Buying a Distribution Business
You have decided to buy a business, but what type suits you?
There are 4 main types:
· Manufacturing
· Distribution
· Retail
· Services
Each has its own unique characteristics that may or may not suit your skills
and strengths. In this article we look at distribution.
Distributors - middlemen (or women) operating between the manufacturer and
the retailer, this usually covers activities such as importing and
wholesaling. More recent trends have seen many local manufactures dealing
direct with retailers. Obviously overseas manufactures have greater
difficulty getting their product to our markets, therefore the opportunity
continues. If you like to get about, enjoy doing deals, and don't like the
responsibility of lots of staff, then this maybe you. Success in this area
comes from having good buying and selling contracts.
Formal supplier contracts may or may-not exist. Some distributors operate on
historical relationships, while others written contracts. You will need to
check-out the ongoing nature of all agreements, and gauge how a change of
ownership may impact upon the business. Use your lawyer, and meet with key
suppliers.
You will need to manage contracts and trading risks. How are you at
negotiating, managing deals, and keeping contact with customers and
suppliers? Distribution businesses are much less staff intense than
manufacturing, have a better cashflows, and usually involve some travel to
keep in-touch with customers and suppliers. It is likely you will need to
purchase and manage a reasonable amount of stock to cover product ranges and
delivery contingencies. This often means you need a certain amount of cash
up-front on purchase day.
Consider the following;
(1) Can you sell this product? Is it something you
feel comfortable selling, have some knowledge about.
(2) Do you understand the market and who your main competitors will be?
(3) How loyal are existing customers, are there any sales agreements in place?
(4) Can you manage the cash and credit terms? You may need to pay up-front to have the product
made, wait 3 months to make the delivery, with the customer taking a further
2 months to pay. Is there an opportunity to negotiate more favourable terms
here?
(5) Check out the stock, is it all needed? Or is some of it out of
date?
(6) Are there suitable supply contracts in place? You may wish to make
part of the payment contingent on continued sales to key parties. Also
(7) have the owner agree to assist in transferring the relationships to you.
Richard O'Brien (nzbizbuysell.co)
When purchasing any business always seek professional advice.
For further details, visit www.nzbizbuysell.co.nz
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