How can I tell if a food distributor is profitable before I buy it?

A food distributor can show healthy sales and still earn little. Margins are thin per case, and costs build up in the trucks, the cooler and the accounts that pay slowly. A single profit line hides all of that. Instead, break the business into parts and see which ones carry it. For how owner pay and one-off costs are adjusted, see how to tell what a distributor owner actually takes home.

Margin by customer and product line

Ask for sales and cost of goods broken down by customer type, such as restaurants, grocers and institutions, and by product line. Some lines bring volume and little else, while others carry the profit. Ask which customers get special pricing or free delivery. If a few accounts or lines produce most of the margin, find out how secure they are before relying on the overall result.

Spoilage, shrink and write-offs

Fresh and chilled goods lose value the longer they sit. Ask how the business records spoiled, damaged and short-dated stock, and whether those losses appear in the statements or are quietly buried in cost of goods. Compare the inventory count to the books. Ask how often counts are done and who does them, and how the seller handles products near their date.

• Sales and margin by customer type and product line
• Spoilage and write-off records for several years
• Route sheets with stops per truck
• An aged list of amounts customers owe

Delivery cost and route density

Each stop costs driver time, fuel and truck wear. A route with many accounts close together usually costs less per drop than one with a few far apart. Ask for route sheets and see how many stops each truck makes, how full it is and how often it goes back. Ask about refrigeration units, their upkeep and their power costs, since cold trucks and cooler rooms are costly to run.

Credit terms and slow payers

Food distributors often extend credit to restaurants, and restaurants can close suddenly. Ask for an aged list of what customers owe and see how much is overdue. Ask how bad debts were handled in past years and who decides to cut off an account. Ask how much of the profit depends on collecting from slow accounts.