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 exclusivity rights for the products 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 grow the business is to add new products to your base and sell them through your existing distribution channel.
- Do you have access to additional funds for expansion?
- The purchase will generally include an optimal inventory level for operations. You want to be certain that the inventory is good, resaleable, and not obsolete. Verify each item against the prior 12 months’ sales.
Is location critical to the business’s 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 to account for future capital expenditures and replacement costs.
- Can your customers potentially buy these items from a cheaper offshore supplier?
- Does the business thrive based on 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 the 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 types of businesses have many moving parts. 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 at (732) 863-9900 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