About buying a distribution business
You have decided to buy a business - but what type suits you?
There are 4 main types:
Each has its own unique characteristics that may or may not suit your skills and strengths. In this article we look at buying a distribution business.
Distributors - middlemen (or women) operating between the manufacturer and the retailer, this usually covers activities such as importing and wholesaling. More recent trends have seen many local manufactures dealing direct with retailers. Obviously overseas manufacturers have greater difficulty getting their product to our markets, therefore the distribution business for sale opportunity continue to exist. If you like to get about, enjoy doing deals, and don't like the responsibility of lots of staff, then this may be for you. Success in this area comes from having good buying and selling contracts.
Formal supplier contracts may or may-not exist. Some distributors operate on historical relationships, while others written contracts. You will need to check out the ongoing nature of all agreements, and gauge how a change of ownership may impact upon the business. Use your lawyer, and meet with key suppliers.
You will need to manage contracts and trading risks. How are you at negotiating, managing deals, and keeping contact with customers and suppliers? Distribution businesses are much less staff intense than manufacturing, have a better cashflow, and usually involve some travel to keep in-touch with customers and suppliers. It is likely you will need to purchase and manage a reasonable amount of stock to cover product ranges and delivery contingencies. This often means you need a certain amount of cash up-front on purchase day.
Consider the following when buying a distribution business;
(1) Can you sell this product? Is it something you feel comfortable selling, and have some knowledge about?
(2) Do you understand the market and who your main competitors will be?
(3) How loyal are existing customers, are there any sales agreements in place?
(4) Can you manage the cash and credit terms? You may need to pay up-front to have the product made, wait 3 months to make the delivery, with the customer taking a further 2 months to pay. Is there an opportunity to negotiate more favourable terms here?
(5) Check out the stock, is it all needed? Or is some of it out of date?
(6) Are there suitable supply contracts in place? You may wish to make part of the payment contingent on continued sales to key parties.
(7) Have the owner agree to assist in transferring the relationships to you.
By Richard O'Brien - nzbizbuysell
· Manufacturing Businesses for Sale
· Distribution Businesses for Sale
· Retail Businesses for Sale
· Service Businesses for Sale
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