What to Consider When Buying a Wholesale – Distribution Business
Here’s a brief checklist of details to consider when evaluating a wholesale or distribution business in New Jersey.
- Does the company have any element of exclusivity in the product it distributes?
- What is the relationship with the suppliers? Are there contracts in place? If so, will these transfer to you? If not, can you get them or what is your potential exposure?
- Be sure that you meet with the key supplier(s) prior to closing
- Are there any customer concentration issues?
- Do you have a keen eye for product? One surefire way to build the business is to add additional products to your base and sell them to your existing distribution channel.
- Do you have access to additional funds for expansion?
- The purchase will generally include an optimal operational level of inventory. You want to be certain that the inventory is good and re-saleable and not obsolete. Verify the items against the prior 12 month’s sales for each item.
Is location critical to the business’ success? If so, be sure that you have a solid, long-term lease in place.
- If the company has delivery vehicles you will want to get a valuation done, but more importantly you need to know how long they will last before needing replacement. Be sure to adjust the Owner’s Benefit downward for future capital expenditures to allow for replacement costs.
- Can your customers potentially buy these items from a cheaper offshore supplier?
- Does the business thrive based upon price, quality, or service?
- Margins in these businesses can be quite slim and so the systems in place could have a dramatic impact on the profitability. If they do not have state of the art systems, you will want to determine what it will cost to implement them.
- What does the owner do each day? Is he the “face” of the business? How easily can their skill set and “know how” be transferred to you?
- You may find that these type of businesses have a lot of moving parts to them. Unlike service businesses for example, a wholesale – distribution business is the “whole smorgasbord” – there are employees, inventory, receivables, suppliers, capital costs, low margins, competitive pressures, etc. That is why it is especially important that you do an exhaustive job of researching the industry and properly preparing yourself for the process of buying a wholesale or distribution business.
Fredrick P. Niemann Esq.
Interested in buying a wholesale or distribution business in NJ? Call Fred Niemann toll-free at (855) 376-5291 or email him at fniemann@hnlawfirm.com to schedule a low cost and convenient consultation.
Written by Fredrick P. Niemann, Esq. of Hanlon Niemann & Wright, a Freehold Township, Monmouth County, New Jersey Buying a Business Attorney