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Preparing your Wholesale Distribution Business for Sale
Most wholesale distribution businesses will be either ‘sales driven’ or ‘logistics drive’. It is important that a buyer understands what their personal strengths are, ensuring whichever the biggest driver is, they are the right person for the business.
You can see already that it is here that a qualifying process is needed and time could be wasted by talking to the wrong people; lots of enquiries but fewer suitable people to purchase your business.
If sales is the biggest driver in your business we would need to find a person with these sales skills, preferably with a marketing and/or advertising background. They could also have previous experience in setting up distribution networks and/or importing products.
However; there are many wholesale distribution businesses where logistics are key. Tapping into networks of stocking distributors and local wholesalers with an existing infrastructure could be key to finding a suitable buyer.
Here are some key components to keep the value of your distribution business high;
1. Ensure the business has an element of exclusivity, with product lines that can only be sourced from you. Usually, having exclusive rights in Australia & New Zealand can keep the value up, but only to the right purchaser.
2. Ensure you maintain good relationships with suppliers. Having contracts in place is key, but most importantly, can these be transferred to the next purchaser?
3. Do you have any customer concentration issues? In other words; if you lose your biggest clients, how would this influence your bottom line? Any one customer responsible for 20% (or for some businesses as low as 10-15%) of business could be a potential risk to a purchaser.
4. In these types of businesses it is common to have an optimal operational inventory. You want to be certain that you clear any obsolete stock. We are trying to avoid that the value of the stock at value becomes so high that it becomes a problem to find the required capital to fund it. A purchaser would need capital to purchase the business, but also additional funds for expansion.
5. If your location is critical to the success of the business, ensure you have a strong lease term in place.
6. Review your systems and document all your processes. Focus on price, quality & service. Introducing and implementing new technologies to streamline your business will make a purchaser more confident that they do not have to invest in processes.
7. The biggest advantage of having systems and documented processes is that the owner’s knowledge is now transferable and not ‘walking out of the door’ as soon as you have left the building. People pay for ‘know how’; keep it in the business!
Also, having systems often means less involvement from an owner. In turn this often means a more attractive investment, meaning a higher sale price!
One of the reasons that wholesale distribution businesses are popular to invest in, is because they often include the complete package with the right balance between risk and reward; employees, inventory, cash flow, suppliers, asset value but also competitive pressure, low margins and potentially large overheads; making it attractive for competitors to grow through acquisition.
Preparing your business for sale right could build a great foundation for a purchaser to build on with solid return on investment to the right purchaser.
Article written by Rudy Kokx – Business Broker at LINK Northland NZ