When a prospective buyer is making an effort to find out whether or not they’re going to buy a particular business for sale, there are a variety of buy business factors to carefully consider. When prospects arise, quite apart from the question of suitability, location and longevity, the issue of real-world business valuation is front and center. At this point, the seller will provide financial documentation – and it is, of course, very much in their best interests to present their business for sale in a “glowing” light. Therefore, the issue of “add backs” will in all likelihood represent one of the most difficult problems to deal with.

In most instances, add backs are included in an effort to present the business from a real world point of view. As a set of rigid principles must be adhered to when compiling traditional accounting reports, there may well be additional footnotes to consider and these can be either negative or positive depending on your perspective. When you’re thinking about buying a business, it’s crucial that you carefully scrutinize each and every add back, as they can often make a significant difference in your final valuation figure.

When conducting a process of due diligence, it can be a fairly straightforward procedure to check recorded sales and purchases against ledgers and against reconciled bank accounts. Very often however the outgoing owner will be keen to draw your attention to items which may be “one-off” or to additional income which may not necessarily appear on the books at all. Of course, it’s always prudent to remain open to all suggestions, but you should nevertheless maintain a certain degree of skepticism at all times, until such point as you’re able to validate – or invalidate, their claims.

Don’t forget that for an item to be claimed as a “one off,” it must not have occurred during any of the previous years. Seller could argue that a particular expense is much larger than it should be due to a particular incident or requirement, but if you see a pattern of any kind, then the add back must be discounted.

One of the most common add backs, especially when the business can be owner operated, is to suggest the value of a manager’s salary. You need to establish that the outgoing owner was not actively involved in the operation of the business in this case and this figure is only of interest to you if you intend to assume the role of the redundant manager.

Add backs may not be asserted whenever they represent intangibles, such as the prospect of additional revenues due to a new marketing initiative that the outgoing owner has just put in place, for example. Nor should you believe an owner claim that you can reduce a certain category of expenses through renegotiation or other initiatives. After all, if the outgoing owner has not being able to do so to this point it seems reasonable to assume that an incoming “newbie” is likely to have even less ability to affect short-term change in this regard.

Be particularly wary when you are told that a business retains a lot of cash sales. You must essentially discount this notion from a strict valuation perspective, even though such a claim made, after review, may be seen as reasonable. If the owner has not entered the cash sales on the books, he or she will not have accounted for taxes correctly and it’s not fair for them to expect to receive a double benefit in this way, a net tax saving and enhanced business value.

When you have reviewed the complete list of business financials, treat each claim for add back on an individual case basis and never roll them into an inflated value. At this stage you must be particularly diligent to enable you to arrive at a real world price for this prospect.

Richard Parker is the author of the How to Buy a Good Business at a Great Price series. As President and founder of Diomo Corporation – The Business Buyer Resource Center, his materials, seminars and consulting have helped thousands of business buyers realize their dream to buy a business.

When a prospective buyer is making an effort to find out whether or not they’re going to buy a particular business for sale, there are a variety of buy business factors to carefully consider. When a prospect appears, besides the usual points dealing with location, suitability and longevity, the question of an accurate real-world business valuation should always be your primary objective. The seller will present a series of financial documents and it is, of course, in their best interests to portray the business for sale in a shining light. As such, the issue of “add backs” is likely to represent one of the thorniest problems.

In most instances, add backs are included in an effort to present the business from a real world point of view. When compiling traditional accounting reports, it’s essential to adhere to a set of very rigid standards – there may also be additional footnotes to consider, and depending on your point of view, these can be either positive or negative. When you’re thinking about buying a business, it’s crucial that you carefully scrutinize each and every add back, as they can often make a significant difference in your final valuation figure.

When performing the process of due diligence, checking recorded sales and purchases against ledgers and reconciled bank accounts is usually a fairly straightforward task. Far more often than you might think however, the current owner will strive to draw your attention to points which may be “one-time” instances, or to extra income which might not actually appear anywhere in the books at all. You should be open to all suggestions of course but maintain a degree of skepticism at all times until you are able to validate the claims, or otherwise.

