How do I tell what a distributor’s owner actually takes home?

A distributor’s statements can look steady while the owner’s real earnings swing underneath. The business buys and resells goods, so timing and inventory matter a great deal. The aim here is to see earnings clearly, not to say what the business is worth. A valuation is a separate job. Your accountant can help you restate the numbers the same way for each year.

Rebates and volume incentives

Suppliers often pay rebates for hitting purchase targets, and these may arrive in one lump at year end. Ask when each rebate was earned and when it was booked. A large payment landing in one year can flatter that year and hide a weaker run rate. Also ask whether targets could change under a new owner.

Inventory and freight

Slow stock may sit on the books at full cost until someone writes it down, and shrink can be absorbed quietly. Ask for an aged inventory report and a record of past write-offs. Then look at freight. If the business covers delivery costs for its largest customers, check where that cost appears and whether the customers would keep paying it.

The owner’s own costs and time

Look for personal vehicles, family members on payroll and expenses that exist only because of the owner. Add back what is truly personal, and remove pay that matches no real job. Then consider the owner’s selling time. If the owner holds the key accounts, you would need to pay someone to do that work.

• Rebate agreements and the dates they were booked.
• Aged inventory and past write-downs.
• Freight absorbed for each large customer.
• A list of personal and family costs.

For the wider checklist, see what to check before buying a wholesale distribution business.