Selling a Wholesale Distribution Business

Selling a wholesale distribution company can be a long and complicated process. Even with a good exit strategy in place, you will face many hurdles, lots of paperwork, and potential setbacks.

Here are 12 steps to help you learn more about how to sell a distribution company and how to make your wholesale distribution business more appealing than others on the market.

Preparing to Sell a Distribution Business

1. Think Like a Buyer

When preparing a wholesale distribution business for sale, you need to start by thinking like a buyer.

You know your company is great, but how would an outsider see it? Imagine you’re buying a company and trying to do your due diligence. What would you look for? What might be a red flag?

If you can get in this mindset, you can rectify factors that may turn off strategic buyers and prevent any setbacks.

2. Paperwork

One of the first things a strategic buyer will want to see is your documents. It can take a while to get these in order, so it’s best to start gathering and organizing long before you put your business on the market.

Some of the paperwork you will need includes:

This list is by no means exhaustive. You’ll need to prepare much more before putting your business on the market. Once you find potential buyers, they may have requests for other types of documentation as well.

3. Are your employees depend on you?

Many business owners have trouble delegating tasks and wind up doing much of the work themselves. While no one knows your company the way you do, it’s important to make sure your staff can carry on with the majority of your business’s functions when you’re not there.

Here are some key tips on selling your wholesale distribution business.

If you are the only one who knows how to do a large part of the business, you may turn off buyers. Most wholesale distribution business buyers want a turnkey business, not an investment where they will have to spend hours training employees or taking over the bulk of the work. As an added benefit, by training your employees, you are ensuring that the business can function as you transition out.

4. Processes

Many distribution company owners have a system of running their business that is entirely in their heads. You know the ins and outs of your business and you are the one who keeps everything running. While this may work as long as you are with the company, a potential buyer will want to know what processes are in place.

Therefore, you need to create an operations manual for each of your processes. Work with your employees to develop this manual by getting everyone to detail exactly what they do. Potential buyers will be impressed with a company that’s ready to go as soon as the change of ownership happens, and your purchase price potential will be greater. As a bonus, if your employees are trained to do what you do, your business will carry on just fine, even if you have to be out for an extended period or if an employee leaves your company.

5. Get Everything Ready

If you have neglected cleaning and organizing your facility, it’s time to get it in order. Go over everything, from machinery to inventory to paperwork. Get rid of anything you do not need and clean up everything else. Paperwork should be organized, and the distribution warehouse floor should be clean. Depending on what products you wholesale and distribute, it may not be possible to get everything perfectly orderly, but make your best attempt (or hire someone to).

6. Check the Law

If your California wholesale distribution business isn’t following local and federal laws, most buyers will turn away immediately. Read up on the laws and go through every step of your process to ensure you are in compliance. Also, make sure that all relevant employees understand the law.

7. Accurate Records

Go through your records and make sure that everything is up to date and completely accurate. A buyer will certainly do their due diligence, and if it looks like you’re not completely truthful, they’ll head elsewhere.

Go through your records of profits and losses and make sure they line up with what’s stated on your tax return. If your records and tax returns do not match, do not try to fix this issue yourself. You will need a CPA to reconcile the two, and you will also need a reasonable explanation for why there was an incongruence in the first place.

8. Financial Obligations

A buyer does not want to have a company that has a multitude of unresolved financial transactions. Make sure everything is current when it comes to money because no buyer wants to take on a business with a lot of pre-existing obligations.

Simply put, if you have any accounts you have not paid, take care of them as quickly as possible. If clients owe you, work to get their accounts current. If you owe anything in taxes, make sure to pay. Also, check to see if your business has any liens in place. Your finances should be clear and ready to go when you hand over your business.

9. CPA

Once you’ve gathered and organized all of your financial documents, it’s necessary to review everything with your CPA. Your CPA can look over everything, make sure you’re current and tax-compliant, and advise you on any errors.

