Selling a Wholesale Distribution Business

Selling a wholesale distribution business is much more complicated than selling a regular business, in no small part because it often indicates you are ready to retire or move into another venture.

Before you sell, you need to be sure that action will support your next move – and a business broker can help make sure you’ve made the right decision.

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Selling a wholesale distribution Business

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Promise of Confidentiality

As a business broker specializing in the sale of wholesale distribution companies, one of the questions most often asked by potential clients is how my firm can maintain confidentiality while selling a business and what security procedures we have in place to protect our clients.

Highest Selling Value

With an incredible number of wholesale distribution companies exiting business ownership for retirement, it’s imperative that sellers make their businesses stand out from others on the market. In this article, we’ll discuss how to get the best price for your wholesale distribution company.

Am I Ready to Sell?

What is your motivation for selling? Selling a wholesale distribution business requires significant time, effort, and emotional commitment. Ask yourself, “Am I positive I want to sell or am I just thinking about the idea?” Does your spouse support selling now?

Do I Need to Pay Tax on the Sale?

A Structured Sale enables the seller to defer up to 100% of sale year taxes. Taxes can be deferred for a few months up to several years. A Structured Sale can give the Seller or the owner of the wholesale distribution business a lot of flexibility in managing tax payment options

Questions?

If you have questions or would like more information about a specific wholesale distribution business sector, call us today at (916) 570-2674 or click the link below to get started.

Are you 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:

  • Tax returns and financial statements from at least the past three years
  • Different markets you serve in your business and the portions of your income that come from each market
  • A list of your ten highest volume customers and the amount you make from each
  • A list of aging accounts receivable and payable
  • A list of all the equipment in your facility, with year, make, model and serial number, and other details on each
  • An inventory list
  • Detailed information about employees (you won’t distribute this information during the initial stages of selling)

 

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 manufacturing 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.

Types of Wholesale Distribution Businesses

There are many California wholesale distribution businesses for sale.

The wholesale distribution industry is an extensive and diverse market, offering many different product lines. Before you sell your company, it’s important to understand trends in wholesale distribution and how you fit into the industry. 

Below is a comprehensive list of wholesale distribution companies:

1. Oil and Gas Products

The oil and gas industry is a large and thriving industry that includes the lower middle market, etc., and could benefit from lower middle market M&A Brokers. It’s composed of companies that move these energy sources.

2. Grocery and Foodservice

A large portion of grocery and food services is wholesale distribution. Warehouse clubs and superstores makeup 23% of the US grocery market and could easily benefit from middle-market M&A Brokers and lower middle-market M&A.

3. Pharmaceutical 

Pharmaceutical wholesale distributors deliver quality products to both clients and customers, serving as the go-between among facilities like hospitals and their patients. 

4. Industrial

The industrial industry covers both industrial supply wholesalers and industrial equipment wholesalers – both of which can be sold for a hefty profit in the right market.

5. Electrical and Electronics

The electrical industry is always booming – especially since technology is constantly evolving. A wholesale technology distributor may be considered valuable at the time of sale with the help of a good M&A Broker.

6. Motor Vehicles and Motor Vehicle Parts

Most of us know these businesses as dealers or used car dealerships. This business can be tricky to sell, as they involve some type of wholesale motor vehicle license. 

7. Miscellaneous Durable Goods

Miscellaneous durable goods distributors can include a wide range of products but most frequently involves consumer electronics like TVs and PCs along with luggage and sporting goods.

8. Agricultural Products

A wholesale agricultural distributor will sell and market various types of agricultural supplies and equipment to businesses and organizations – most often, farms and farmers.

9. Consumer Products

Consumer products can cover a wide range of wholesale distribution items, but these CPG companies all package their goods in some shape or form. 

10. Computer Equipment and Software

Computer equipment and software distributors deal with a lot of technical products, large and very small. A packaging distribution business for sale like these may find it easier to maintain organization with the help of a professional.

11. Commercial Equipment and Supplies

Commercial equipment and supplies most often relate to the restaurant industry. A wholesaler of this type can create a network of restaurants to distribute their products to.

12. Metal Service Centers

A metal service center deals with a lot of stocking and inventory, which can equal a lot of paperwork when it comes time to sell. Selling and producing metal products as a lower middle market business often has perks over larger manufacturers.

13. Apparel and Piece Goods

An apparel wholesale business owner who says, “I want to sell my business” might approach an M&A advisor – even if they are an online distribution business.

14. Chemicals and Plastics 

Any chemical distribution company for sale is going to run into a lot of red tape concerning licenses, training, etc. Any M&A Broker can help with any owner wondering, “how do I sell my business privately?”

15. Office Products and Paper

Every business needs office products and paper, so a wholesaler of these products has a great market to work with.

16. Hardware Plumbing and Heating Equipment and Supplies

Things like hardware, plumbing, and heating will never go out of style because people need these businesses to survive. Selling this wholesale business could greatly benefit business owners, as well as those buying a distribution business.

17. Furniture and Home Furnishings 

Likewise, home furnishings are items that every homeowner purchases. You can contact a broker to help you get the most out of a wholesaler distributing furniture, etc. 

Each of the above represents a niche within the market. For example, putting a medical wholesale distribution business for sale may look different than selling beer, wine, and liquor. A pharmaceutical wholesale business for sale will look a lot different than a liquor wholesale business for sale. 

Knowing your niche in the market as well as wholesale distribution industry trends can help bolster overall success. 

Wholesale and distribution companies also come in different forms:

  • Merchant Wholesalers
  • Full-Service Wholesalers/Retail Wholesalers
  • Limited Service Wholesalers
  • Brokers and Agents
  • Branches and Mini Offices
  • Specialized Wholesalers 

Again – knowing where your business falls in among these categories can help you coordinate your buying and selling checklist, along with knowing the wholesale distribution market size. 

What is the Role of a Certified Business Brokers in Selling My Wholesale Distribution Business?

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 manufacturing 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. They’ll help you through the closing process. Once the closing is complete, they’ll oversee the transition of the business so the seller and buyer are satisfied with the transaction.

Ready to start?

Get in touch today for a free consult; let’s talk about your desires to sell, and how we can best help make it an easy, profitable process for you.

Alternatively, call me today at (916) 570-2674 or click this link for me to contact you.

Certified Machinery and Equipment Appraiser

Andrew Rogerson; Sacramento, CA

is a business expert of 35+ years, a 5-time successful business owner, Certified Mergers & Acquisition Professional (CM&AP), Mergers & Acquisition Master Intermediary (M&AMI), Certified Business Broker (CBB), author of 4 books, and he gives speaking presentations on request.

Andrew helps business owners with a business in California, plan and execute buying or selling a business, and consults with business owners on how to make their ventures stronger so they increase in value.

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    Carmichael, CA, 95608-5788

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    EMAIL

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    Buying or selling a business is a complex process – and you shouldn’t go through it alone. You need an experienced business broker to guide you through the process.

    We make buying and selling businesses simple and straightforward. We’re qualified to handle the most complicated aspects on behalf of our clients, ensuring you walk away satisfied.