Remember that for an item to be claimed as “one time,” it must not have appeared during preceding years. Seller could argue that a particular expense is much larger than it should be due to a particular incident or requirement, but if you see a pattern of any kind, then the add back must be discounted.

One of the most common add backs, especially when the business can be owner operated, is to suggest the value of a manager’s salary. You need to establish that the outgoing owner was not actively involved in the operation of the business in this case and this figure is only of interest to you if you intend to assume the role of the redundant manager.

Add backs may not be asserted whenever they represent intangibles, such as the prospect of additional revenues due to a new marketing initiative that the outgoing owner has just put in place, for example. Nor should you believe an owner claim that you can reduce a certain category of expenses through renegotiation or other initiatives. After all, if the outgoing owner has not being able to do so to this point it seems reasonable to assume that an incoming “newbie” is likely to have even less ability to affect short-term change in this regard.

Be particularly wary when you are told that a business retains a lot of cash sales. You must essentially discount this notion from a strict valuation perspective, even though such a claim made, after review, may be seen as reasonable. If the owner has not entered the cash sales on the books, he or she will not have accounted for taxes correctly and it’s not fair for them to expect to receive a double benefit in this way, a net tax saving and enhanced business value.

When you have reviewed the complete list of business financials, treat each claim for add back on an individual case basis and never roll them into an inflated value. At this stage you must be particularly diligent to enable you to arrive at a real world price for this prospect.

Richard Parker is the President and founder of the prestigious Diomo Corporation – The Business Buyer Resource Center. His celebrated materials, seminars and consulting have encouraged thousands of aspiring business buyers from around the World to pursue their dream to buy a business.

When a prospective buyer is trying to establish whether he or she will purchase a particular business for sale, there are many buy business elements to take into consideration. When prospects arise, quite apart from the question of suitability, location and longevity, the issue of real-world business valuation is front and center. At this point, the seller will provide financial documentation – and it is, of course, very much in their best interests to present their business for sale in a “glowing” light. As such, the issue of “add backs” is likely to represent one of the thorniest problems.

In most instances, add backs are included in an effort to present the business from a real world point of view. As a set of rigid principles must be adhered to when compiling traditional accounting reports, there may well be additional footnotes to consider and these can be either negative or positive depending on your perspective. When you’re thinking about buying a business, it’s crucial that you carefully scrutinize each and every add back, as they can often make a significant difference in your final valuation figure.

When performing the process of due diligence, checking recorded sales and purchases against ledgers and reconciled bank accounts is usually a fairly straightforward task. Far more often than you might think however, the current owner will strive to draw your attention to points which may be “one-time” instances, or to extra income which might not actually appear anywhere in the books at all. Of course, it’s always prudent to remain open to all suggestions, but you should nevertheless maintain a certain degree of skepticism at all times, until such point as you’re able to validate – or invalidate, their claims.

Remember that for an item to be claimed as “one time,” it must not have appeared during preceding years. Seller could argue that a particular expense is much larger than it should be due to a particular incident or requirement, but if you see a pattern of any kind, then the add back must be discounted.

One of the most common add backs, especially when the business can be owner operated, is to suggest the value of a manager’s salary. You need to establish that the outgoing owner was not actively involved in the operation of the business in this case and this figure is only of interest to you if you intend to assume the role of the redundant manager.

Add backs may not be asserted whenever they represent intangibles, such as the prospect of additional revenues due to a new marketing initiative that the outgoing owner has just put in place, for example. Nor should you believe an owner claim that you can reduce a certain category of expenses through renegotiation or other initiatives. After all, if the outgoing owner has not being able to do so to this point it seems reasonable to assume that an incoming “newbie” is likely to have even less ability to affect short-term change in this regard.

Be particularly wary when you are told that a business retains a lot of cash sales. You must essentially discount this notion from a strict valuation perspective, even though such a claim made, after review, may be seen as reasonable. If the owner has not entered the cash sales on the books, he or she will not have accounted for taxes correctly and it’s not fair for them to expect to receive a double benefit in this way, a net tax saving and enhanced business value.

