Wholesale and Distribution companies are very popular with buyers, especially if your company generates strong stable profits. When it comes to selling a distribution company, there are 5 key points that business owners should remember.

Profits Dictate Sale Price
The only reason for some one to purchase a business is because they are purchasing the ability to make money. When pricing a business, a buyer is always, in one manner or another, seeking to price the value of that profit stream.

How does this impact you when you are trying to sell a distribution company or sell a wholesale company? You need to produce quality profits in order to sell for the highest price. As such, you should begin planning in advance for your sale - taking necessary steps to grow your profits as much as possible. (At the same time, this is a great opportunity to ensure your financial statements are in order and all of your income is reported!)

 

Location is Important, Although not Critical
Where is your business located in relation to where you customers are? For some distribution companies customers actually come in for product, or you make daily deliveries on your own trucks. In this case, make sure your lease is in order and attractive. You'll want to make sure you have ample time left on your lease (typically at least 5 years) and perhaps have an option to extend.

For businesses that sell nationally and ship common carrier location is slightly less important. Still, an attractive lease is important, but perhaps less so than a "walk-up" business or local distributor.

How Strong is Your Supply Chain?
One of the central points for buyers when considering the purchase of a distribution business is your supply chain. Are you a distributor for an OEM? If so, how is your contract structured, and what sort of exclusivity is offered? If you are just a reseller with no single OEM, how well balanced is your supply chain?

These are central questions that a buyer will consider regarding your supply chain, and as such items you should review as you prepare for a sale.

Effective Inventory Management
How frequently are you turning your inventory? Depending on your specific business, you should optimally maintain approximately 2 months of inventory.

In any case, as a wholesaler, you will likely have a lot of money locked up in inventory. That said, a buyer will be concerned how often that inventory turns. Although your inventory may not be subject to obsolescence or spoilage, it still may be too old for a buyer to risk purchasing.

Expect that you will negotiate a discount for items that do not turn frequently or have been sitting in stock for years.

Is your Customer Base Stable?
At the end of the day all buyers will be looking to handicap the risk that they incur in any given transaction. Most wholesalers or distribution companies have a very wide customer base, often with no single customer being more than 1-2% of sales.

This very attribute, in fact, is one reason that these businesses are so popular; a wide customer base mitigates the negative effects from losing any single customer. As you prepare to sell, you should be seeking to protect yourself from the influence of any single, large customer as well.

In Summary

Preparing your business sale can often be complicating with matters that might seem in conflict. Contact your Clear Rock professional for more information on how Clear Rock can sell your Distribution Business.