't meet projections.

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Amazon Questions? Amazon isn't easy. Everyone needs a little help from a friend. If you ever have a tough Amazon question, I'm only a phone call away. Let's Chat

BEST from Everyone Else

Best Deal That I've Seen This Week

Regular B@A readers know that I'm an advocate of Acquisition Entrepreneurship (AE).

When I last wrote about AE, I said that I would start to share more AE-related educational content in here, as well as deals that I've looked at.

Well, that starts today.

Here's a deal that I would jump at, if not for the fact that I'm a little busy right now with my own Amazon agency acquisition:

🎣 Sports & Outdoors Brand

• Channels: Amazon
• Geographic Markets: Amazon US (75%), Amazon UK (14%), Amazon CA (11%)
• Catalog Size: 12 ASINs
• Suppliers: 1 (China)
• TTM Revenue (through Apr-24): $1.92mm
• TTM Net Profit (through Apr-24): $173k
• Current Inventory On-Hand: $177k

ASKING PRICE: $288,000 + Inventory

👍 BEST Reason to Buy: I often tell clients and students that there are four ways to "win" with an acquisition: 1) Organic growth, 2) Remove costs, 3) Buy below your basis, 4) Multiple expansion/arbitrage. In this case, the asking price (1.6x) is quite an attractive entry point. It gives a lot of room for error and/or investment into the business.

👎 BEST Reason NOT to Buy: This is a business where you are "buying a job." Although there's a healthy top-line, this business is a one-man shop and current EBITDA is a bit low to hire a General Manager or a large team. You will need to be an experienced Amazon operator to step into this one.

PS: If you're interested in pursuing this deal, respond to this email and I'll share more details.

Best From X

Every single seller feature and fee that Amazon has launched in the past year has been buggy.

And, look, that's just sort of the way Amazon rolls.

When I worked there, we regularly launched things before they were ready, and "fine-tuned" them along the way.

But, there have been REAL costs to sellers with some of these premature launches. Likely in the $100s of millions of dollars in just a few short months.

One such cost?

With the FBA Inbound Placement Fees, sellers don't always have the options to choose partial splits or Amazon-optimized splits.

In other words, Amazon is forcing sellers to pay the FBA Inbound Placement troll toll, whether sellers want to or not.

Adam @AdamChudy 1 SKU. 16 boxes. Almost 600 units. And @amznsellerhelp can't make this an "amazon optimized shipment"? This algo is still not ready. 8:46 AM • May 2, 2024 1 Retweets 22 Likes Read 8 replies

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Amazon's language around what determines availability of split shipments is, in true Amazon fashion, rather opaque:

OK, bro. Thanks.

So, how do you force split shipments when Amazon doesn't want to give them to you?

Well, Option 1 is to use the API.

Option 2?

Try switching from shipping Individual Units to Cases.

My friend Larry Lubarsky from 2D Workflow explains:

Watch Me Amazon @watchmeamazon How to unlock the “Amazon-Optimized” and “Partial Splits” options on Seller Central, if they’re grayed out and unavailable. 4:36 PM • May 9, 2024 0 Retweets 3 Likes

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Best From LinkedIn

When I was at Amazon, one of the phrases that I repeated to sellers was:

That wasn't me talking out of my a$$.

Canada Post (i.e., USPS for Canada) had done several studies on this, throughout the 2010s, and the result repeated itself.

This was a durable truth of shipping and parcel delivery.

But...it's 2024 now.

We're a different society in a lot of ways. COVID changed a lot of shopping behaviors and preferences.

So...the question is...do customers *still* prefer free shipping over fast shipping?

YES!

Updates to the Amazon Private Label Pathway

No updates this week.

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Back Story on the Amazon Private Label Pathway, ICYMI...

A few months back, I had a small group of coaching clients that were at the same point in their Amazon seller journeys.

I found myself answering the same questions, and pointing them to the same resources, so, in true Amazon fashion, I asked myself "What's the 1-to-Many solution here?" and built a Notion page of helpful resources, which I've called "Amazon Private Label Pathway."

You can get access to it here: https://auxo.gumroad.com/l/amazonpathway (it's free; but if you want to buy me a beer, I won't object)​

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