When you have reviewed the complete list of business financials, treat each claim for add back on an individual case basis and never roll them into an inflated value. At this stage you must be particularly diligent to enable you to arrive at a real world price for this prospect.

Richard Parker is the President and founder of the prestigious Diomo Corporation – The Business Buyer Resource Center. His celebrated materials, seminars and consulting have encouraged thousands of aspiring business buyers from around the World to pursue their dream to buy a business.

When it comes to a business for sale, buying a wholesale distribution business requires a complete understanding of the associated industry, the methods required to make this particular business “tick” and an understanding of the main income drivers. Such an entity is very different to a traditional service business and can be far more complicated than it may seem from the outset. To sum it up, with this kind of business, it’s far more than simply a question of finding a rhythm and maintaining a continuous volume of repetition.

There are a variety of considerations to keep in mind, as in most cases, a fairly complex system of individual parts must be well established to ensure that this kind of operation functions smoothly. As a buyer you must understand that these businesses often operate on very thin margins and rely on a number of logistical elements to even function, let alone turn a profit. Your due diligence will require you to analyze each of these individually and ensure that they will not only continue to function post sale, but will allow you to post realistic goals for expansion.

A wholesale business for sale can be seen as a “middleman” operation and you will need to be particularly aware of your suppliers. Make sure that you meet with them all prior to making any decisions and try to read between the lines to ensure that there is no kind of perceived loyalty to the outgoing owner, which may be under threat after the deal is closed. Look for long-term contracts, which should be of course transferable, or get a really good feel for the terms and conditions of renewal otherwise.

In a very competitive environment, if this prospect has any kind of exclusivity this could be a definite bonus. Try and analyze the entire market and see where you could sell additional products or services through the established distribution channel already in place.

Also, common issues are customer concentration problems whereby a few clients may represent a disproportionate volume of the revenue. Protect yourself with performance based deal terms.

As mentioned, wholesale businesses generally operate on thin margins. Due to this setup, financial arrangements and agreements are of primary importance. Review whatever kind of working capital needs you will require and be especially critical of cash flow analysis. How many days of grace do your suppliers afford you and what are the payment histories of your principal clients?

As with any business for sale, make sure that the assets purchased have a realistic value. Generally speaking, you may expect to inherit a fairly large inventory and you should get an independent valuation to ensure that this stock is not outdated and is saleable at the values claimed in the short run. Likewise, when you purchase wholesale distribution business assets, they must be fairly valued, especially with regard to transportation. The distribution fleet should not be in need of potentially costly repairs or replacement.

If the entire operation is housed within leased premises, one of your first ports of call should be the rental or leasing company. Whether we like it or not, the property owner or management company can have a significant say over the business transfer process and you must be happy that you can attain a solid, long-term lease within your financial parameters.

As a final buy business tip, always be wary if the business owner, as an individual or in concert with other partners such as family members, has a particularly visible “face.” Sometimes an entire business can be driven by personalities or the crafty marketing skills of the owner or his advisors. These may not be transferable assets!

Richard Parker is the President and founder of the Diomo Corporation – The Business Buyer Resource Center. His inspiring materials, seminars and consulting have assisted thousands of business buyers with achieving their life long dream to buy a business.

When a prospective buyer is making an effort to find out whether or not they’re going to buy a particular business for sale, there are a variety of buy business factors to carefully consider. When a prospect appears, besides the usual points dealing with location, suitability and longevity, the question of an accurate real-world business valuation should always be your primary objective. At this point, the seller will provide financial documentation – and it is, of course, very much in their best interests to present their business for sale in a “glowing” light. Therefore, the issue of “add backs” will in all likelihood represent one of the most difficult problems to deal with.

In a majority of cases, add backs are included to try and present the operation from a real world perspective. As a set of rigid principles must be adhered to when compiling traditional accounting reports, there may well be additional footnotes to consider and these can be either negative or positive depending on your perspective. When you’re thinking about buying a business, it’s crucial that you carefully scrutinize each and every add back, as they can often make a significant difference in your final valuation figure.

