NJ Broker Plus has extensive experience in selling businesses within the distribution industry. We have put together some tips to help you sell your distribution business.
If you have strong vendor relationships, your business will have a higher value. There is a lot of competition in the distribution industry so your vendors are integral to your business’s success and value.
When you are preparing to sell your business, we will help you take a close look at your vendors. If we see any gaps, we will give you advice on how to fill them. One of the best ways is to show your vendors that you are a critical partner to the supplier. Once you have positioned yourself as a valuable partner to the vendor, and your company will be rewarded before and after a sale.
Companies should understand who the ultimate customer is and customer churn rates. Long-term relationships with consistently growing buying patterns will be much more valuable than customers who purchase once or sporadically. Some distributors may also sell to other distributors who do not have access to a vendor or product line. While you may not want to say no to potential revenue, these sales are less valuable to potential buyers since the relationships are transactional. In the years leading up to a sale, work to minimize revenue from other distributors and other transactional buyers while broadening your base of long-term customers.
It is important that you are able to demonstrate how your company can retain and grow your customer base. Focus on the depth of the relationships and communicate how specific relationships are handled. If possible, try to minimize customer concentration before selling.
In the distribution market, it is important to create extra value for your customers. Acquirers are willing to pay a premium for value-added services because they reduce the likelihood of higher customer retention. Sellers should work to clearly define their value proposition and understand what sets them apart from their competition.
Here are some examples of value-added services you can implement:
- Product kitting
- Vendor Managed Inventory (VMI)
- Same-day or next-day delivery
- Quality Inspection
- Training and education
- Light fabrication
Warehouse/Inventory Management Systems
A warehouse/inventor management system is integral in analyzing and optimizing key metrics, including:
- Inventory turnover
- Average days to sell
- Obsolete inventory carrying costs
- Write-off costs
- Order fulfillment rates
- Number of backorders
- Total demand by product
Investing in a solid system that meets the needs of your business today and in the future. Understanding inventory and order fulfillment is critical for any distributor. Without information, you can invest in too much or too little inventory. Both lead to poor results for the company. Below is a partial list of items that a potential buyer will want to understand.
- Stocking of received goods
- Order selection
- Cycle counts/inventory audits
- Any movement of inventory
Plan For Growth
We will help you assess your business and its ability to grow. It is important to make sure that existing facilities have available capacity to grow but also that any vendor contracts or agreements in place do not have restricted sales territories. Most importantly, you need to be able to communicate your plan for growth. Key questions to ask yourself include:
- What new end markets should my company address?
- What can we do to expand our online presence and increase revenue?
- Are there additional salespeople we should hire?
- Are there new territories we should enter?
- Will a capital investment in new systems or warehouse space help increase revenue?
Learn more about the distribution industry trends you should be aware of when selling your business.
Contact us today. We can help guide you in selling your distribution business.