Selling a Wholesale Distribution Business

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

Here are 12 steps to help you learn how to sell a distribution company and 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.

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 adopt this mindset, you can rectify factors that may turn off strategic buyers and prevent setbacks.

2.  Paperwork

One of the first things a strategic Buyer will want to see is your documents.  Getting these in order can take time, so it’s best to start gathering and organizing them 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 more before putting your business on the market.  Once you find potential buyers, they may also request other types of documentation.

3.  Are your employees dependent on you?

Many business owners have trouble delegating tasks and do much of the work themselves.  While no one knows your company better than you do, it is essential to ensure your staff can continue with most of your business’s functions when you are not there.

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

If you know only how to do a large part of the business, you may turn off buyers.  Most wholesale distribution buyers want a turnkey business, not an investment in which they will spend hours training employees or taking over the bulk of the work.  Training your employees ensures that the business can function as you transition out.

4.  Processes

Many distribution company owners have a business system 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 process.  Please work with your employees to develop this manual by getting everyone to detail what they do.  Potential buyers will be impressed with a company ready to go as soon as the change of ownership happens, and your purchase price potential will be higher.  As a bonus, if you train your employees to do what you do, your business will do 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.  Organize paperwork, 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 ensure everything is up-to-date and completely accurate.  A Buyer will undoubtedly do their due diligence, and if it looks like you’re not entirely truthful, they’ll head elsewhere.

Go through your profit and loss statements and ensure they align with what’s 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 a company with many unresolved financial transactions.  Make sure everything regarding money is current, as no Buyer wants to take on a business with many pre-existing obligations.

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.  When you hand over your business, your finances should be clean and ready.

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 wonder how business brokers can help you sell 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 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 if the deal falls through.

Once you decide to sell, prepare your business and seek help from a trusted and accredited Business Broker.

A broker will vet buyers to ensure they’re legitimate and serious about purchasing your business.  A broker knows the ins and outs of selling a wholesale distribution business and can help you prepare your business and get 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 to guide all parties.

Sell Plan

One of the first things your Business Broker does is help you create an exit plan.  A broker knows precisely how to plan a business exit.  You might hire a broker to help you with a selling plan long before you sell your wholesale distribution business.

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

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

Negotiation

Once a Buyer performs their due diligence, the broker will help you navigate the process to ensure everything runs smoothly.

They’ll negotiate a Letter Of Intent between you and the Buyer outlining 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 it.

As buyers go through the due diligence process, they’ll look for red flags about your company.

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

The broker will oversee the Definitive Purchase Agreement, ensuring both parties are happy with the terms.  A Definitive Purchase Agreement can protect you and the Buyer as it will clearly state 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 ready, the broker will help with any final details so the sale can prepare to close.  They will then finalize the contract and ensure the terms accurately represent both parties’ requirements.  Finance will be in place, and a closing escrow process will be ready to complete.

Closing

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