When conducting a process of due diligence, it can be a fairly straightforward procedure to check recorded sales and purchases against ledgers and against reconciled bank accounts. Far more often than you might think however, the current owner will strive to draw your attention to points which may be “one-time” instances, or to extra income which might not actually appear anywhere in the books at all. Of course, it’s always prudent to remain open to all suggestions, but you should nevertheless maintain a certain degree of skepticism at all times, until such point as you’re able to validate – or invalidate, their claims.

Don’t forget that for an item to be claimed as a “one off,” it must not have occurred during any of the previous years. Seller could argue that a particular expense is much larger than it should be due to a particular incident or requirement, but if you see a pattern of any kind, then the add back must be discounted.

One of the most common add backs, especially when the business can be owner operated, is to suggest the value of a manager’s salary. You need to establish that the outgoing owner was not actively involved in the operation of the business in this case and this figure is only of interest to you if you intend to assume the role of the redundant manager.

Add backs may not be asserted whenever they represent intangibles, such as the prospect of additional revenues due to a new marketing initiative that the outgoing owner has just put in place, for example. Nor should you believe an owner claim that you can reduce a certain category of expenses through renegotiation or other initiatives. After all, if the outgoing owner has not being able to do so to this point it seems reasonable to assume that an incoming “newbie” is likely to have even less ability to affect short-term change in this regard.

Be particularly wary when you are told that a business retains a lot of cash sales. You must essentially discount this notion from a strict valuation perspective, even though such a claim made, after review, may be seen as reasonable. If the owner has not entered the cash sales on the books, he or she will not have accounted for taxes correctly and it’s not fair for them to expect to receive a double benefit in this way, a net tax saving and enhanced business value.

When you have reviewed the complete list of business financials, treat each claim for add back on an individual case basis and never roll them into an inflated value. At this stage you must be particularly diligent to enable you to arrive at a real world price for this prospect.

Richard Parker is the President and founder of the prestigious Diomo Corporation – The Business Buyer Resource Center. His celebrated materials, seminars and consulting have encouraged thousands of aspiring business buyers from around the World to pursue their dream to buy a business.

When a prospective buyer is making an effort to find out whether or not they’re going to buy a particular business for sale, there are a variety of buy business factors to carefully consider. When prospects arise, quite apart from the question of suitability, location and longevity, the issue of real-world business valuation is front and center. At this point, the seller will provide financial documentation – and it is, of course, very much in their best interests to present their business for sale in a “glowing” light. As such, the issue of “add backs” is likely to represent one of the thorniest problems.

In a majority of cases, add backs are included to try and present the operation from a real world perspective. As a set of rigid principles must be adhered to when compiling traditional accounting reports, there may well be additional footnotes to consider and these can be either negative or positive depending on your perspective. It is very important when you buy a business to scrutinize each add back as they can often make a considerable difference to your valuation.

When performing the process of due diligence, checking recorded sales and purchases against ledgers and reconciled bank accounts is usually a fairly straightforward task. Far more often than you might think however, the current owner will strive to draw your attention to points which may be “one-time” instances, or to extra income which might not actually appear anywhere in the books at all. You should be open to all suggestions of course but maintain a degree of skepticism at all times until you are able to validate the claims, or otherwise.

Remember that for an item to be claimed as “one time,” it must not have appeared during preceding years. Seller could argue that a particular expense is much larger than it should be due to a particular incident or requirement, but if you see a pattern of any kind, then the add back must be discounted.

One of the most common add backs, especially when the business can be owner operated, is to suggest the value of a manager’s salary. You need to establish that the outgoing owner was not actively involved in the operation of the business in this case and this figure is only of interest to you if you intend to assume the role of the redundant manager.

Add backs may not be asserted whenever they represent intangibles, such as the prospect of additional revenues due to a new marketing initiative that the outgoing owner has just put in place, for example. Nor should you believe an owner claim that you can reduce a certain category of expenses through renegotiation or other initiatives. After all, if the outgoing owner has not being able to do so to this point it seems reasonable to assume that an incoming “newbie” is likely to have even less ability to affect short-term change in this regard.

