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Selling A Private Wholesale or Distribution Company

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This article looks at the most common issues and challenges that crop up when selling a private wholesale or distribution company.

Selling a privately owned wholesaler or distribution company presents a number of issues and challenges for both the owners of the business and their broker. Companies are fundamentally about the products they sell, and the customers they service. As wholesalers and distributors rarely own the intellectual property bound up in the products they sell, they have to develop a service proposition to sell alongside the products.
 
What Are The Most Common Issues When Selling A Wholesale Or Distribution Company?
 
Products and services

Most successful wholesalers and distributors wrap a powerful service proposition around the products they sell. This might range from a profound product knowledge that solves problems and reduces costs for the customer – to a reliable on-time, order in full without fail delivery service. If your company’s proposition is based on product knowledge it is important that the company is not entirely reliant on the existing owners for this expertise. If yours is a delivery service proposition there must be enough gross profit in each sale to justify the cost of a high level of service.

Customers

Buyers have a strong preference for wholesale companies with longstanding customers that order on a regular and frequent cycle. The length of the customer relationship is more important than a formal contractual relationship. After all contracts remind customers to put the business out to competitive tender on a regular basis. A broad spread of customers is ideal. Any customer making up more than 20% of sales will attract attention – more than 30% is a serious red flag.

Suppliers

If your company is reliant on a dominant supplier this will be seen as an area of risk by any buyer. This is particularly the case where a business is a licensed distributor for a major brand and this makes up a large proportion of sales. Contracts with this type of supplier will usually contain a “change of control” clause which means they do not automatically pass to a new owner.

Stock (Inventory)

Wholesalers and distributors typically have 1-2 months turnover invested in stock. Despite your best efforts a proportion of this will be slow moving lines held to ensure full orders, or even obsolete product. It will be a challenge to get a buyer to pay for slow moving items which can often make up 10-20% of stock value. Our advice is to be upfront about slow moving lines and explain why they are necessary. If the buyer “discovers” these items for themselves in due diligence it will be harder to get paid for them.

 

If you are interested in finding out more about these and other issues relating to the sale of a private company one of our business sale experts would be delighted to talk to you in complete confidentiality. Click CONTACT ME to book an initial phone conversation or call us on 01604 432964.

 
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