A CPA can also help you create records that show the true potential of your business. In most cases, the tax records of your business are set up to prevent paying a lot back in taxes. However, once it is time to put your business up for sale, you will want records to show your business’s potential for profits. It is important to let a CPA restructure these records instead of doing it yourself.

Additionally, you need to consider the taxes you will pay after the sale. A CPA can help you go over the terms and help you figure out how much profit you will have left after paying taxes. It is especially important to see how much you will actually get if you are retiring, as you’ll want to ensure you have enough to maintain your current quality of life.

10. Hire a Business Broker

The steps to creating an exit strategy and selling your wholesale distribution business are arduous and complicated. It can take you many hours to get everything in order. If you are still working full-time running your business, you simply may not have the time to do both.

If this situation applies to you, you may want to hire a California-certified broker. A broker knows exactly what to get your California wholesale distribution business ready for sale. They can guide you through each step of the process, help you avoid any errors, make your business more attractive to buyers, and ultimately help you get a better price.

You may be wondering how business brokers can help you with selling your wholesale distribution company. What is their role and what are you required to do? Below, we’ve detailed some of the top services your broker should provide.

Qualifying Buyers

Your buyers can come from many areas. Employees, individual and group investors, Private Equity Groups, and even competitors may be interested in purchasing your factory. If a competitor is interested, you do not want to reveal too much information about your company, especially anything that could be used against you if the deal falls through.

Once you decide to sell, get your business ready, and get help from a trusted and accredited business broker

A broker will vet buyers to make sure they’re legitimate and are serious about purchasing your business. A broker knows the ins and outs of selling a wholesale distribution business and can help you get your business in shape to get you the best deal.

A Broker or a Business Intermediary Should Manage All of the Activities:

The following steps include everything a broker should manage during the sale of your business. A broker will have a buying and selling business checklist that can guide you through the process.

Sell Plan

One of the first things your business broker does is to help you create an exit plan. A broker knows exactly how to plan a business exit In fact, you might get a broker to help you with a selling plan long before you are ready to sell your wholesale distribution business.

A broker is knowledgeable about how to calculate the value of a wholesale distribution company for sale and will aim to get the highest value for your distribution business. Once everything is ready to go, they’ll list your distribution business for sale.

After your business is listed, the broker will handle all the marketing of your company to promote the deal and get you in front of potential buyers. They’ll also set a buyer list and work with you to figure out who to go after for the best value.

Negotiation

Once a buyer is performing their own due diligence, the broker will help you navigate the process to make sure everything is running smoothly.

They’ll negotiate a Letter Of Intent between you and the buyer to lay out the proposed aspects of the deal. They will also help you gather all of the necessary paperwork discussed above. If the buyer asks for additional documentation, your business Intermediary can help you procure that.

As a buyer is going through the due diligence process, they’ll be on the lookout for red flags about your company.

An experienced broker is knowledgeable about these warning signs and can help you prevent them. Red flags may include refusing to disclose why you’re selling, not allowing time to conduct due diligence, refusal to introduce the buyer at the right time to suppliers, employees, and landlords, and more.

The broker will oversee the Definitive Purchase Agreement, making sure both parties are happy with the terms. A Definitive Purchase Agreement can protect both you and the buyer as it will clearly state exactly what is and is not being sold. It can also protect the buyer from certain liabilities. A Definitive Purchase Agreement can also help you deal with the legal complexities of selling a California wholesale distribution business.

Once the Definitive Purchase Agreement is finalized, the broker will help with any final details so the sale can prepare to close. They will then finalize the contract and make sure the terms are accurately represented, finance is in place and a closing escrow process is done.

Closing

Finally, your business broker will finalize the transaction in conjunction with an escrow company and other transaction professionals such as a business attorney, CPA, and more. Once escrow closes, they’ll oversee the transition of the business so the seller and buyer start the change of ownership on a positive note.