Be particularly wary when you are told that a business retains a lot of cash sales. You must essentially discount this notion from a strict valuation perspective, even though such a claim made, after review, may be seen as reasonable. If the owner has not entered the cash sales on the books, he or she will not have accounted for taxes correctly and it’s not fair for them to expect to receive a double benefit in this way, a net tax saving and enhanced business value.

When you have reviewed the complete list of business financials, treat each claim for add back on an individual case basis and never roll them into an inflated value. At this stage you must be particularly diligent to enable you to arrive at a real world price for this prospect.

Richard Parker is the President and founder of the Diomo Corporation – The Business Buyer Resource Center. His inspiring materials, seminars and consulting have assisted thousands of business buyers with achieving their life long dream to buy a business.

When considering a business for sale, purchasing a wholesale distribution company requires a comprehensive understanding of the industry, the processes required to keep this particular kind of business “ticking over” and a detailed knowledge of the primary income drivers. Such an enterprise is quite a bit different from any standard service business, and it can often be a great deal more complicated than it initially seems. To sum it up, with this kind of business, it’s far more than simply a question of finding a rhythm and maintaining a continuous volume of repetition.

There are a variety of considerations to keep in mind, as in most cases, a fairly complex system of individual parts must be well established to ensure that this kind of operation functions smoothly. As a buyer you must understand that these businesses often operate on very thin margins and rely on a number of logistical elements to even function, let alone turn a profit. Your due diligence will require you to analyze each of these individually and ensure that they will not only continue to function post sale, but will allow you to post realistic goals for expansion.

For simplicity sake, a wholesale distribution business for sale can be viewed as a “middleman” enterprise, and when running such an entity, it’s essential that you pay particularly attention to your suppliers. Always make a point of meeting with them – all of them, prior to making any major decisions, and make an effort to read between the lines to find out if there’s any kind of loyalty to the outgoing owner, which might place some of your business relationships in jeopardy after the deal is finalized. Look for long-term contracts, which should be of course transferable, or get a really good feel for the terms and conditions of renewal otherwise.

In a very competitive environment, if this prospect has any kind of exclusivity this could be a definite bonus. Try and analyze the entire market and see where you could sell additional products or services through the established distribution channel already in place.

Also, common issues are customer concentration problems whereby a few clients may represent a disproportionate volume of the revenue. Protect yourself with performance based deal terms.

As mentioned, wholesale businesses generally operate on thin margins. Due to this setup, financial arrangements and agreements are of primary importance. Review whatever kind of working capital needs you will require and be especially critical of cash flow analysis. How many days of grace do your suppliers afford you and what are the payment histories of your principal clients?

As with any business for sale, make sure that the assets purchased have a realistic value. Generally speaking, you may expect to inherit a fairly large inventory and you should get an independent valuation to ensure that this stock is not outdated and is saleable at the values claimed in the short run. Likewise, when you purchase wholesale distribution business assets, they must be fairly valued, especially with regard to transportation. The distribution fleet should not be in need of potentially costly repairs or replacement.

If the entire operation is housed within leased premises, one of your first ports of call should be the rental or leasing company. Whether we like it or not, the property owner or management company can have a significant say over the business transfer process and you must be happy that you can attain a solid, long-term lease within your financial parameters.

As a final buy business tip, always be wary if the business owner, as an individual or in concert with other partners such as family members, has a particularly visible “face.” Sometimes an entire business can be driven by personalities or the crafty marketing skills of the owner or his advisors. These may not be transferable assets!

Richard Parker is the President and founder of the Diomo Corporation – The Business Buyer Resource Center. His inspiring materials, seminars and consulting have assisted thousands of business buyers with achieving their life long dream to buy a business.

