The field of wholesale distribution is a true buying and selling game—one that requires good negotiation skills, a nose for sniffing out the next “hot” item in your particular category, and keen salesmanship. The idea is to buy the product at a low price, then make a profit by tacking on a dollar amount low enough that it still makes the deal attractive to your customer.
The most attractive aspect of owning a Wholesale Distribution business is the opportunity to make large sales quickly verses a retail business that demands many low end transactions to survive.
Things to think about when buying a wholesale distribution business:
Buying a wholesale distribution business is basically like buying any other business; however it has the added factor of inventory and receivables. It is smart to buy the receivables. It will make life easier for both the buyer and the seller as most customers don’t send 1 check for every invoice. It is not uncommon for companies to make a payment schedule and send out bi-monthly or monthly checks. If you don’t buy receivables every check will need to be scrutinized and it can cause unnecessary confusion.
If you are buying your new business with SBA funding or a loan, financial institutions like the receivables to be purchased separately because the buyer has instant income coming into the business.
One important factor when considering purchasing a wholesale business is how the distribution of income is spread out over the client base. Any one account that represents more than 10% of the gross income warrants investigation.
It’s important to look at that particular accounts longevity with the business and the relationship that’s currently in place. In the case of wholesale businesses a long exit strategy is a good idea. If the seller is willing to stick around for a while after the sale it will really help transition the accounts and give time for new relationships to form with the clients.