When a prospective buyer is trying to establish whether he or she will purchase a particular business for sale, there are many buy business elements to take into consideration. When prospects arise, quite apart from the question of suitability, location and longevity, the issue of real-world business valuation is front and center. The seller will present a series of financial documents and it is, of course, in their best interests to portray the business for sale in a shining light. As such, the issue of “add backs” is likely to represent one of the thorniest problems.

In a majority of cases, add backs are included to try and present the operation from a real world perspective. As a set of rigid principles must be adhered to when compiling traditional accounting reports, there may well be additional footnotes to consider and these can be either negative or positive depending on your perspective. When you’re thinking about buying a business, it’s crucial that you carefully scrutinize each and every add back, as they can often make a significant difference in your final valuation figure.

When performing the process of due diligence, checking recorded sales and purchases against ledgers and reconciled bank accounts is usually a fairly straightforward task. Far more often than you might think however, the current owner will strive to draw your attention to points which may be “one-time” instances, or to extra income which might not actually appear anywhere in the books at all. You should be open to all suggestions of course but maintain a degree of skepticism at all times until you are able to validate the claims, or otherwise.

Don’t forget that for an item to be claimed as a “one off,” it must not have occurred during any of the previous years. Seller could argue that a particular expense is much larger than it should be due to a particular incident or requirement, but if you see a pattern of any kind, then the add back must be discounted.

One of the most common add backs, especially when the business can be owner operated, is to suggest the value of a manager’s salary. You need to establish that the outgoing owner was not actively involved in the operation of the business in this case and this figure is only of interest to you if you intend to assume the role of the redundant manager.

Add backs may not be asserted whenever they represent intangibles, such as the prospect of additional revenues due to a new marketing initiative that the outgoing owner has just put in place, for example. Nor should you believe an owner claim that you can reduce a certain category of expenses through renegotiation or other initiatives. After all, if the outgoing owner has not being able to do so to this point it seems reasonable to assume that an incoming “newbie” is likely to have even less ability to affect short-term change in this regard.

Be particularly wary when you are told that a business retains a lot of cash sales. You must essentially discount this notion from a strict valuation perspective, even though such a claim made, after review, may be seen as reasonable. If the owner has not entered the cash sales on the books, he or she will not have accounted for taxes correctly and it’s not fair for them to expect to receive a double benefit in this way, a net tax saving and enhanced business value.

When you have reviewed the complete list of business financials, treat each claim for add back on an individual case basis and never roll them into an inflated value. At this stage you must be particularly diligent to enable you to arrive at a real world price for this prospect.

Richard Parker is the President and founder of the Diomo Corporation – The Business Buyer Resource Center. His inspiring materials, seminars and consulting have assisted thousands of business buyers with achieving their life long dream to buy a business.

When a prospective buyer is trying to establish whether he or she will purchase a particular business for sale, there are many buy business elements to take into consideration. When prospects arise, quite apart from the question of suitability, location and longevity, the issue of real-world business valuation is front and center. The seller will present a series of financial documents and it is, of course, in their best interests to portray the business for sale in a shining light. Therefore, the issue of “add backs” will in all likelihood represent one of the most difficult problems to deal with.

In a majority of cases, add backs are included to try and present the operation from a real world perspective. As a set of rigid principles must be adhered to when compiling traditional accounting reports, there may well be additional footnotes to consider and these can be either negative or positive depending on your perspective. It is very important when you buy a business to scrutinize each add back as they can often make a considerable difference to your valuation.

When conducting a process of due diligence, it can be a fairly straightforward procedure to check recorded sales and purchases against ledgers and against reconciled bank accounts. Very often however the outgoing owner will be keen to draw your attention to items which may be “one-off” or to additional income which may not necessarily appear on the books at all. Of course, it’s always prudent to remain open to all suggestions, but you should nevertheless maintain a certain degree of skepticism at all times, until such point as you’re able to validate – or invalidate, their claims.

Remember that for an item to be claimed as “one time,” it must not have appeared during preceding years. Seller could argue that a particular expense is much larger than it should be due to a particular incident or requirement, but if you see a pattern of any kind, then the add back must be discounted.

One of the most common add backs, especially when the business can be owner operated, is to suggest the value of a manager’s salary. You need to establish that the outgoing owner was not actively involved in the operation of the business in this case and this figure is only of interest to you if you intend to assume the role of the redundant manager.

Add backs may not be asserted whenever they represent intangibles, such as the prospect of additional revenues due to a new marketing initiative that the outgoing owner has just put in place, for example. Nor should you believe an owner claim that you can reduce a certain category of expenses through renegotiation or other initiatives. After all, if the outgoing owner has not being able to do so to this point it seems reasonable to assume that an incoming “newbie” is likely to have even less ability to affect short-term change in this regard.

Be particularly wary when you are told that a business retains a lot of cash sales. You must essentially discount this notion from a strict valuation perspective, even though such a claim made, after review, may be seen as reasonable. If the owner has not entered the cash sales on the books, he or she will not have accounted for taxes correctly and it’s not fair for them to expect to receive a double benefit in this way, a net tax saving and enhanced business value.

When you have reviewed the complete list of business financials, treat each claim for add back on an individual case basis and never roll them into an inflated value. At this stage you must be particularly diligent to enable you to arrive at a real world price for this prospect.

Richard Parker is the President and founder of the prestigious Diomo Corporation – The Business Buyer Resource Center. His celebrated materials, seminars and consulting have encouraged thousands of aspiring business buyers from around the World to pursue their dream to buy a business.

When it comes to a business for sale, buying a wholesale distribution business requires a complete understanding of the associated industry, the methods required to make this particular business “tick” and an understanding of the main income drivers. Such an entity is very different to a traditional service business and can be far more complicated than it may seem from the outset. In short, it is far more than a question of establishing a volume of repetition.

There are many considerations, as often a complex matrix of individual elements must be in place to ensure that this type of distribution company functions correctly. As a buyer you must understand that these businesses often operate on very thin margins and rely on a number of logistical elements to even function, let alone turn a profit. Your due diligence will require you to analyze each of these individually and ensure that they will not only continue to function post sale, but will allow you to post realistic goals for expansion.

A wholesale business for sale can be seen as a “middleman” operation and you will need to be particularly aware of your suppliers. Make sure that you meet with them all prior to making any decisions and try to read between the lines to ensure that there is no kind of perceived loyalty to the outgoing owner, which may be under threat after the deal is closed. Look for long-term contracts, which should be of course transferable, or get a really good feel for the terms and conditions of renewal otherwise.

In a very competitive environment, if this prospect has any kind of exclusivity this could be a definite bonus. Try and analyze the entire market and see where you could sell additional products or services through the established distribution channel already in place.

Also, common issues are customer concentration problems whereby a few clients may represent a disproportionate volume of the revenue. Protect yourself with performance based deal terms.

As mentioned, wholesale businesses generally operate on thin margins. Due to this setup, financial arrangements and agreements are of primary importance. Review whatever kind of working capital needs you will require and be especially critical of cash flow analysis. How many days of grace do your suppliers afford you and what are the payment histories of your principal clients?

As with any business for sale, make sure that the assets purchased have a realistic value. Generally speaking, you may expect to inherit a fairly large inventory and you should get an independent valuation to ensure that this stock is not outdated and is saleable at the values claimed in the short run. Likewise, when you purchase wholesale distribution business assets, they must be fairly valued, especially with regard to transportation. The distribution fleet should not be in need of potentially costly repairs or replacement.

If the entire operation is housed within leased premises, one of your first ports of call should be the rental or leasing company. Whether we like it or not, the property owner or management company can have a significant say over the business transfer process and you must be happy that you can attain a solid, long-term lease within your financial parameters.

As a final buy business tip, always be wary if the business owner, as an individual or in concert with other partners such as family members, has a particularly visible “face.” Sometimes an entire business can be driven by personalities or the crafty marketing skills of the owner or his advisors. These may not be transferable assets!

Richard Parker is the President and founder of the Diomo Corporation – The Business Buyer Resource Center. His inspiring materials, seminars and consulting have assisted thousands of business buyers with achieving their life long dream to buy a business.